Investing For Kids

Order Kerni Whoalbury and a waddery woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on a wondery country, acknowledging the elders, the ancestors and the next generation coming through as this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow.

that's so true. Well I think, well, I don't even want unsolicited parenting advice, let alone from someone who's never been a parent. I'm like beck having a social media following. It's not even that big. People just slide into jams and they're like, by the way, you have to expise it, like get in the bin. But I'm assuming if you've clicked on this episode, you have come for solicited device

on how to invest for kids. And I guess it's not going to come as a surprise that it is the front and center of my mind with I guess Mini Divine now in the household and there is just, honestly one so much to get used to as a new parent, and it's very beautiful, but it's a very overwhelming time. But I also love this idea that I'm putting my child first and I am, you know, putting

them in the best possible position. And that's been one of my biggest questions, like are you investing for your baby? What is going on? V So I think it's a good time to have this chat, my friend.

your money can make you more money. Do you want that? Yeah, you're not going to say no. Why would you say no? So compatit interest is my favorite thing in the entire world. Okay, so let's get into investing for kids. You are correct, we should dive straight into talking about investing for kids. So the first thing I want to talk about is

teaching your kids about money and not jumping straight in. Right. So, I think that there's this very big misconception that feels really overwhelming when it comes to having children, where you go, well, if I'm teaching my kids about money, do I have to share what we earn and what we spend and what we own and what we owe. What does this look like? How will it pan out? And the reality of the situation is no, Like, you can teach your kids about money with very small amounts and it's not

just very small amounts. That's actually going to be more constructive for them, right, Like I want you to be able to teach your kid what the value of their favorite box of cereal is. How much money is that? What just dinner cost on average? You know, it depends on how old your kid is. Often they start to really conceptualize money. Research tells us this not Victoria divine at the age of seven, so they really start going, oh,

you can trade money for goods and services. Wow. Before that, they do understand it, but they don't see it as a thing that can be earned and spent. Before that, they go, oh, Mum and Dad tap their card and that's the transaction. Right Like you ask any four a five year old for a coffee at their fake cafe,

they're going to be like, that's fifty dollars. Like I remember vividly my Niecks and nephew had just gotten a cubby house for their Christmas present, and my husband and I've probably heard this before, bought them a secondhand kitchen. I remember that. I got on arm gum Tree and it was like fifty bucks and it came with all of the bells and whistles and all of the you know, like cups and sauces and like a fake coffee machine from Kmart. Like it was such a great pickup. Anyway,

they put that in their cubby house. And I went to the cubbyhouse one day and they had a little window and they were selling their coffeesh lovely you know whatever fruit that was made of wood. And I said, oh, I'd love a note latte dead pan. Got told we only have SOI and I was like, okay, no worries. I guess I'll have a soy latte. And they were like that will be fifty dollars. Sounds about right, Yep, no worries, it will take money to pay. Can I

also get half of that wooden orange? Yes, that's eighty dollars. Oh, okay, no worries, yep. So like they understand it, but they don't conceptualize it until they're seven and they go, oh, actually, this is what a coffee is worth right, So teaching them small and teaching them young about things like even getting them to interact. So all right, Beck, let's go down to the shop. So let's pretend Beck is like ten.

How about you do the transaction. Let's teach you about you know, Okay, we used to use cash, Now we use card, but like, give them your credit card to tap. Teach them that you have to ask for a receipt. Why do we ask for a receipt so we can check that everything's correct, so we can cross check and know what we spend. Oh my gosh, let's look at our family budget. You might have budgeted one hundred dollars for that grocery shop. Well, what does the receipt say? Oh,

we spend one hundred and twenty dollars. Let's go through that receipt together and go where did we go over or you know, if it's under talking about that, what are we going to do with the difference in budget. You do not have to teach your kids about money on a massive scale. In fact, introducing it on a smaller scale makes them feel more empowered and more in control. Another thing that I've seen a lot of families do in our community is giving their kids a budget to

cook dinner one night. So I might go back, you've got fifteen bucks, all right, you're going to organize dinner. I hope you cook it. If you can't cook it, that's fine, but I want you to go and work out how much this is going to be. So you've got these kids, they're looking up a recipe. They go, Beck, we really want spaghetti bolonnaise, right, all right, so we're gonna have to get past her, maybe some mints, maybe some veggies, and a sauce. What does that look like?

