Many parents and grandparents set up bank accounts and other investments for children. Investing for their futures is very worthwhile.

One approach is to enable the parents to meet the costs of children in teenage years. Kids are relatively cheap to raise when small but become expensive as they grow if parents want to give them the best possible start in life.

The much greater costs during teenage years could include private school fees, advanced tutoring, high-level participation in sport or music, or other areas of achievement and skills development. Some children have disabilities and special needs. Extra money can make a big difference. 

Parents wanting to ensure they can meet the extra costs should start a savings plan early, perhaps initially at the bank, but then using professionally managed funds. Funds invest in shares and property in Australia and overseas for higher returns long term.

Managed fund accounts can be opened with a larger sum, or as little as $2,000. Regular contributions can be added from $100 per month. They make a very big difference long term.

For example $5,000 invested earning eight per cent per annum grows to about $11,000 over ten years or $16,500 over 15 years. If $200 is added every month, the ten year figure will be $47,600 and the 15 year number $85,700. That amazing growth is due to the power of compounding interest.

Another approach is to accumulate savings for a purchase long-term by a child, such as a car, or house deposit. Houses in Australia are expensive. The shortage is unlikely to be resolved any time soon. Putting the child in a position to buy a home would provide a major head start.

For example, the savings plan with a $5,000 start and $200 per month for twenty years would yield $142,000 towards a home. 

If the investment plan is in the parents’ or grandparents’ names, using their address, the child probably won’t know about it.

If the adult invests as trustee for the child using the child’s address, they will receive the communications about it. They can learn about investing and the free enterprise system that gives us our wealth and living standards. 

If shares are purchased rather than managed funds the child can learn what the company they have shares in does, and how it makes profits. Suitable companies could include Commonwealth Bank, Macquarie Group, Wesfarmers, BHP, Rio Tinto or Lynas Corporation.  

Unfortunately the Tax Office provides little concession when investing for children, until age 18, but paying a little extra tax is an acceptable price to pay for the benefit provided to the child.