Invest money for your kids as soon as they are born

Opening an investment account for your child will not only ensure they have a secure future but involving them in the process will help them understand money better.

This week is Money Smart Week SA, and dozens of stakeholders are in a collaborative effort to teach citizens about financial literacy. They will hold webinars, exhibitions and visit public places across the country to get a wider reach.

The focus is on all citizens to learn more about money, with financial institution Satrix senior client experience manager Thembeka Khumalo saying it is important for parents to start investing for their children as soon as they are born.

“An investment is an incredible gift to give a child, and it can be made even more special if they are included in the process from a young age. Understanding the investing landscape, and developing positive saving and investing habits early on, will set children up with strong financial foundations that will stand them in good stead for the rest of their lives,” says Khumalo.

“Money Smart Week 2023 is a great time to learn how. It’s one of the greatest gifts you can give your children, and our accounts are easy to open. Young people have time on their side. The earlier they start their investment journey, the more time they spend being in the market, harnessing the value of compounding growth. 

“Digital investment platforms like SatrixNOW make investing simpler and more accessible. You can invest any amount, and even small amounts can grow exponentially over the years.

“It’s beneficial to involve children in the investment process as soon as they’re old enough, as they can gain a sense of ownership over their portfolio from a young age. Consider empowering them to earn their investment contributions through household chores and kid-trepreneurial activities.

“Show them where their money is invested and take time to explain how things like exchange traded funds work. If they’re comfortable with the investment landscape at age 12, imagine how much market mastery they’ll possess as adults.”

Khumalo gives a breakdown of what you need to know when starting to invest for your children.

“The best time to start investing for a minor is as soon as they are born. Starting early helps to maximise overall returns and build a portfolio over time. Starting early also means you can afford to take on more risk with an investment portfolio. The benefit of time means the portfolio can weather short-term market fluctuations and move in an upward trajectory over the long term,” Khumalo says.

She says only parents and legal guardians can open investment accounts for minors. “But extended family or friends can fund the child’s account using a debit order authority form. The form can typically be found in the platform’s help centre or you can request it from the SatrixNOW client engagement team. The form needs to be signed by the bank account holder and parent or guardian and submitted along with a copy of their extended family member’s ID.

“When a minor turns 18 and has full contractual ability ( legally an adult), the investment account is transferred to them. A minor cannot make legal decisions on their investments until they are 18.

“The parent or legal guardian will act as an authorised user on the minor’s account. This is not to say that older children can’t be involved in the process. It is encouraged that you take your children along on the investment journey from as early as possible,” Khumalo says.

She says the Satrix access range is a great place to start as it offers access to the market in a diversified manner and at a low cost. “This range includes four of our flagship funds, catering to a range of investment horizons and risk appetites with both local and global exposure.”

She says, however, that there are tax implications. “If a parent makes an investment on behalf of a minor, all income, dividends and interest earned from the parent’s investment will be taxed.

“This applies to income received by minor children, stepchildren and adopted children. If any shares are sold and there is a capital gain, this amount must be included in the parents’ capital gains calculation.

“Another consideration is that an individual can donate up to R100,000 tax-free annually. Amounts over R100,000 will be subject to donations tax (current rate is 20%).

“A minor child’s investment does not form part of a parent or guardian’s estate. Should a parent or guardian pass away, the minor’s investment will not be subject to estate duty and other taxes” Khumalo says.

mashabas@sowetan.co.za