New Baby - Savings Advice For Adulthood

themadman on 29/09/2024 - 21:39

We've just had our first child, and I've opened a CBA Minor Trust Account with the intention of putting some savings aside for our little girl once she hits 18. We're both pretty young (<30, just) with no home loan and modest but pretty stable finances.

I'd ideally like to get them excited about saving as they grow up, and use this as a bit of a booster for when they hit 18 and get control. At this stage I'm thinking of collecting a portfolio of Vanguard shares. Anyone care to share how they manage(d) their savings for their kids?

Financial

Comments

  • Hugh G Rection on 29/09/2024 - 21:54

    how much are both of you making combined?

    I also use some vanguard. i have VTS, VTI and VOO

    • themadman on 29/09/2024 - 22:13
      +1

      Hard to quantify, we're both early career teachers but she's obviously stepping back due to the baby. I'm on ~$95k.

      Not really even bothering to investigate buying a house with prices atm, but I'd like to put something into savings for the kids.

      • Hugh G Rection on 30/09/2024 - 14:04
        -7

        that's a lot for an early teacher. i thought teachers were complaining they are underpaid. lol

        • Benoffie on 30/09/2024 - 15:55

          NSW recently got permanent and a pay bump. If they are 5+ years in and possibly in leadership, 95k is easily achievable.

    • fredblogs on 30/09/2024 - 13:30

      Why do you ask this question?

      • Hugh G Rection on 30/09/2024 - 14:06
        -1

        investment strategy based on income.

  • CyberMurning on 29/09/2024 - 22:14
    +9

    Savings Advice
    Stay away from ozb

  • TheMindsetTraveller on 29/09/2024 - 22:23
    -2

    Too late, seems like having children is the 2nd most expensive thing after owning your home

    https://www.finder.com.au/life-insurance/life-insurance-and-…

    • themadman on 29/09/2024 - 22:43
      +1

      Did you read the post? Or are you saying I'll be unable to save due to child expenses and shouldn't bother.

  • Rako on 29/09/2024 - 22:56
    +2

    Read this article from Noel Whittaker Plan to give your child a fairytale outcome

    https://www.smh.com.au/money/investing/save-early-and-often-…

    • themadman on 29/09/2024 - 23:06
      +1

      Thanks for sharing, I was already pretty familiar with how compound interest works but its nice to see some numbers. His suggestion is $1000/yr which sounds pretty hefty.

      • Haulien on 30/09/2024 - 07:55
        +4

        $1000/yr sounds like a lot until you realise it's about $20/week, which isn't unrealistic depending on your finances.

      • brad1-8tsi on 30/09/2024 - 11:49
        +1

        If $20/week seems a lot then try to save $10/week. $40/month is just 8-9 coffees or a carton of really crap beer. Anything is better than nothing providing you are consistent.

        IMO, IVV is worth investigating. Lots of growth and minimal dividends although the volatility can scare some folk. VDHG is slightly more stable because of 10% bonds but lower returns because of 10% bonds.

  • foxmulder on 29/09/2024 - 22:59
    +5

    ATO - Children's savings accounts

    • themadman on 29/09/2024 - 23:11
      -1

      Thanks for sharing! I hadn't really considered the tax implications of it all. Should I be thinking about getting a TFN? I'm assuming there's no way the bank can withhold money for tax purposes from a CHESS sponsored share portfolio, and we can just get advice on how to pay any taxes once she gets a bit older.

      If I put money into my child's fund, is there any sort of tax deduction available to me for the funds deposited?

      • foxmulder on 29/09/2024 - 23:21

        In most cases as you want the account under your child name, you will need to get TFN. TFN is free, don't get scammed for clicking third party website. The rest of details, I'm afraid I'm not an expert. Reread the page carefully and ask ATO by phone if you need further clarifications.

