Financial Planning for New Parents - How to Set up Children for Success etc

ErlichBachman on 18/02/2021 - 09:57
Last edited 25/02/2021 - 10:53

Gday Oz Bargainers

My partner and I are parents to a 1 year old. We currently have some money sitting in a savings account earning market leading interest, but still stuff all. We contribute automatically $25 a week to it too which is just out of site out of mind

My partner has always been a good saver and is more risk averse than me (though is obviously well intentioned) whereas I am more prone to taking long term educated risks as i believe having it in savings in such a low interest rate environment is just losing money, but i also don't want to be doing anything silly either. However I know that our son has the benefit of time on his side, and if we were to put say $10k into a low cost index fund or something along those lines now and then just have it out of sight out of mind until his 18th birthday for example, chances are high that he would be significantly better off than if we just had money going into a bank account. It bothers me that we are currently missing out on this opportunity for him and there is opportunity cost for him. If we had something like that for him that I knew was in the background working away for him passively, it wouldn't bother me that we continued putting money into a savings account for him as I see a benefit in both, and I think it would be a good compromise as both of our perspectives are fair. Some in higher risk and some in lower risk (cash - even though it will be losing money with inflation, is still going to be worth something and if it makes her happy then it's a good compromise).

I would like us to go and speak with a financial planner or something who can educate both of us better on the different options, ideally without charging us an arm and a leg. I know that if she was more educated on the subject by an expert then she would be more confident in using a part of our own savings to put into what she sees as higher risk (shares of any sort, even though history shows greatest returns etc). Does anyone know of any good financial planners around Sydney that ideally specialise in new parents / families and how to set up their kids for success?

I have also read the barefoot investor and am halfway through the barefoot investor for families audio book.

Thanks in advance

Financial

Comments

  • isthatallyougot on 18/02/2021 - 10:16
    +3

    I put 100 bucks a week into this for my two kids . Its just set and forget. You also need to bear in mind that you cant really invest in your kids name so the accounts need to be in your name as you will bear the tax liability.

    https://www.stockspot.com.au/investingforkids/

    https://www.abc.net.au/everyday/how-to-invest-money-for-your…

  • tio on 18/02/2021 - 10:19
    +1

    My only advice is look into a family trust and see if it fits your game plan.

    • freefall101 on 18/02/2021 - 12:53
      +3

      From my experience (15 years ago I was a tax accountant setting up complex tax plans), generally not worth it unless you're earning $500k+ a year and can funnel your actual income into the trust (i.e. ownership in a business). Discretionary trusts have to pay out the benefits each year, so until the kids are 18 the parents get the interest anyway (it can help with income splitting, but that doesn't do much if both parents are working).

      Let's be really optimistic and say a $10k investment into a fund sees annually 3% capital growth and 5% dividends a year (reinvested back in). 10k now is worth 37k at year 18, but of that 27k growth 17k of that is dividends that have already been taxed in the hands of the parents.

      That leaves a 10k capital gain, $5k taxable, at a 37% tax rate that's $1,850 to pay out in capital gains tax, 18 years from now, if they dispose of it or transfer it all to the kids' name. Whereas paying to setup a discretionary trust will probably cost more than that alone, definitely more than $100 a year to manage it and get the distributions calculated and such.

      • tio on 22/02/2021 - 10:12
        +1

        Hence my advice of "looking into it". It's not a one size fit all, but in my view, it is a very good and very flexible starting point. Depending on the income level, you can always get a PTY involved if a delayed distribution is preferable.

  • 87percent on 18/02/2021 - 10:26
    +3

    put $20 a week or whatever into bitcoin (or ETH), and then just leave it

    • dylanando on 18/02/2021 - 10:38
      +1

      This, you'd really be setting your kids up.

      • isthatallyougot on 18/02/2021 - 11:10
        +1

        oh yes that would be really great as well

      • [Deactivated] on 18/02/2021 - 20:24
        +1

        you'd really be setting your kids up

        For a fall?

