Ensuring a strong financial future for my children is a priority for me. I believe that teaching them the value of money, saving, and investing from a young age will set them up for success in their adult lives.
My goal is to teach them the basics of investing to earn passive income so that they always have the option to work and are able to focus on what they love and want.
Inspired by the strategies outlined in the Barefoot Investor for Families Book by Scott Pape, I have implemented two key financial setups for my kids investment bonds and shares. These strategies are designed to provide them with financial security and instil a sense of responsibility and financial literacy.
Disclaimer: This is not financial advice. I am simply sharing what I am doing for my kids’ financial setup.
#1 Investment Bonds
About 7-8 years ago, I set up Australian Unity Investment Bonds for both Chloe and Jake with the money they received as babies. I continue to add to the bonds every month using automatic direct debit savings. I review the accounts annually, and it’s gratifying to see how the money continues to grow steadily over time.
Investment bonds have annual contribution limits and are designed for long-term investments (10 years or more) to maximise their benefits, which aligns perfectly with our goals. What I love about this setup is that my kids are unaware of these bonds. One day, it will be a wonderful surprise for them when I decide they are ready and responsible enough to handle it, perhaps to buy a property. Be sure to seek appropriate advice to determine if investment bonds are suitable for your situation.
#2 Shares
Share investing is something my kids are actively involved in. They contribute their own money from various sources, such as gifts, selling unwanted items, jobs, and allowances. Once their savings exceed $1,000, I purchase shares for them.
My kids have a set % amount they need to contribute into these accounts however putting more is completely up to them. I do attempt to encourage them to contribute more as opposed to spending on “Doodads” items that go down in value as Robert Kiyosaki calls them in his Rich Dad Poor Dad Book. However they are kids and they like gadgets and things.
I have invested in the Vanguard Australian Shares (VAS) Index ETF for them, which is well-diversified and has been performing well for us. This is another long-term investment that we do not touch or closely monitor. One of the things I personally appreciate about shares is that they generate income through dividends and, over the long term, tend to increase in value above inflation.
To facilitate the share purchase, I opened a Minor Trust Account with CommSec. A Minor Trust is an informal trust, which allows investments to be held ‘on behalf’ or ‘in trust’ for a beneficiary (someone else). Each of my children have their own account. Once they turn 18, these shares will be transferred out of the Minor Trust Account and into an account in there own name using an Off-Market Transfer,
For any investment decision do consult with your financial advisor to ensure it meets your needs as there are risks and implications. Such as with the shares I pay the tax personally, this works for me as I view the tax I pay as my investment in their future. CommSec’s guide on investing for your kids is a great resource for further information.
We refer to the kids’ share account as their “golden goose.” The golden goose produces golden eggs (dividends), and as long as it is alive, it will continue to produce these eggs. If they “kill the golden goose” (sell off the shares), then the goose dies, they won’t get any more eggs.
The kids are currently reinvesting their dividends to buy more shares, which helps their investments grow. However, they do have the option to spend the dividends on whatever they choose if they prefer.
Here is a basic table we share with the kids to illustrate the dividend income they would receive with a 5% annual return for various investment amounts. This helps explain the principles of investing to them:
| Invested Amount | Yearly Dividend Amount (5% return) |
|---|---|
| $1,000 | $50 |
| $2,500 | $125 |
| $5,000 | $250 |
| $10,000 | $500 |
| $25,000 | $1,250 |
| $50,000 | $2,500 |
| $100,000 | $5,000 |
| $500,000 | $25,000 |
| $1,000,000 | $50,000 |
The great thing about the table is that the kids can see the more they have invested, the more they will receive in dividends each year.
We also enjoy discussing the fun purchases they can make with their investment earnings. Right now, they’re thinking about items like Mecca Cosmetics and soccer cards. However, in the future, these investments will help them achieve more significant goals.
Currently, my kids each have over $3,000 invested in shares, which generates over $150 in income yearly for them to spend as they wish. For 8 and 9-year-olds, this is quite a generous amount.
I’ll be writing another article on how our kids divide their money to save effectively. I believe it’s important for kids to have funds allocated for splurging, giving to charity, saving, and investing.
I’m planning to adopt a similar approach for my fashion spending. Each month, I will save money and invest it in an index fund. The dividends from this investment will be used to purchase designer items I’ve dreamt of (note: this is separate from my other investment strategies).
I hope you found this overview of my kids’ financial setup helpful and insightful. These strategies have been carefully chosen to provide long-term benefits and instil financial literacy in my children.
If you have any questions or would like further information on any aspect of what I have done with this setup, please feel free to leave a comment below or contact me directly via the form here. I’m happy to share more details and discuss these methods further.
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