      • dtc on 30/09/2024 - 00:12
        +2

        No you dont get a tax deduction for gifting money to your children

        Tax is a real issue https://www.ato.gov.au/tax-rates-and-codes/tax-rates-if-you-… . At current interest rates, you only need $10k invested to hit the penalty rates; even though the bank doesnt deduct tax if you have a TFN, the ATO will be all over it (since the TFN means the interest is reported to the ATO so it knows).

        You are better off either investing in your own name (or your wife's) and then gifting the total to the kid at 18; or potentially buying an education bond which can be in the name of the child. These are taxed at 30% but only within the bond, the individual doesnt bear any tax liability. Hence a child can own it and not be hit with tax and then receive the money at the end (however you need more money up front)

        If you wanted something more complex to understand but fairly simple once you have your mind around it, AFIC and Whitefield (listed on the ASX) offer Dividend Substitution Share Plan (DSSP), which means you get paid your dividends in shares and no tax is payable until your child sells the shares after turning 18. However you will have to open a share trading account that allows it to be in the name of the child (or you as trustee for the child).

        • themadman on 30/09/2024 - 00:27

          Thanks for the detailed response! And wowee, those tax rates are pretty crazy. I guess there's been issues with people manipulating this, but still seems pretty excessive.

          My understanding is that I will pay tax on my income as usual, and then my child will get taxed for any profits on the shares in her portfolio. Would any taxes she pays on dividends/profits be calculated only at the time she chooses to sell the shares, or would those taxes apply to any growth in value every year?

          • brad1-8tsi on 30/09/2024 - 11:59

            @themadman: The owner of the equities pay any applicable tax on dividends/distributions every year which is why you might investigate growth-centric investments rather than dividend paying investments.

            The owner of the equities pays CGT when the equities are disposed of.

            I found it much easier/simpler to invest in my own name and then pay for my kid's higher education fees out of cashflow as their "coming of age present".

            When they started working I set them up with (aggressive) superannuation & share trading accounts and help them out when I have some spare cash

        • May4th on 30/09/2024 - 09:44

          thanks for this information - is DSSP different to the usual DRP arrangements which are still taxable?

        • fredblogs on 30/09/2024 - 13:33

          You are better off either investing in your own name (or your wife's)

          Actually, is this still the case if you're on the highest tax bracket?

          • dtc on 30/09/2024 - 15:00

            @fredblogs: Yes because a child's tax rate for income is also at the highest tax bracket

            $0 – $416 Nil

            $417 – $1,307 Nil plus 66% of the excess over $416

            Over $1,307 45% of the total amount of the income that is not excepted income

            The aim is to prevent people putting investments in the name of their children to reduce tax. So the answer is to make that money taxable at the highest rate, so there is no benefit. There might be a medicare levy saving? Not sure about that

            • fredblogs on 30/09/2024 - 15:07

              @dtc: The benefit is you get to give your kids their own bank account or investments, to learn saving etc

  • sumyungguy on 30/09/2024 - 00:04
    +7

    What do you expect your daughter will do with her bucketload of cash on turning 18? In the interim you have an awful lot of living to do including mortgage/rent payments, home renovations, further obstetric spending, motor vehicle purchases, periodic cash flow problems, school fees, co-curriculars, dentistry & orthodontics, pet medical bills, family holidays, etc. My goal has been to teach my offspring about money so they would attain financial literacy heading into adulthood. I want them to understand the value of the money they spend, earn and save.

    • dtc on 30/09/2024 - 00:13
      +1

      You can still teach children to value money and also provide them with assistance when they turn 18. Or just tell them its the money they have to live on if they attend uni.

    • themadman on 30/09/2024 - 00:29

      Ideally, I'd like her to be super excited about saving and keep adding to it until she needs it for something important!

      How have you taught your children the value of money if not by giving them some sort of savings? Genuine question.

      • sumyungguy on 30/09/2024 - 00:40
        +2

        Pocket money from age 3, choose between wages vs allowance. My household has rules of thumb about essential vs discretionary spending. Many parents have sufficient earnings to handout absolutely everything their kids want, but that doesn't teach them anything.