        • dylanando on 18/02/2021 - 20:29
          +1

          if you're into that, sure.

  • Archi on 18/02/2021 - 10:27
    +2

    if a long term savings goal is what you want… look at what the end result you would like to have and work backwards

    $100 per week is about $94K after 18 years

    my partner and i have a house we live in with the kids.. we both have an investment property each which is negative geared.

    they have a savings account that the grand parents kick in $20 a week for school banking.

    they get the investment property when they are ready.

    my kids are 7 and 5 so a long way to go

    • signups on 24/02/2021 - 15:05
      +1

      I am trying to understand the whole negative gearing properties, etc. How did you find about the areas where you can potentially get them?
      And any suggestion on good savings account?

      • Archi on 24/02/2021 - 15:20
        +1

        cant offer much advice about negative gearing apart from ensuring you can afford repayments on an extra loan should you property suddenly become vacant.

        negative gearing is claiming the short fall of interest, expenses of an investment property against your taxable personal income.

        go see an accountant that can explain to you the details of negative gearing and whether your financial situation can benefit from it.

        savings accounts are pretty nominal. any will do the ones my kids have are just savings account set up by the school from commonwealth bank. its just there for them to practice saving money and set savings goals. also somewhere to put their birthday money and any extra gran and pop want to give them.

  • trustnoone on 18/02/2021 - 10:27
    +2

    Not sure if helpful but for me, the only thing I wanted was $15k from my parents when I need to purchase my first place. Until then I didn't need any money (assuming Aus citizen), left home at 17 no probs, parents wern't exactly rich so was lucky to get centrelink support through uni, then a job after.

    The issue is with a job you can live week to week fine, but to purchase a place you need a deposit, some of which your child can save but it takes a long time and you're always chasing increasing costs. $15k right then minimum with their savings means your kid could buy one, and start putting money towards it.

    Now this is what works for me, so I don't know if its different for you, all I'm trying to say, is that its not the money at 18 years old that I needed. Its the money in my 20s that meant I could get that little leg up to start investing in "something" or purchasing "something" that goes up in value that will hopefully give me that little leg up.

    Then again I don't live with parents so they may not need that money at the same age I did. I guess I was just thinking of a sort of goal/use that the money will go towards to put them on a good path.

  • sevendollarsfifty on 18/02/2021 - 10:33
    +1

    I'm not a financial advisor and previous returns don't predict future returns… but….

    You're correct. If you're certain you don't need to touch the money for this many years then you'd be much better off putting it into a low cost, moderately aggressive index fund. It's enough time for the market to correct any destabilisation. You don't need a financial advisor for this. Vanguard is known for this. Personally I am in VDHG.AU (VANGUARD DIVERSIFIED HIGH GROWTH INDEX ETF VANGUARD DIVERSIFIED HIGH GROWTH IND)

    Though I have a feeling you already know this and that it's your wife that needs the convincing. Maybe you need to subtly convince her to read some finance books as well.

    • brad1-8tsi on 18/02/2021 - 11:35
      +3

      VDHG was what came to my mind first.
      More diversification than having money in the bank.

      Vanguard Australian Shares Index Fund (Wholesale) 36.20%
      Vanguard International Shares Index Fund (Wholesale) 26.50%
      Vanguard International Shares Index Fund (Hedged) - AUD Class (Wholesale) 15.90%
      Vanguard Global Aggregate Bond Index Fund (Hedged) 7.10%
      Vanguard International Small Companies Index Fund (Wholesale) 6.40%
      Vanguard Emerging Markets Shares Index Fund (Wholesale) 4.90%
      Vanguard Australian Fixed Interest Index Fund (Wholesale) 3.00%
      Total 100.00%