We want cheese? Great, we probably want to put cheese on top, because obvious, no brainer. But fifty dollars for bolonnaise, that's going to cut it fine, right, Like you know how expensive it is to get even just a pack of mints these days, totally, So like they might go, oh, we're feeding six people, all right, well, it's two packs of mints. That's probably going to cost you the fifteen dollars.

What can we do instead? And that's where you can teach them about going all right, well, what if we create a zucchini and a carrot and chuck that in there and just use one pack of mints and they go, oh wow, they can conceptualize and see how that changes a budget, and they genuinely start to learn the value of money because they've got a certain amount of money to allocate towards this resource that they are creating, and that will help them in the long term realize how

expensive the rest of the world is. Because if you teach them all, right, well a box of cereal is this, you know, having dinner on the table that costs us fifteen dollars. Look how much we got. We got like six serves of scadyolinaise. Then when you've got your twelve year old who is a Sephora kid and wants expensive skincare, you go, well, how much is it? And they go, oh,

that's seventy five dollars. Well that is a lot of money. Like, you're not talking to these kids about things that are foreign because they've never been introduced to the value of money. And I think that a lot of people assume that you have to teach a child the value of money by hoarding it all away or having lots of it, but in reality, it's them being able to conceptualize what you can exchange for money and what you get back in the value there, because you and I both know

bottle of water? What to waste money byo water? Exactly. If you're a kid and you rock up to the cafe and money's to you endless because you've never been taught about money, you go, well, I want a bottle of water. You don't go, oh, actually that's not a good value exchange.

it up? You and I both know already transport and accommodation is going to eat most of that, right yeah, yeah, bye bye. So we go Are we driving? And the kids going no, we want to fly? Okay, Well let's have a look at flights. What does that cost? What's the difference between flying and driving? Okay, once we get there, where do we want to stay? Kids are gonna yell out if we go in to Queensland, I stay Movie World, right, mm hmm, okay, well how much does Movie World cost? Oh?

We could only stay there two nights and not go into the theme park. Yeah. Like, I think it's teaching them the value of money by I guess, allowing them to have some level of control how something is spent. But you don't have to open up and be like mama earns x amount? Do you know how hard she works for that? Because I think we really need to move away from this idea of forcing children to be grateful.

Gratefulness is something that I foster a lot, and I hope that my baby is so grateful, like for you know everything in life. But what do you do as a child If I tell you to do one thing beck well, depends on my mood usually the opposite.

are we doing with that? How can we do it? Like, you know, get the kids involved to a point where you're, well, what if we changed the dinner, Like what if we actually did dahl Like you know, Beck, you and I love a cheap doll exactly, but that might mean we

can get dessert. They can spend their budget however they want, because they're the ones creating the meal plan, but really teaching them that exchange between the money that they have to hand over and what they get back for it from a young age is going to be one of the most constructive things ever. I love that bee, and so that's what I'm hoping my children will do it. I'm also hoping that they will step up and actually cook the food, Like how good would that be? Like

little slave labors wouldn't hurt, not bad, not bad. I guess when I'm talking about that, it's just this idea of being able to conceptualize money. So we live in a society where everything's basically on our phones nowadays. Like you're a cash girl, aren't you like getting cash out?

you mean. I say to you, right, here's your fifty bucks back, put in your wilet. We're going to go shopping. And then you see a top and it's fifty dollars. Are you going to have a harder time exchanging that physical cash or the card?

that we will talk about at some point. But you know, back to our dinner example, I think they should be given the fifteen dollars in cash so they have to part with it, so they have to sit down and go, well, this is physically what I have, and this is physically what I will get, because that is what's going to help them conceptualize how we should be spending money because the pain is involved in the transaction. You are actually physically losing something when we exchange it for those products.