    • foxmulder on 30/09/2024 - 10:17
      +1

      There is a power of compound interest, for $1000 invested every year with 5% interest, guess how much you have at the end of 18 years? It's not $18k.

  • morse on 30/09/2024 - 06:36
    +4

    If you’re planning on getting a home loan later it’s in yours, and your child’s best interest to direct any spare money more than $1000 towards a house deposit and then later to pay the mortgage /offset. Your kid won’t understand money for another few years. You might also have another child by the time she does. To put her in the best financial position at 18, have your own finances looked after, invest in her education, family holidays etc. By all means start her a bank account when she’s in primary school, but this should be for pocket money and gifts. Teach her about money by role modelling.

    • themadman on 30/09/2024 - 11:31

      See i don’t really know if a home loan is ever going to happen as i feel like it’s feeling incredibly out of reach and the gap is increasing. I agree, paying off debts seems like the smartest way to manage our money. I just dunno if we’ll ever get to the point of owning a house.

      • morse on 30/09/2024 - 18:44

        Completely understand, it’s nowhere near as easy as it was 10-20years ago to buy a place. That said. Look at other forms of investment, shares, high interest savings etc. or set a realistic goal for something within your budget. Don’t despair at the current state of things. Do it in your own name and make the $ yourself. Don’t feel it’s futile, because it’s not. In all honesty getting yourself into a great financial position will be the best learning and understanding of real finances she will get. If you get it right for you, you’ll have money to gift her at 18, 21, 30 or whenever it feels right.

        All the best with your new little one. For now enjoy the magic of parenthood and the baby years.

      • morse on 01/10/2024 - 04:56
        +1

        Just noticed you also said “pay off debts”.

        If you have debts other than a home loan, you really need to clear those before considering a savings account for your daughter.

        Please take note of what people have said here. Your finance priorities in this order:
        - pay off any debts you have
        - start saving yourself
        - high interest bank account
        - house or unit deposit
        - mortgage with offset facility

        No credit cards unless you’re using them to churn for points and you 100% know you will pay it before any interest or fees apply
        No afterpay
        Only buy things you can afford at the time. Ie buy phones outright instead of on a plan and only upgrade every 3+ years. No fancy expensive party when she turns one, just gather in a park with some home made food and decorations etc. Nappies and wipes from Aldi or cloth nappies.

        I may be being very specific but honestly I see people fall into the trap of “doing it for the baby” with professional photographers, 1yo parties costing hundreds or thousands, country road baby clothes that they wear once, over the top baptism outfits etc. Or just buying stuff they can’t afford on credit, like toys, furniture, appliances.

        Bank account for your daughter should be $10/month max and gifts from relatives only until you have 0 debt and decent savings for yourself. If your income vs expenses can’t make this happen, look at earning more (it’s almost always possible with effort) and spending less.

        This will be the best lesson you can give your daughter in financial literacy.

  • 87percent on 30/09/2024 - 07:47

    we Have multiple offset accounts off our main one which we put kids money into

  • altomic on 30/09/2024 - 07:54

    create a self-managed super fund for your child.

    you will need to be trustee.

    • MITM on 30/09/2024 - 10:53
      +2

      Fees will kill that stone dead.

  • tulip99 on 30/09/2024 - 08:12

    This book might be what you're looking for :-)

    https://www.booktopia.com.au/how-to-give-your-kids-1-million…

  • boomramada on 30/09/2024 - 08:41
    +1

    Anyone care to share how they manage(d) their savings for their kids?

    Yes, put more money into your home loan, you pay fewer taxes and one day hopefully it goes to your kids lol

    • themadman on 30/09/2024 - 11:27

      No home loan at the minute, it doesnt really feel attainable without going into a crazy amount of debt that i don’t really feel comfortable with.

