Teens and Kiwisaver

20th Dec 10, 11:42am by Diana Clement

by Diana Clement

Depending on how full your cup is, Kiwisaver for teenagers is an opportunity not to be missed, or a rip-off.

Kiwisaver a rip-off for teens?

Those who fall into the rip-off category concentrate on the downsides.

One such downside is that teens’ investments may be eroding away thanks to the impact of the Kiwisaver fund managers’ charges. Unlike adults, there is no annual fee subsidy for teens until they reach the age of 18.

The under 18s are also treated differently by the Kiwisaver rules in these ways:

• There is no government subsidy for their contributions, so their money isn’t doubling instantly as it does with adults
• They aren’t enrolled automatically in Kiwisaver when they start a part or full-time job
• Employers don’t have to contribute.

People who concentrate on the negatives often don’t trust of the government and the Inland Revenue Department (IRD). They also point out that Kiwisaver savings are inaccessible, which is true, but ironically one of the points of a retirement savings vehicles.

The upside.

It’s not all bad. More than 280,000 young people are signed up already. Some of the advantages of joining for teens are:

• They get a $1,000 kick start. That’s a king’s ransom for some young people
• They might catch the savings bug
• It teaches them the power of compound interest and helps give them an interest in saving and investment
• The first home deposit subsidy, which offers up to $5,000 (or $10,000 for a couple) for nothing, incentivises teens to save for their first home or apartment. This is more real than saving towards a retirement they can’t imagine
• Signing teens or children up gets them past the 12 month barrier, meaning they can take contributions holidays later
• That 18th birthday will come around fast, and with it, the annual member tax credit of $1,040 a year will kick in along with compulsory employer contributions.

What if the teens object?

Teens are fickle beasts and many will refuse to do something simply because the old farts (their parents) suggest it. So what does a parent do?

• Financial commentator Mary Holm says to sign them up anyway. Otherwise, I say, when they get over the hormone-induced nightmare years they might be mad with you for not snaring the $1,000 for them. There’s no guarantee the government will offer this juicy incentive forever.
• Another tip from Holm is that 2% of a part-time income isn’t much. If the teens refuse to contribute, parents can raise their allowance by a few dollars to cover the cost. Over time the teens might see the benefit and take the responsibility on themselves.

Retirement is closer than you think

Most teens can’t imagine reaching the grand old age of 30, let alone retirement age. Getting them into the long term savings habit bit by bit isn’t a bad thing. Too many Kiwis in their 40s or even 50s are staring down the barrel of living on government superannuation alone in their golden years.

Finally, like Aussies with their super funds, Kiwisavers should soon start to see their Kiwisaver funds grow to a tidy sum. This can be a real eye opener and turning point for young people, which helps get them on the investment straight and narrow.

Links

IRD: KiwiSaver: A guide for children and young people
http://www.ird.govt.nz/forms-guides/title/forms-k/ks33-guide-ks-child-young-people.html?id=righttabs

Dumb excuses for not joining Kiwisaver
https://www.interest.co.nz/opinion/dumb-excuses-not-joining-kiwisaver

Kiwisaver, should we or shouldn’t we
http://www.trademe.co.nz/Community/MessageBoard/Messages.aspx?id=467679&p=1&topic=5

Kiwisaver news from interest.co.nz
https://www.interest.co.nz/search/node/Kiwisaver

Many good reasons to become a KiwiSaver
http://www.stuff.co.nz/business/money/4328777/Many-good-reasons-to-become-a-KiwiSaver

Is Kiwisaver right for you?
http://www.kiwisaver.govt.nz/new/situation/ks-situation-index.html

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17 Comments

by laurence | 12th Jan 11, 11:06am 1294783579

Don’t do it, your kids will curse you in future. There is no exit from kiwisaver (Hotel California!) and the rules around contributions and payment holidays have and will change over your kids lifetime. There is no tax advantage in kiwisaver so participants are reliant on Government contributions for value. The government is already finding kiwisaver expensive and will have to cut this in a future budget. Inflation will erode the initial kickstart. Combine with poor investment returns and expensive fees from all providers and you are onto a looser. Be stupid and enrol yourself if you want but don’t foist this on your kids. There are far better ways of teaching them financial responsibility and independence than tying them to this bureaucratic millstone.

by Horace the Grump | 13th Jan 11, 2:15pm 1294881345

Of course there is an exit - its when the saver turns 65... which is rather the whole point of KiwiSaver... Then you get a lump sum handed to you tax free! And who doesn't want a big pile of tax free cash when they start their retirement???

There is more to it than that, but your simplistic and myopic commentary only deserves the same...

by laurence | 13th Jan 11, 3:29pm 1294885760

Correct Horace there are 2 exits, 65 and death. These may be good strategies for Michael Jackson but are they good for your kids investment? How much exactly will the $1000 kickstart and $1043pa be worth in 65 years time? Have you calculated the future value of your/kids KS fund and is this the ‘big pile of cash’ you hope for? Remember to use various inflation scenarios given the QE currently happening. There are good ranges available from NZ history for various periods.

If only KS plans were keeping up with compound interest, most are not when you exempt the above govt contributions(especially after the exorbitant fees from which again there is no escape even when on contributions holiday). Better to ignore the soon to be reduced/withdrawn government bribe and invest in areas with real return and asset value growth which do allow entry/exit other than 65 and death.

by Justice | 12th Jan 11, 12:01pm 1294786888

Yes, teach your kids with kiwisaver that it's ok to look for handouts to be encouraged to do what's right. Don't bother teaching individual responsibility or self reliance.

by Gavin Jones | 12th Jan 11, 1:44pm 1294793080

Compound Interest: I agree if only more people understood the power in this!

by Nicholas Arrand | 12th Jan 11, 1:50pm 1294793427

Best we teach them about the desturctive power of leverage in a falling market as well, Gavin!

