With two young kids (8 months and 3.5 years) I am by no means a parenting expert, but I have recently gone through the process of setting them up with identification and financial accounts, and thought that new parents may be able to take something away from my process.
Upon the birth of my child, the first thing I did was go to the smart start website . Here you can:
1/. Register your baby (Compulsory)
2/. Order a birth certificate (Optional – But necessary if you want to open investment or bank accounts for them). Cost is currently $33 for standard birth certificate.
3/. Request an IRD number (Optional – But necessary if you want to open investment or bank accounts for them).
4/. Apply for best start payments. These are payments that all parents who are NZ residents can receive until your baby turns one. Note that you can’t receive best start payments until your paid parental leave (if applicable) finishes. If you don’t receive paid parental leave, then your best start payments will start immediately. The payment is currently $60 a week for any child born after 1 July 2018. After the age of 1, this payment then becomes income tested.
How to register your child
The first 4 pages of the form are family personal details, such as the names, birthdates, address and occupation of the parents, as well as information on how many other kids.
The fifth page is completing the information required for best start payments. This includes answering some questions to confirm you are indeed eligible for these payments and whose account you want the payments made to, and at what frequency (weekly, fortnightly or lump sum). On this page you can also apply for your child’s IRD number.
The sixth page is setting up a my IR account if you want one, or don’t already have one. This is just an online login for your IRD details if you want to manage this online.
The seventh page is ordering a birth certificate. There are a few different designs you can choose from ranging from $33 to $35.
The final pages you can review all the details you entered and make payment for the birth certificate. All up it takes about 15 - 20 minutes if you have your personal details handy.
Within a week you should receive an email with your child’s IRD number, if you wanted one.
Within two weeks you should receive in the mail, a birth certificate for your child, if you ordered one.
What next?
What you do with the IRD number and birth certificate is up to you. All I can do is tell you what we did so you can come up with your own plan.
Upon receipt of the IRD number and birth certificate we now had the required identification to be able to set up our child with a KiwiSaver account and an investment account. You may or may not want to do the same.
A lot of people advise against investing in KiwiSaver for your child. There is good reason for this. There is no financial advantage of doing so in terms of benefits. There is no government or employer contributions until at least the age of 18. So many people argue that because there are no additional benefits, it is best to invest money into a non KiwiSaver account. One where it is not locked in until they are at retirement age which offers far more flexibility should your child need the money sooner.
Once your child is set up with KiwiSaver you can’t withdraw the money, unless there is an exception such as first home purchase (this can potentially change in future governments) or financial hardship. So think carefully before setting up and contributing towards a KiwiSaver account for your child. You need to be sure you are OK with the money being tied up to retirement age.
For me personally, this is the major benefit of KiwiSaver. Not being able to touch it. Most people are pretty undisciplined with money and even though we are going to do our best to raise financially savvy children, I like the fact that some of their savings won’t be able to be touched. I understand the power of compound interest and I think a lot of people miss this point. If we contribute $50 a month and a $1,000 kickstart to our kids KiwiSaver until the age of 18, then they will have $348,000 at age 65, even without another cent added after the age of 18. From a parental contribution of just $11,800 over 18 years. If they contribute just $4,000 a year for the next 30 years from their work income, then they will have $1.25 million. I have assumed lifetime returns of 6% per annum. It is amazingly high numbers from such comparatively small contributions. All the heavy work being done by compound interest.
There are several KiwiSaver providers that even provide fee free funds for kids, allowing your savings to go even further.
We went ahead with Juno growth fund due to low fees for children. They are an active manager and many active managers underperform passive funds because of fees, so we are happy to have a chance to outperform the market since management fees have been taken out of the equation. We realise the active approach carries risk, but we are OK with that. As they approach age 18 when fees increase, they can look at better, passive alternatives then. You can always change KiwiSaver providers as you see fit. Growth funds are the only option in my opinion at that age. They won’t be accessing KiwiSaver until at least their 20’s you would assume, if at all. We invest every month into this account.
Secondly, we opened an investment account with Superlife. This is different to KiwiSaver in that the money is not locked in. We use this account to invest in every month as well. Half of our monthly investment for the kids goes into this account and the other half to their KiwSaver account. Then they get a mix of flexibility and longevity. This is the account that offers flexibility, as they will have access to this Superlife fund once they turn age 21. When you open a kids account you can determine the age at which you would like to hand over access to them.
We liked Superlife because they have a wide range of funds to select from, are pretty low cost, and you can invest 100% in stocks. That aggressive allocation is important for me due to the length of time before they need the money we can be aggressive. Once they turn 13 I will consider reducing the allocation towards a bit more defence.
In this Superlife account we also add birthday and Christmas money into this account from ourselves, as well as other family members. We are keeping record of who provided what and will provide this as a 21st present from the whole family who contributed, when they are hopefully financially responsible enough to handle a lump sum.
Please note that these are not company recommendations. This is just who we have gone with and why. There are many other suitable providers for your personal situation.
Make sure to use your child’s PIR rate when setting up these accounts. They will be on the lowest tax rate since they aren’t earning much income, if any.
I don’t personally see much reason to set up a bank account at this stage of their lives, but that’s just me personally. At such a young age I think aggression in terms of high growth assets suit us best. This should provide the best opportunities to maximise returns. We will consider setting up bank accounts once they start earning some pocket money and developing savings goals.
So that is us. I hope that helps anyone about to have kids or who has recently had kids. Even if your kids are a bit older there is still some information you can take away and implement.
Always remember that your own financial security is more important than your kids. As harsh as that sounds, you are not a lot of help to your kids if you can’t take care of yourself first. So if you are going through a period of hard times then make sure you and the family are OK first, before funding their future. It is not something that has to be done. We are only doing it because we can thanks to the last 8 years of aggressive savings and having kids later in life. I was 37 when we had our first. This has helped immensely in our ability to provide a little something for them whilst still taking care of ourselves.
Thanks for stopping by.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here