      • MITM on 30/09/2024 - 11:32

        There's good debt and bad debt - use other peoples money to get ahead. Earning a "living" is just enough to live off for most people. You should change your mindset and ignore the media. Your opportunity to purchase your first home will come - get ready.

      • May4th on 30/09/2024 - 11:48
        +1

        if you don't have a home yet I'd prioritise this - it's the best option for building wealth for the next generation given tax benefits on principal dwelling - when you downsize you can give them a leg up or build a granny flat for them if they get priced out of city etc. as I can't see housing affordability getting any better in the future

  • May4th on 30/09/2024 - 09:24

    I have been investing in my own SMSF using the concessional contribution cap I may otherwise not utilise - buying DHHF only and giving them a birthday cash gift each year to "DCA into it" which helps me to track what is set aside, by the time I reach preservation age I plan to withdraw and give a cash gift (also gives you control when it comes to marital asset protection till then). offset is another option but you lose the compounding benefit which will make a huge difference over 20years (but the benefit ends up in your pocket)

  • LFO on 30/09/2024 - 10:46
    -1

    Savings Accounts are noble but inflation is real and will eat any benefit.

    Investing, on the other hand, will be more altruistic/realistic.

    Perhaps sporadically buying small amounts of gold/silver bullion/coins (1 ounce?) will be better for when they become young adults.

    Inflation is real.

    • LFO on 03/10/2024 - 12:08

      I wish to person that neg me would care to explain why?

      Inflation does not exist?

      Gold/silver is bad?

      Disagreeing is not allowed???

      Mystery …

  • saltypete on 30/09/2024 - 10:55

    Great idea to put some savings together for when kids get older.
    Great idea to give kids a financial education from home through example and communication.
    Totally unrealistic to think that you’ll have much influence on them when they get to 18 etc and want to spend those savings. You just get to watch it unfold - good or bad.
    Enjoy. 😄

  • MITM on 30/09/2024 - 11:00

    Get Centrelink Family Benefit paid directly in to a low cost investment vehicle that pays no dividends. Upon redemption/gifting in 18 yrs you'll need to pay CGTax - so redeem 1/2 on 30 June and 1/2 on 1 July - pay the CGTax from the investment. Remember FB is tax free income. This costs you nothing.
    Meantime, salary sacrifice (what you were prepared to save for your child plus more) into your industry fund and look into the ATO first home super saver (FHSS) scheme.
    Direct this amount into a low cost EFT (your choice) which industry super funds allow. This is a very cost effective home deposit savings method.

  • stickingly on 30/09/2024 - 11:52

    Good idea.
    What we also did is ask grandparents etc to put money in at birthday / Christmas instead of buying expensive plastic crap toys that they quickly lose interest in (just give a cheap plastic crap toy + money). Now in their teens the accounts have grown into sizeable amounts

  • jv on 30/09/2024 - 15:29

    with the intention of putting some savings aside for our little girl once she hits 18.

    Better to start now rather than wait that long…

  • Mugsy on 30/09/2024 - 17:23
    +4

    Invest in their financial literacy early.

    Might mean investing in your own first.

    • v8bargain on 30/09/2024 - 22:25

      I like your comment and really hoping that OP will take notice and act accordingly.

      • Mugsy on 01/10/2024 - 11:33

        Yeah, OP clearly cares for their child's financial well being. It would be very depressing to see years of their effort and compounding interest go to waste if OP didn't lay the foundation for their child to manage that money well too.

        I've seen too many parents who didn't invest in their children's financial literacy, and that wealth that the previous generation built up is unnecessarily wasted away with the next generation. And we're not talking gambling or drugs… I've seen relatives and friends "invest" their funds into deals that anyone with some proper financial literacy will have gone "this is a bad deal to get involved with".