10% fall in property with only 10% equity destroys... yes...100% of the investment.

by Gummy Bear Hero | 12th Jan 11, 6:40pm 1294810834

One can benefit from the magic of compound interest , without any leverage . I did , from 1985 to 1999 , and the returns ( ASX ) I achieved were incredible .............. No debt used at all . Just kept re-investing the dividends as they lobbed into me account .

My 'broker argued that most companies carry leverage on their balance sheet , so why double the risk by gearing up your portfolio on top of that . ...Smart guy .... Now operates his own brokerage house .

by Adrian | 12th Jan 11, 2:43pm 1294796605

"Unlike adults, there is no annual fee subsidy for teens until they reach the age of 18."

-Author keeping up with Kiwisaver much? The government axed the fee subsidy back in 2009.

by monteiths | 12th Jan 11, 5:52pm 1294807967

This is ridiculous. I enrolled my son in Kiwisaver as soon as he was born and I got his IRD number sorted? It's not the 1000 kickstart that was the prompt. It was to get him started saving. I can have his money and the contributions that I make put in for him. Locked up savings. High interest charges and blah blah blah. It's a start at savings that he can look at. That money has almost zero value, other than to encourage him to save for the long term. There are so many "I'm a financial genius" people on here that blart on about how bad Kiwisaver is because it's a govt initiative.
10 to one that money will be there when he's older and it's better than money lost in a bank. People moan about not saving and when there is a vehicle for it they moan.
Kiwisaver is about creating a savings fund over a long time. If my boys can put a little in for a long time starting now they will have something later regardless of little dips and deep blips.
Super Ann schemes are obviously all a rort and rubbish because a few nz's who have never had them know more than everywhere else and we should leave it to individuals in the free market because it's had SUCH a great track record.

I'm with Gareth Morgan, and I am happy with my high risk portfolios performance over these turbulent times.

People need to remember that for punters with very little free capital, any savings scheme is good. It's much better than putting $10 into smokes, piss or the warehouse.

by laurence | 13th Jan 11, 10:17am 1294867056

Monteiths, I fully agree with teaching kids the savings culture and prudent living. My parents taught me financial independence and I will pass it on. It is hugely advantageous to quality of life.

Kiwisaver is not the means to this. It’s returns are entirely dependant on Government policy which has and will change over the course of your kids life. Your kid is locked into the scheme, there is no exit ala Hotel California. If you enrol them they can never get out. Holidays are currently possible but that will change. Your kid will have no options should they seek other ways to build wealth i.e saving for own business, higher performing investments. Even the first home clause has so many hooks (low decile area, small %, shared purchase restrictions).

The Aussi super scheme has massive tax advantages and is a valued part of an investment portfolio. The NZ scheme has no advantages other than government kick-start and top-up and these will be reduced with budget cuts. Your kids contributions and the high fees/low performance will continue. And remember they will be locked in for the whole of their NZ working lives.

by Justice | 19th Jan 11, 10:50pm 1295430610

You FOOL! What were you thinking? If you knew anything at ALL about TAX you would know that NOT having an IRD number makes you untaxable! Your child could have worked his entire life time and not paid a single cent in income tax due too a little loophole that states IRD have no power over anyone who does not ask for an IRD number when entering the workforce for the first time! You have just signed your childs life away. The government has put in place serious fines that make employers abliged to make every new employee seek an IRD number to recieve their pay. Same with banks when you open an account. BUT.........here's the nitty gritty. If you fail to enslave your child too a bank account in their name and encourage them to be self employed then they can live their entire lives without this unconstitutional burden EVER!

You can even hand your IRD number back in writing and tell them you no longer require it. They cannot refuse this and from that day forward your free to earn from ALL the fruits of your labour!

http://www.investigatemagazine.com/june00tax.htm

by muzza | 12th Jan 11, 9:54pm 1294822455

Good one Monteiths, people need to develop a savings culture and the kids can accesss monies when time comes to buying a first home, so all good.

by muzza | 12th Jan 11, 9:58pm 1294822708

Just noticed how stupid Reader's poll can be as 59% voted for a recession, whereas any logic would have be with ' It's too close to call, we might just grow a bit, but not much"

by Gummy Bear Hero | 12th Jan 11, 10:21pm 1294824068

I know , I voted about 63 times to tell the Hickster to stop being a gloomsterisationalysing prat ............ all to no avail . The prats won . ....

.... Yet there is no recession , so I have a smug gummy feeling of " told yer so " .

NZ is growing , muzza , in spite of government , not because of it .

Somehow , despite the best ( worst ? ) attempts by successive governments in NZ to totally root the private sector , the will and the power of capitalism keeps rising , and protects the NZ-Debtanic from hitting the icey rocks of default .

....... But another 9 years 'like Clark/Cullen/&Simpson gave us ........ and she'll be " Game Over " old chum .

by Malarkey | 19th Jan 11, 4:02pm 1295406128

"Yet there is no recession..."

"There are no sheep on our farms..."

by Wolly | 13th Jan 11, 10:47am 1294868866

"...the BCF will be able use taxpayer subsidised funds to provide cheap capital to its businesses and easy home loans to fellow Brethren."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10699403

by Horace the Grump | 13th Jan 11, 2:20pm 1294881631

And the problem with that is exactly what? if that's how they want to invest their money then that is their problem - there are loads of KiwiSaver schemes to choose from... if these nutbars want to go down this path then good luck to them.

I wouldn't touch this investment strategy with a barge pole - related party lending, transactions and all that, but other 'holier than thou' people seem to have no problem with it...

And don't worry about them reading this - they aren't allow to use computers or the internet...