Money & Investments for grandchildren
If buying lots of ‘stuff’ is not your thing but you would really like to contribute to the future lives of your grandchildren, below are a few ideas.
Bank accounts
Simple and flexible, the most common savings vehicle works ok when interest rates on deposits are high, but they won’t always be. Downside is the impact of inflation and tax over the longer term. Setting up a savings account in their name (or getting the parents to) and arranging a regular direct deposit (a few dollars will add up to providing funds for a car, travel or even a home in the future). For example, a dollar a day (or $30/month) from birth at 5% compound interest might give them a great nest egg of over $11,000 for their 18 birthday or over $14,000 for their 21st. Even better at higher interest rates.
Investment bonds
These suit regular contributions over time, and are tax paid at the end of 10 years. You choose the underlying investments and the child can watch their nest egg grow and learn about compounding interest! Negatives are inflexibility, penalties for early redemption and inbuilt fees and management costs.
Direct shares or managed funds
Shares or funds cannot be held in a minor’s name, so the owner will pay tax at their marginal tax rate. A sensible selection of growth stocks can be bought cheaply via an online broker and held until needed. You can also consider managed or exchange traded funds for diversification. Funds have inbuilt management fees. Capital gains tax will be payable on sale or transfer to the child.
Education funds
Various providers offer these funds where withdrawals are tax free provided the money is for educational purposes. However they are inflexible and often hefty fees apply.
Saving through mortgages
If you have any debt and can be disciplined enough not to use the money set aside for anything else, then why not give yourself a guaranteed return the same as your mortgage interest rate? Your mortgage must allow for redraw, or ideally use a banking structure that allows for multiple savings accounts all offsetting any debt.
Superannuation
If you are old enough to access super, or will be when the money will be needed, this is a very tax effective savings vehicle. Beware of Centrelink gifting rules which can affect your age pension (if you are receiving one).
Trusts
Many investors opt to hold investments in a discretionary family trust, to choose who receives the income and for asset protection. All the income must be distributed each year, and tax will be paid at the beneficiary’s marginal rate.
This overview is general in nature and may not suit your specific circumstances. Please seek the advice of a qualified professional. Good luck!
You can achieve this in a variety of ways from talking to them about how to spend wisely or save for special things or contribute to a longer term savings plan for their future – from musical lessons to instruments to school fees, or a car or deposit on their first home. Helping grandchildren understand that money allows for the exchange of goods and services rather than just believing it comes out of the hole in the wall down the shops (ATM) is probably the best gift you can ever give them.
Collectables
This is an interesting area and fraught with traps. Collecting can be a great hobby but not necessarily going to provide you or your beneficiaries with a return equal to or greater than the money you invested. You might already have a collection of vinyl records that, surprisingly, is now worth lots more than you could have imagined. However, unless you are skilled (or lucky) collectables might just constitute a wonderful heirloom or set of memorabilia for your grandchildren. For more information visit sites such as
http://www.antiquesplus.com.au/ – great site for unique gifts too!
http://collectables.shop.ebay.com.au/
http://www.bestcollectables.com.au/index.html
There are also sites specialising specific collectables – everything from Barbie Dolls to Baseball Cards.
Help kids learn about money
To help them learnabout the value of money, the importance of saving and spending wisely, theCommonwealth Bank has developed as interactive game for 5 to 10 year olds – ‘Coinland’ – www.coinland.com.au.
The game is free but requires registration.