And I think that kids need to inherently understand that because otherwise credit Card's still there, Tappy Tabby endless to them because they don't have a bigger concept of the family budget or the family spending. So I think that when we are doing these things, we need to introduce this idea of loss, like this feeling of you're going to miss something because, like beck, if you had to spend twenty bucks on something, but you only had a

fifty dollar note. If you're anything like me, you really don't want to spend the twenty bucks because I don't want to break it. I don't like that, That's very true. I don't like it. Sis don't like that either. They don't get it less back, get two notes instead of one, So that is kind of fine. Okay. Yeah, that's why they have to be over seven. Because have you seen the marshmallow experiment?

So double or nothing. Rush. I think it's like sixty percent of kids full fail that test because they do not have the ability to conceptualize delayed gratification. They literally go unneath the MARGINALO thoughs just not gone out. Then, like I think it's only twelve percent of total kids, if tested numerous times, will actually wait for the delayed gratification. It's like us as human beings, like we want it and we want it right now, it doesn't matter if

we're adults. But in that vein there is also this concept of I believe it's called conservation, and it's by a guy called paj I did it at Uni, and there is essentially seven conservation tasks that pia Jens test for,

but generally they are acquired in a certain order. So it's like numbers, length, liquid mass, area, weight, and then volume and you should acquire these kind of like tasks or abilities in your brain by the age of ten, and most of them happen between the age of six and ten, which is why I believe that we actually

for mal money story at seven. So often. This idea of conservation is kids can't conceptualize volume, a mass, and what's fair and what's not, and so a lot of these tests are about you know, you have a kid and you give them two cookies and then the kid beside them gets one cookie and they go is that fair? And they say, no, it's not fair because he has

two cookies and that kid only has one cookie. And then they break the kid's cookie here only has one cookie in half, and then puts two bits down and says is that fair now, yes, because they have two cookies each, Like there's not this idea that two cookies are different volumes and you've got two full cookies and that kid's got two half cookies, Like they don't understand it.

And there's also this other test about liquid where you sit with a kid and you give them a glass of water, and then you also give them a short glass and a taller skinnier glass, and you say pour it into each, and it fits in both. But then you ask them which has more. Obviously the answer, because it came from the same cup, is none of them. But the kid will always look at the taller skinnier glass because it's taller and say, well, that one has the most in it, right, And so kids just lack

this ability to conceptualize it right. And that goes back to what you just said about like, oh, but if I break the note, then I have two notes. When you were little that made sense, right, Like genuinely, there are tests where you say this is fifty dollars to a five year old, or this is fifteen dollars. So it's a fifty dollar note, a ten dollar note, and a five dollar note, and the kid will always pick

the one that has more more notes, more notes. So they want fifteen dollars because they get two, but that's more than fifty to them in their brains, so they're not able to conceptualize it. Whereas when you get to that developmental age of between seven and ten, that starts

to change. So they start to see that family budget and go all right, well, I've been given fifteen dollars for dinner, and if I spend seven dollars on this, I'm going to have eight dollars left over and I can use it for other things before that be exactly like what you're explaining, more notes, Hahn, I get some coins Like that is helpful because they're starting to utilize money and they're starting to touch it and feel it and become really confident with it, like it's not something

that scares them. But you are not teaching them the actual skills that they need to manage money as adults. So I think it's important to understand that and what that actually means and teaching them the value of money. But understanding that teaching them the value of money can only start once they have this idea of conservation in

their head. Sure does that make sense because otherwise they will just swap you two five dollar notes for a fifty You can jib any two or three year old, Or what if I gave you two cookies you break one in half? They're like, thanks so much, mum, God, it's easy to take it. Keep girl boss. Yeah, Like that's my way of parenting. And then I think that's

when you start to introduce this idea of investing. Right, If your child has an understanding of conservation, they are going to start to understand and maybe even dapple in this delayed gratification thing. Right. So that's why I wanted to bring in the marshmallow experiment because smaller kids are less likely to be able to wait. They get so antsy they need the marshmallow. Now they know that they're

going to be saut on wood later. But like it doesn't really matter because I have no level of self conservation totally. But it doesn't have the concept of time either none, but that's okay. We just need to understand their development. But that's where at seven to ten, like at that really pivotal age where they're starting to understand it. Why aren't we introducing Okay, well, if we put this money away, this money would grow to this and do you know you can get a lot more for that?

