Sleepwalking into financial wellbeing time bomb?

We have a generation of kids right now who are the first to grow up with KiwiSaver.

Those who are signed up early will be at a distinct advantage, both when it comes to buying their first home and then for preparing for life after 65.

However, while some parents have the financial means and the understanding to sign their children up to KiwiSaver, lots of kids - for various reasons - are not enrolled in KiwiSaver or contributing.

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I fear that when they reach their thirties, there will be a disconnect between those who have been contributing to KiwiSaver and those who haven’t.

I fear we are sleepwalking into a financial wellbeing time bomb. So how can we incentivise our young investors?

We crunched some numbers, which should grab any young person’s attention.

If a 5-year-old contributes $5 a week to a High Growth/Aggressive fund until they are 18, they could save almost $5,000¹, in today’s dollars.

At 18, if they start work on the adult minimum wage,² and remain in a high growth fund, that sum could grow to just over $105,000 by the time they turn 34. (This is the average age of ANZ Investments’ members when they make a first home withdrawal)³.

That is why I am passionate about encouraging young people to enrol in KiwiSaver and to start contributing - no matter how small the amount.

The longer you can invest in something like KiwiSaver, the more your returns will compound and grow.

ANZ Investments is the country’s largest KiwiSaver provider, and we have almost 50,000 members under the age of 18.

Of these, 20 per cent contributed to their KiwiSaver in the past two months. Almost eight per cent made an employee contribution, while just over 12 per cent made a voluntary contribution.

That’s encouraging, especially when you consider that KiwiSaver members aged under 18 don’t receive a matching Government contribution, and – for those that are working - their employer isn’t obligated to pay a contribution.

But we need to do more if we want to supercharge our kids’ financial futures.

That’s why I’d like to see the Government consider how we can incentivise our younger investors – for example, looking to introduce a matching contribution for those aged under 18.

It would be massive for youngsters who start out with small balances to see their contributions potentially double at the end of each year, with the Government adding up to $521 to their KiwiSaver.

It would create a virtuous circle – giving kids a chance to see some early gains, encouraging more parents to sign their kids up, and helping build some good saving and investing habits.

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I signed my twins up when they were four. They are now sixteen. It’s been incredibly powerful to be able to start talking with them about concepts like what’s a share, what’s a dividend and what is compound interest.

I started out by explaining how a share is a slice of a company. Your KiwiSaver fund owns tiny pieces of companies like Apple, Disney, or Netflix.

In this way, I think engaging with KiwiSaver at a young age can be a very powerful way to teaching children about money.

When the monthly statements arrive it’s a great excuse to sit your kids down and say “hey, this is how much your KiwiSaver has made. How much did you have to work for those returns?” And the answer is “oh my goodness, I didn’t have to do anything.”

I appreciate there are a lot of pressures on the Government’s finances right now - just like the household finances - so, I’m not expecting any rapid decisions.

But I think we do need to start a serious conversation about how we can support all our younger people, help get more of them into KiwiSaver, and make sure we do all we can to build their financial literacy and ensure the financial wellbeing of the next generation.

¹ Using Sorted’s savings calculator we used the aggressive projection assumptions to provide the 5.5% interest rate. All assumptions detailed: https://sorted.org.nz/tools/savings-calculator/

² https://www.employment.govt.nz/pay-and-hours/pay-and-wages/minimum-wage/minimum-wage-rates-and-types

³ Using Sorted’s KiwiSaver calculator for purchasing a first home. All assumptions detailed: https://sorted.org.nz/tools/kiwisaver-calculator/

Important information:

This article is for information only. ANZ Bank New Zealand Limited’s financial advice provider disclosure is available at anz.co.nz/fapdisclosure.