      To the OP:
      I've been investing in shares since the mid-80s. I've been through 2 major crashes and several minor ones. I really regret selling out when I thought the world was coming to an end (and my risk averse partner at the time encouraged me to sell) and I'm I'm grateful that there were some shares that I held onto as the long term holds have (mostly) been very good to me.
      My portfolio is about 30% in profit plus all the (almost tax free) dividends paid over the years. At the moment dividends make up 25% of my after tax income and I get a 6.5% ROI after franking credits (this is not an amazing result).
      eg:
      Crap
      Gowing Bros investments - gone backwards by 50% but a consistent dividend payer and their focus on regional development should pay off in the next few years (or not).
      Platinum Asset Mgmt - gone backwards 50% and highly volatile but some amazing dividends over the years. I doubt they will come good as the founder has been reducing his stake.

      Great
      Brickworks $13 2008, now $19.
      ComBank $29 2003, now $82
      Cochlear $55 2007, now $200
      Flight Centre - crazy volatile but I've made good money buying as low as $4.55 2009/selling $50. On the holding I still have I'm 80% in profit.
      Harvey Norman - $2.60 2002, now $5.70
      Macquarie Group $55 2008, now $145
      WAM Research 90c 2005, now $1.60
      Westpac $17 2004, now $24
      Wesfarmers $28.30 2004, now $53.40

      Invest conservatively and you'll do better than a bank account long term with slightly higher risk.

      • netjock on 18/02/2021 - 11:56
        +1

        Betashares Global Quality Leaders ETF (QLTY)

        QLTY aims to track an index (before fees and expenses) that comprises 150 global companies (ex-Australia) ranked by highest quality score.

        For those who are worried they might run out of their COVID19 stash of toilet paper if the market tanks.

  • mtr on 18/02/2021 - 10:36
    +4

    Hi mate, so can't help in terms of financial planner recommendations, but I was in a very similar situation to you a year ago in terms of partner's attitude towards shares and risk profile etc as well as 1 year old at the time. Here's what I found helped us get to a place where both of us were comfortable:
    - I realised that part of the concern that my partner had with shares was a vague concept that they could just "crash" and we'd be left with nothing. So rather than showing average growth etc, I found it was useful to look together at the worst crashes in the last 20+ years. This helped make the downside more concrete (i.e. 10K -> 7K didn't seem quite as scary as a vague concept of a crash).
    - Target an index fund that has an ethical stance that aligns with your partner's views. E.g. BetaShare ETHI or any of the other similar products. It helped my partner to know that we were investing in something rather than just "gambling" with money.
    - See if you can convert some of your current spending into investment. E.g. if you currently have a coffee every morning, cut the coffee and instead invest that (use an app like Raiz or Spaceship Voyager or similar for this). It's unlikely you partner will have a problem with you switching consumption to investment. Once they can see this is going OK it's easier to then put more in.

    None of that might apply, but given I was in a really similar spot thought I'd share!

  • ErlichBachman on 18/02/2021 - 10:49
    +2

    Wow I didn't expect so many brilliant posts here so quickly- thank you very much everyone

  • dust on 18/02/2021 - 11:34
    +3

    No need to speak to financial planner for this, every dollar you pay them is a dollar you could be saving for your kids!

  • Seraphin7 on 18/02/2021 - 11:38
    +1

    However I know that our son has the benefit of time on his side, and if we were to put say $10k into a low cost index fund or something along those lines now and then just have it out of sight out of mind until his 18th birthday for example, chances are high that he would be significantly better off than if we just had money going into a bank account.

    You could spend days, weeks, months, years discussing these options, but to cut to the chase the above (or some derivation of it) is exactly what you should be doing IMO with the one variation being to keep with $100 a week, rather than plonking down a single amount of cash.

    • netjock on 18/02/2021 - 11:53
      +1

      Just wait until that other guy starts brining his lump sum vs DCA argument here.

  • netjock on 18/02/2021 - 11:50
    +1

    If you want to buy index with $1k. Probably cheapest way is. Open a trust account on commsec then link it to commsec pocket, then buy $1k and pay $2. You only have limited index options.