And they go, oh, that's interesting. And so I think the introducing investing at that point and being active with it,

and again we're not being overwhelming. We're finding a platform that just makes sense for them is going to be really helpful because not only is it going to increase their financial literacy and their confidence with money, but they're going to get wealthy and we want that right, Like I want my kid to be set up so that they are successful, but I also want them to know that they had to work for that, and they had

to compromise for that, and they had to sacrifice. You know, if they get given money for birthdays, we will be sitting down and going, well, how are we going to spend this? Like is there a toy you want? And they might go yeah, yeah, and I go, well, do you want the toy now? Or do we want to

split it? Do we want to save up for the toy and put some of this money away And we get that later and talk about investing, and I mean, I'll let them make their own decision, but at least I have given them a level of financial literacy so that they make a decision. Because I'm telling you right now, I know that they'll come back and be like, oh, I want to do this now and be like, I'm so sorry. You already spent your money, Like you already

made a decision. Decisions have consequences. So I think that that is to me, really really important when it comes to investing for kids and stuff like that. Have you started investing for your tiny baby? Yeah? They came out of the wroom and I was like, right, sit down, we are investing for the future. So before they were born and I knew who they were, beck, I had already started to think about this because investing is obviously

really really important to me. But we also need to take into consideration and we'll talk about this later in the show, like child tax rates and the implications of investing for a kid. So if you're investing for a child, their tax rate can be absolutely astronomical if they're getting investment returns and money into their account that they're not working for Oh okay, so obviously this isn't going to apply to them if they're you know, working their first

job at MACS. But if they have investment income, they basically get taxed at a very very high rate to make sure that wealthy families aren't laundering money through their kids. If that makes sense, that makes sense. So for Steve and I, we sat down and we were like, all right, well, this is a long term thing. We actually want to set them up to hopefully by the age of twenty one, because I'm not giving an eighteen year old access to

this money. Right. Hopefully, by the age of twenty one they have you know, some money set aside for them so that they could invest or they could you know, maybe buy a first home, or you know, contribute towards the first time because property is going to be insane by the time that they're twenty one, or you know, help them along the way to be more financially secure. But I didn't want that to be at the I guess compromise of our finances. I also know that it

couldn't go straight in their name. So for me, an investment bond made the most sense because it was tax effective and I do have full control of it. And you know, wealth transfer is a lot easier, and you know, you can set savings goals and plans that they can

be involved in and actually create wealth with. And I mean, at the end of the day, the barrier to entry for the product that we picked was one thousand dollars, but you can contribute whatever you want after that, sure, and you can like invest a single amount or consistent

amounts over the years. So the plan is if they ever get like birthday money or Christmas money, hopefully it goes towards that, because I want financial literacy to be an ongoing conversation and something that they look forward to and something that they can actually access. But yeah, that's where I'm at. And I can tell you a lot more about children's tax rates on the flip side. But yeah, that's what I've done.

to get the ball rolling. And while investing for your child, especially while they are still little, it means that they have so much time on their side, they can create wealth. And we know that the longer you are exposed in the investment market, the more compound interest comes into play. And we know that's the eighth wonder of the world. And that's like to me, very sexy Beck. There are tax implications that we need to consider, and I guess the default assumption for a lot of people is let's

just directly invest in our kids' name. That makes sense, but it can be quite problematic. So miners can only earn up to four hundred and sixteen dollars annually on investment income before a tax rate as high as sixty six percent comes into Oh my god, So that seems wild. And I said on the flip side of the show, the top end, that it's actually to deter really high income families and parents from attempting to lower their own individual pay tax rates by distributing some of their income

and assets to their children. And historically that was allowed, that was available, and that meant they would skip out on a large chunk of tax because they'd be like, all right, well, my new daughter back, she's getting you know, eighteen thousand dollars into her account this year. I'll take it off her once it comes through because it's my money. I'm just using the fact that she is a minor. But I don't have to pay tax on that. And

it's not fair for a number of reasons. One, if you are distributing to a child, that should be their income, full stop, end of story. Like that to me is an abuse of power. Different conversation for a different time. But also you're skipping out on paying tax, like you're literally tax evading. Now that doesn't sit right with me, But I guess the other question here is like why would we bother? So it does not apply to if your kid goes out at fourteen years and nine months

and gets their first job, general tax rates apply. It's investment income that that applies to. So don't get the too confused, like obviously a lot of us. We'll look at it and go the simple outcome here is to just save for them. Just put some money in a savings account each year for a single month, like you know, whatever you can. It's much simpler, Like you could just stash away, you know, twenty bucks a week for eighteen years.

