I’m a new mum, and my gorgeous boy has recently hit six months old. Now that I’m settling into motherhood and can think further than when the next nap is, I’m already planning how to give him the best leg up financially that I can. I’m relatively good with my money now, but my financial upbringing wasn’t really anything more than saving some of my paycheque each week. What can I do in the coming months and years to ensure he’s financially healthy and set up for success?
Thanks so much,
Kia ora Nic, congratulations on becoming a mum. Those first six months are tough yakka; I’m pleased the fog is clearing, and you are starting to think and plan further ahead than the next nap. Honestly, any financial plan worth considering shouldn’t require much more time than an afternoon nap!
I love your question. It’s in our DNA to set up a bright future for our kids. Your upbringing lacked financial education, putting you in a perfect position to do things differently. I will suggest a few ideas for you to follow up on, Nic.
As your child moves from baby to toddler to school age and beyond, the amount of money needed also changes. Therefore, firstly, I’d encourage you to prepare for those costs.
Consider setting up a savings account with your bank, giving it a name (Gorgeous Boy?), and creating an ongoing transfer of $20 a week. It needs to be a small but manageable amount. As the years roll by, when your child needs a new car seat, clothes, school uniform, latest toy, school fees or computer, this is where the money comes from. There is no reason for these costs to come as a surprise; you can budget for them. The expenses will ebb and flow, but the account is constantly replenished.
But what about longer-term financial planning for your growing baby? Your child is likely to come up against the same costs as you once did, like money to hang out with friends, buy clothes, gadgets and experiences, leaving home costs (including tissues for Mum, who WILL be crying) and retiring in the far distant future. How can you get a few things rolling to get them started on these short, medium and long-term goals?
When it feels appropriate to you, start introducing the concept of earning pocket money and showing them that money comes from hard work. Pay your son using coins or online banking if it is easier. Either way, let them ‘feel’ the transaction by handling money or helping you move it to their own online bank account (my daughter loved ‘driving the computer mouse’).
Make them invest at least half of any money received. We don’t want to teach our kids to live pay to pay. They must always set something aside for their future, and learning that concept starts from their first payday. With the money in their bank account, they get to budget it and choose how it is spent and shared. They will feel the pain of running out from time to time and learn from that!
Next, what about buying a car, tertiary study, starting a business, traveling overseas, buying a house? Currently, these are all long-term investing goals. I suggest you research setting up another small weekly investment (starting now) of just $10 or so into one or two low fees, broad ETF, index or managed funds that buy the whole share market. Don’t try to pick stocks. Use one of the many low-fee investment platforms available. Set and forget your deposits, checking in just once a year. One day, when your little one starts to earn an income of their own, they can add half of that income to these funds. Together you can explore how this money might be used in the years to come.
Consider signing your son up for KiwiSaver now. Set up an automated voluntary contribution, perhaps just $10 a week. Look for a high-growth passive fund with low fees. Set it. Forget it. Your child won’t get any government contributions until the age of 18, but during that time, “Mum’s contributions” will enjoy 18 long years of exposure to the share market! Time in the market is the friend of all investors.
When they get their first part-time job, although an employer doesn’t have to contribute if the child is under 18, many do. Mum’s small yet steady deposits and future employer contributions will soon grow and compound. If your child does nothing more than invest a small percentage of every payment they ever receive, at the age of 65, they are going to be minted. Thanks for the head start, Mum!
Ask yourself what you wished you had been taught about money growing up that you have since worked out yourself. Pick your moments to educate and set about modeling those lessons and behaviors. This is your chance at a do-over, Nic! You get to choose whether your child leaves home fully equipped to make sound financial decisions, knowing they can seek your guidance at any time, or whether they have to spend the next 10-20 years trying to work it all out themselves as you did.
Talk about money openly in your home and make it a natural part of the conversation. You need to get comfortable with being open too, which is easier said than done if talking about money when you grew up was considered rude. Your kids are watching you, so model great behaviors with your own money, no stress or drama around how you handle it. This way, you will set an excellent example for your child.
From a young age, in an age-appropriate way, talk to them about their investments and let them be involved when you check in on them from time to time. Explain why you are doing it and let them see you invest your hard-earned money, and let them feel what it’s like to invest their own when that time comes. This way, your son will begin to feel a sense of ownership and will learn good habits, knowing that you will step back and they will take over one day. Having taken a big part in building their wealth, you can be sure they will make good future decisions.
Get your son involved with conversations and actions around money from a very young age. They won’t understand it for the longest time, but slowly, with constant exposure and buy-in from a young age, the knowledge grows. It will create a commitment to a process for both of you, which will create good money habits. Money’s not a ‘one and done’ conversation; it is one thousand little conversations had with your child at home over the next 18 years. Those conversations can begin today, Nic.
* Names have been changed to maintain privacy
Got a burning money question for Ruth? Send them through to [email protected]!
Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.