It’s natural to want the best for the children and grandchildren in your life. They’re growing up in a world that’s changing fast, and in some ways it’s an uncertain future. Luckily, there are a number of ways you can set your kids up for a more secure financial future.

Many parents and grandparents want to put away some money for their children’s future but aren’t sure which account to choose. With so many factors to consider, from tax implications, returns earned and investment volatility, it can be hard to know where to start. At Student Super we’ve created Golden Goose Gifting, an easy way to gift small amounts to a child’s superannuation account.

Mike talks about his grandkids and Golden Goose Gifting

 

As a new grandparent Mike wanted to find a way to gift money that would make a meaningful difference to his grandchildren’s financial future.

So what are the pros and cons?

We’re all familiar with bank accounts – you can deposit money into them, withdraw funds easily, and they often earn interest. Bank accounts are considered a low risk type of investment, as the returns earned tend to be stable over time. However, bank accounts provide a low potential return, which means the amount you put into a bank account may not grow very quickly.

A super fund is a tax effective type of long-term investment. Like a bank account, you can transfer money into a super fund, however you can’t take it out until you meet a condition of release, such as retirement. The money you put in a super fund is pooled together with other super fund member’s money and is invested professionally by investment managers.

 

Bank accounts

✓ Money is easily accessible and can be withdrawn at any time.
✓ Considered to be a low risk investment type with reliable returns.
X Low potential for return, which means the money may only grow by a small amount over time.
X Your child will have access to the funds in a bank account when they turn 18, and may spend it all on items that are of little real value.
X If your child is under 16 and earns interest between $120-$420 p.a., they will be taxed at 47% if they do not provide their date of birth or TFN to the bank. If they want the tax refunded they’ll need to lodge a tax return.
X May need to go into a bank branch to open an account.

Super funds

✓ Takes advantage of long-term compound interest (giving their money many extra years of potential growth).
✓ Gives your childs super account a head start and help ensure financial stability later in life.
✓ Investment safeguards – super is highly protected in Australia and cannot be accessed until a condition of release is met.
✓ Professionally managed funds – Student Super members are invested in Macquarie funds or Westpac cash management accounts, depending on their balance.
✓ Tax benefits – super is a concessionally taxed investment method.
✓ Easy to open an account – with Student Super you can open an account online in less than 5 minutes.
X Money cannot be accessed until a condition of release is met, so you can’t withdraw the money at any time.
X Need a TFN to make personal contributions (transferring from a bank account into a super fund).

 

About Student Super

At Student Super, we offer three investment options for members with balances above $5,000; balanced, growth and high growth. The balanced option is the lowest risk, and provides the lowest potential for return. The High Growth and Growth options have a higher expected risk/return profile, which means the returns can be volatile, but generally have a greater potential for higher returns over time. It’s important to remember that super funds are a long term type of investment and that if you open a super account for a baby, their money could be invested for 65 years!

We hope this article helps you have a better understanding of the different ways to save for your children’s future. With a clearer idea of the advantages and disadvantages bank accounts and super funds offer for kids, you can help your kids and grandkids get set up for a more secure financial future.

Check out Student Super’s wealth generation feature Golden Goose Gifting. If you’d like to give your kids and grandkids a great head-start, consider the difference super could have on their long-term wealth.

This is general information only and does not take account of your individual investment objectives, financial situation or needs. Before acting on it, consider if the information is appropriate and whether you need to speak to an accredited professional.
You should also consider the Product Disclosure Statement before making any decision. This product is issued by Tidswell Financial Services Ltd (ABN 55 010 810 607, AFSL No. 237628, RSE L0000888) as trustee for Student Super Professional Super which is a sub-fund of the Tidswell Master Superannuation Plan (ABN 34 300 938 877, RSE R1004953). Student Super Professional Super Pty Ltd (ABN 31 617 160 791; AFSL No. 499786) is the Founder and Promoter of Student Super Professional Super which is marketed under two brands; Student Super and Professional Super.