Over that time, you'd accumulate what eighteen seven hundred and twenty dollars back.

I like to underpromise over deliver. Yeap, that actually would look more like twenty nine thy three hundred okay after eighteen years for the same amount of money. Yeah right. I guess the magic ingredient is now compound interest. Sure, and the money that your money is making is now making money. And to me, that's the financial equivalent of sliced bread. And I think that that is life changing

because you're nearly doubling your money. It goes from eighteen thy to thirty basically, So I guess it really depends on the path that you're going to choose, and I guess your time horizon and the purpose of the investment. I mean, if you're playing the long game and you have ten plus years or eighteen years to play with, you could go and can sit out an investment bond like I have. Again, not a recommendation, and I have to reiterate that a million times because that was just

something that worked for our financial situation. And I know you will want to know because I get so many dms like how are you investing? For many like iky sit down, But I guess these things like investment bonds are designed to be tax effective investment solutions that can

actually build future wealth without hurting me. And I mean it's often overlooked because it feels like a managed investment like that sounds a little bit more complex, but they're usually really easy to get into if you've got less time, Like let's say that your kids are a bit older and we're starting to invest their income that they're earning fourteen years nine months. Let's say we've got like a timeframe

of around five years to invest. Maybe going and looking at an ETF on the share market is a better idea because over the long term, an investment bond does have a few caveats, like you have to be in it for a minimum of ten years sometimes to actually get that tax effectiveness, which is so fine, but you need to know the terms and conditions of each option. ETFs they're exchange traded funds, but they are obviously a

quite simple way to diversify your investments. Beg you've talked about on the pod how you're like, hmm, I think that might be something that I'm interested in, right correct, And then obviously as time goes on and you look at it and go, well, actually, I've only got two or three years, Like maybe a high interest savings account is for you. Like I do not want people taking on more risk than they need to, like if you

have a very limited time frame. The share market basically flips every seven years, so if you don't have time on your slife, sometimes it's not worth taking the risk, especially if you're like, oh, well, I've got two or three years to you know, build a house deposit or do this or do that, or you know, you've got some money aside, and you're like, should I invest it

because my kids go into UNI in two years. I would probably err more on the side of caution because you just don't have enough time for the market to work. It's magic, and compound interest doesn't kick in until seven to ten years. Sure, so it's kind of like compound interest. Yeah, I'll give you sim dribs and drubs there, but you can't predict the market. Yeah, I've said it before. I'd be so rich Beck if I could, I'd be the

next Warren Buffett. But I'm not, though, so I think that we need to be I guess a little bit more conservative.

be a really good way of investing. But getting your kid active in it, because you know, if they get another fifty dollars at Christmas time, Let's talk to them about what they're buying, Like, what are they interested in at the moment, Like, maybe we could find an ETF that has their favorite company in it, Like do you know how many times people like that? Kids will find it boring? And I go, but let's reframe this. Does your kid like Disney? Do you know that Disney's on

the share market? Do you know your kids could own some of Disney. We could find an ETF that had Disney in it and a few other colorful things that they might be really engaged in, and go, Wow, you own a part of Disney. And that means when Disneyland does really well and lots of people visit, we actually get paid. Isn't that kind of cool. They've had a really good year, the weather was really great, all the rides were opened, so they made lots of money that year.

They're gonna then divide that money up between everybody who owns a piece of that company, and you're one of them. Yeah, that is actually quite cool. Kids are gonna love that, and especially if you can make it make sense to their life, make it make sense to their interests, not like well, actually your grandfather invested and it's very important that you pay attent. They're not going to pay attention, no, But how are you going to engage them in that journey?