    Link on Commsec how to

    Commsec pocket

    Each ETF provider charges a management fee for providing the ETF to investors. The fee ranges from 0.09% to 0.67% of your investment per year depending on the ETF. It’s not an out-of-pocket fee. Rather, it’s deducted from the ETF’s unit price. The fee is shown when you browse the investments. The fee is charged by the ETF provider, not by CommSec.

  • morse on 18/02/2021 - 12:16
    +1

    We don’t invest specifically for our kid. We just have our investments and then we’ll support him as he grows up. Pay for study, help out a house deposit when he’s older presuming we can afford it at the time.

  • tsunamisurfer on 18/02/2021 - 12:30
    +1

    The first 2 things that I would do :

    1) Teach your kids about the value of money. Money fundamentals. Financial acumen and financial responsibility will be the best financial gift you can bestow on your kids. Without that, you could give them a $1m future value index fund account when they are 21 years old and they will still misuse that money.

    2) Be debt free, paying off all your debts I believe makes as much sense as you can be debt free earlier if you put that money towards debt, then when debt free begin the process of building wealth.

    My next goals.

    Accumulate at 1 piece of real estate for each child fully paid off by the time they move out.

    • [Deactivated] on 18/02/2021 - 20:28
      +1

      Accumulate 1 piece of real estate for each child fully paid off by the time they move out.

      I used to think this was a worthy goal. Then Covid hit and homes became stupidly more expensive in the middle of a recession.

      Now money is topsy turvy and the rules constantly change I've got absolutely no idea what will pump and what will dump in any of the next 5 years.

  • Tiredman on 18/02/2021 - 13:11
    +3

    I got Bitcoin for my two kids last year. When they are 18 which is 15 years from now. They should hopefully be set up nicely. Will teach them importance of personal financial management along the way. Ridiculous how bad a lot of people are with money in Australia.

    Don't spend anywhere close to what you make and don't buy things you don't need. If i can't afford to buy alot of a particular item without blinking (besides properties obviously), i probably won't buy it. If i have to save for months and weeks for a Bali trip, an iphone, a car deposit, it's probably a bad idea. Unless of course you can generate more income with these items.

  • The-Kremlin on 18/02/2021 - 14:20
    +1

    It's good you're reading barefoot investor however you need your wife onboard as well. No point you getting educated while she doesn't…if this is important to her as well she would be motivated to educate herself too.

    Otherwise, you will become more and more frustrated as the more you discover about what you could be doing financially to set your family up for wealth compared to what you are doing now (which is pretty much nothing), you will become more unhappy…you both need to be onboard.

    • ErlichBachman on 18/02/2021 - 20:52
      +1

      Thanks yes I definitely agree on this point and am trying to educate myself more before bringing up the conversation

  • [Deactivated] on 18/02/2021 - 14:46
    +2

    Where are the let them make their own way answers, instead of handing it to them on a platter lol.

  • ErlichBachman on 19/02/2021 - 09:09

    Just wanted to say thank you so much everyone for all of your replies

  • whooah1979 on 19/02/2021 - 09:27
    +1

    earning market leading interest,

    That is doubtful unless it is +8% APY.

    • Some Guy on 24/02/2021 - 12:40
      +1

      But APY is not a savings account though, is it?

  • Terbo on 20/02/2021 - 23:26
    +1

    Read up on investment bonds, no need to get an education specific one at the $ level you are thinking, just put in lower margin tax rate parent name. Make regular contributions, get relatives too as well, rather than too many crappy toys. Generation Life and Australian Unity have good products, index fund options, tax paid/credits, can continue beyond 10 years, check pricing for options.

  • Some Guy on 24/02/2021 - 12:38
    +1

    I specifically asked this question to a financial adviser not long after my first was born and they said "As you don't own your PPoR outright, put the money into your mortgage, then come back to me when that's paid off".

    You can always help them financially for purchases you approve of when they reach those stages in life.

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