        Unfortunately, the likes of Kiyosaki was right to say that schools don't lay down the necessary financial literacy skills to succeed in life. They lay down the core maths skills which is important to become financially literate but it's not financial literacy. And this is coming from someone who did well in maths throughout most of my schooling… and I still went "I didn't learn enough to manage my money better".

        • sumyungguy on 01/10/2024 - 11:43

          There's a key education piece that needs to be accessible when young people start earning after leaving school, whether that's a first full-time job or a lucrative side-hustle while they're doing tertiary study. Problem with teaching personal financial management in school is that it's hard to learn and apply out of context. I don't have a solution to this, only see it as something we could do better.

          • Mugsy on 01/10/2024 - 11:51

            @sumyungguy: That is true that it's hard to learn and apply out of context.

            Schools can try to set up a safe environment for application but someone will not be as invested unless they worked hard for the money that they are now now responsible for managing.

            Maybe embedding an attitude for life long learning in more of our youth is the place to start.

            • sumyungguy on 01/10/2024 - 11:58

              @Mugsy: Agree, we need to give young people the skills to thrive regardless of the environment in which they've been raised; try to minimise inter-generational transfer of poverty.

  • dyara15 on 01/10/2024 - 14:54
    Merged from How to Financially Set up a Newborn for The Future?

    My wife and I are expecting the birth of a child. Similarly to parents of the 80s who had set up a Dollarmites account for their children, what and how are parents of today's age setting up for their newborns to help set them up for the future?

    This may also be a silly question however if we purchase shares/open up a high interest bank account (where we regularly contribute money into the account), are there any tax implications of doing so?

    • Dollar General on 01/10/2024 - 14:57
      +1

      There are harsh tax implications if you don’t set it up as you and/or your wife as trustee for your child

      To be honest you are better off focussing on your wealth creation at the moment and your child’s further down the track

      • dyara15 on 01/10/2024 - 15:16

        Would I need to see an accountant to set it up under my name as trustee for my child? Or is this typically something that could be set up on my own?

        • Dollar General on 01/10/2024 - 15:39

          Bank websites will guide you through the setup process. It’s easy

    • sumyungguy on 01/10/2024 - 14:59
      +1

      Is your question sufficiently different to this one? https://www.ozbargain.com.au/node/868759
      BTW, you'll pay tax on the earnings on behalf of your dependant.

      • dyara15 on 01/10/2024 - 15:17

        Thanks for sharing that thread @sumyungguy

    • SBOB on 01/10/2024 - 15:04
      +2

      how are parents of today's age setting up for their newborns to help set them up for the future?

      Depends on your $ value.
      With the rather restrictive tax applied go minors accounts, any kind of savings or shares accounts in the $10k + range gets tax prohibitive.

      Personally, regular etf buys in parents names, with a known allocation that's 'the kids' part. Ongoing tax liability is ours.

      When they become of a suitable age where such funds would be beneficial we will gift it to them, which would be before our preservation/super access age (if your kids won't be such age till post super access time, makes more sense to do it in super and save the cgt liability)

      Preferred to not setup a trustee account as automatically turning 18 doesn't mean they will necessarily be at a point where such funds are beneficial or going to provide a positive outcome.

    • Fredfloresjr on 01/10/2024 - 15:20
      +2

      Sportsbet teach em young as early as you can.

      • ThithLord on 01/10/2024 - 15:36

        Free money is the way to go

      • SBOB on 01/10/2024 - 15:40
        +1

        Or Roulette, which has the added benefit of teaching them numbers and colours.

    • DashCam AKA Rolts on 01/10/2024 - 15:23
      +2

      Make sure the newborn is born to a wealthy family. [̲̅$̲̅(̲̅ ͡° ͜ʖ ͡°̲̅)̲̅$̲̅]

      • MS Paint on 01/10/2024 - 15:24

        That makes ¢ents. Cheers

  • nekro on 01/10/2024 - 16:20

    More bedtime reading

    https://passiveinvestingaustralia.com/investing-for-children…

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