That actually makes sense for your family as well, because I can always guarantee that you're not as excited about it as I am. I'll be like, all right, Saturday morning, let's make pancakes. Also, do you want to have a look at the share market? And I can give you a little five minute ted talk on what happened, right, So you're not going to enjoy that. My kids for failure. The other thing I think when we're talking about investing and kids and money is talking about pocket money. Yes,

and pocket money is a privilege. Not every kid should be getting pocket money. And I'm a bit spicy on this. Oh I'm going to get in trouble for this, but I don't care. I'm good. I don't think kids should be paid pocket money to do chores. I tend to agree with that. You live in the house too, You contribute to the house. I go to work every day and I come home and I still have to do stuff at home. Your job is to go to school every day and come home and look after the household.

As a whole. I do not want kids who assume that I'm the one that has to empty the dishwasher or my husband is the one that does these things. And I'm sure as hell not going to pay them to do something that is just what is for the greater good and for the greater household. I will pay them pocket money. And this is obviously TBC. I might

eat my words one day. But you go to school and you work really hard, and I give you some pocket money so that you have some financial freedom on the weekend to make decisions of what you want to get up to without having to ask my permission, yes, so that you can save up for things that you want to purchase, so that you can do X, Y and Z. But I think it's really important to talk about what those rules mean. And I already know, and I've said this on the podcast before, my kids will

have pocket money. But then of that pocket money, there will be an expectation that they break it up. So there will be an expectation that they choose, and it will be up to them. How much are you investing, how much you're saving, like as into an emergency fund, how much are you saving into a fund? For all the fun stuff that you want to do. And also

we pay family tax in this house. Oh I see, and so for me, family tax is this concept that I've seen work for a lot of my clients historically, where you sit kids down and go, all right, well, you have to pay twenty percent family tax. And so of their ten dollars that they get every week, they pay two dollars to family tax and that just goes into a jar on the bench yep. And then every quarter or every couple of months, as a family, we sit down and we count how much money is in

the family tax jar. Mum and dad they also pay family tax. No one gets out of this, yes, And then we make a group decision about the money. That's kind of cute. How are we allocating this fund? It might be fifty dollars, It might be one hundred dollars, it might be twenty dollars. It doesn't matter what it is. But we now have a pot of money that the

family needs to make a family decision. And I think that introducing tax for kids really young sets them up for success because at fourteen years nine months, when they go and get their first job, they're going to be paying tax, and I don't want it to be this foreign concept where they go, I'm just missing a heap of my money. What the hell I want them to go? Ah, I've always paid tax, I've paid family tax, and now

I pay essentially big girl tax. And that tax gives us a really beautiful infrastructure system, a really beautiful hospital system. It gives us our roads, it gives us the privilege that we have. But I want them to inherently understand that those decisions are made for groups. So like, you know, the kids might go really want to go to the water park with the money. Okay, we've got X amount, let's go to the water park and spend that as a family. But that money has to benefit everyone. Yeah,

mom and dad don't like the water park? What are you going to do about it? Do you know what I mean? Like getting them to negotiate and understand money and the value of money early. I think that's a really good way that can actually help the kids understand. Okay, well we now get to make a group decision. They

might go and have little subcommittee meetings. I know they will like if this was me and my sister when we were younger, I would have like sat my sister down and be like, all right, we're having family tax meeting. What do you want? Yeah, let's be on the same page. So when we pitch it to mom and dad, they have to take our idea. But I want them to be thinking about how this works because it plays out

in the real world. Politics, tax, everything's intertwined, and I think that that can be a really really important learning tool. I don't know how it's gonna work out in our family, but as I said, I have seen it work for a lot of our clients, and it really helps kids understand the value of money because they will say a family activity like, oh, family tax, let's go on a holiday. We have fifty dollars. That is not going to take us on a family holiday. That might take us out

for family brunch. Yeah, you know, Mom and dad might say, oh, well, actually, if you wanted to do a family brunch, we might put in an extra X, Y Z, and then we can do that as a family, and then it becomes an activity that everyone benefits from. Sure, or you might be negotiating whole family really likes video games and you all want to buy a brand new video game that you all share like it doesn't matter what it is,

but it is a group decision. Yeah, and I think that that's important that they understand that that's how money is allocated. And as I've said on this podcast six million times, I think it is a privilege to pay tax. We live in a world where we are so supported and the more tax you pay, bab, the more money you're making. That is not a bad thing. Your child has a very bright future ahead, hope. So I think so, because personality wise, they're going to be in a lot of trouble.