Key things to know for kids ’n’ KiwiSaver

What parents need to know about KiwiSaver fees for under 18s

Some parents used to write to me outraged that their children were being charged $50 a year by their fund manager. They had started with $1000 and didn’t contribute for five years – so a quarter of their kids’ savings had been wiped out.

The issue with KiwiSaver for kids is the fees. KiwiSaver accounts make sense if there are regular contributions going in – from us, employers, the government, the investment returns. Kids typically only get one-off contributions from parents and grandparents, plus returns, so fees can quickly eat away the balances.

Various KiwiSaver providers have low fees for everyone (check our KiwiSaver fund finder to compare), and there are a handful of KiwiSaver providers who have addressed this for kids:

• Booster: waives fees for low-balance accounts.
• Fisher Funds: waives fees for low-balance accounts in its default fund. 
• PIE Funds: waives fees for members under 13. 
• Pathfinder: waives fees for those under 18 or with low-balance accounts. 
• Quaystreet: waives its administration fee for those under 18. 

The short of it is: if you’re going to have your kids in KiwiSaver, make sure you pick a fund in which their balance won’t be eaten away by fees. 

And, of course, it has to match your goals for investing that money. (More on that below.)

Have you ever heard of the marshmallow test?

It must be the most excruciating 15 minutes ever. To a child, participating in what’s popularly known as the ‘marshmallow test’ (it was also originally done with Oreos) must be like blowing against the wind – trying to take on human nature.

The Kiwi version of this test (with a nod to its originator Walter Mischel) would be to sit a child down and put a chocolate fish on a table in front of them. They’re allowed to have it straight away, but if they can wait for 15 minutes, they can have three of them instead.

You’d think it wouldn’t be that hard to score the three, and that most would choose to wait.

Delaying is tremendously difficult, so KiwiSaver helps

Kids in the original study didn’t last much more than a minute before they gobbled the Oreo. It did become easier to wait if they distracted themselves by thinking about something fun, or if the treat wasn’t placed in plain sight. Then the average became more like 11 minutes.

The curious thing, though, is that if you shift those 15 minutes of waiting further into the future, it’s much easier to make a better decision. If you asked a child right now whether tomorrow they would like one chocolate fish at 2pm or three at 2.15pm, they would much more readily choose the three slightly later tomorrow.

Getting kids into KiwiSaver is much like that – it can be about making good choices far into their future. If you wait and leave the decision to opt in or out until the moment they start earning, they might opt out and find lots of other short-term reasons to use that contribution money.

With kids, you can set up KiwiSaver way earlier, without present needs pulling at them. When they eventually start earning and contributing, their account is waiting ready to go.

Kids ’n’ KiwiSaver? It really needs to be about goals

There can be many benefits to having kids in KiwiSaver early. They can think about their futures or imagine where they might want to live someday. They can learn about investing, and how money isn’t just for spending – it’s for growing.

But like all investing, it needs to be driven by your goals for that money and the timeframe you’re investing for. KiwiSaver is typically restricted to retirement savings or a first home, so using it to save for education, for instance, won’t work.

So what’s the goal for that money? And how soon will they need it back?

If you do set up the kids with a KiwiSaver account, one thing they’ll need is an IRD number. Here’s how to apply.

By signing them up early, you prevent them facing the short-term dilemma when they start working of whether to join or just keep their contributions for more immediate things. 

Much like that marshmallow test.