When should you start you children’s KiwiSaver? Simplicity’s Amanda Morrall says it depends on how much you can contribute. 

When someone offers you $1,000 for free, you’d be an idiot to say no. 

Kiwis aren’t dumb and this sweet incentive was key to KiwiSaver’s early success. The additional $1,000 a year in matching funds from the government (also known as member tax credits) was another juicy carrot that kept people piling into the much touted retirement saving scheme in its early days.

When National killed the $1,000 kickstart and halved member tax credits to a maximum of $521 a year in 2011, it took a bit of shine off KiwiSaver but not enough to do any real harm. We know that because KiwiSaver now has more than 2.8 million members and close to $47 billion under management. There’s no stopping this train.

Like thousands of other early adopters, I jumped on board and dragged my kids along too so they could cash in on the $1,000. That’s all they got, as the member tax credits were reserved for adults.

For the sake of ease (which pretty much sums up the behaviour of most KiwiSavers) I selected my bank from the myriad of dizzying choices of providers to choose from. I’ll give myself a shred of credit here though. I chose my bank for my kids’ accounts because at that time kids’ accounts were “fee free”. What I failed to appreciate, nor was it ever explained, was that the investment fees were still in effect. This two-tiered fee structure is probably one of least understood features of KiwiSaver.

It wasn’t until I was working in the trenches of KiwiSaver as a journalist specialising in this stuff that I became aware of that important fact. It made me even more cynical about banks – but it also shocked me into action.

I switched the kids out and started to take their accounts more seriously. You can get annoyed with the banks or whoever else profits from your money, but taking responsibility is a more productive approach. In KiwiSaver, both fees and contributions require attention. On modest balances fees seem like a big deal but compared to the impact of regular contributions, it’s a minor issue.

For years, the kids’ accounts were drip fed with $20 a month. Sure, it was better than nothing, but over a year, $240 didn’t do much for their investment. It barely moved the dial. Today, we have about more than 330,000 kids under 17 in KiwiSaver. I’d wager a guess that the vast majority have either no or very low contribution rates.

A few years ago, when I researched the impact of fees on $1,000 balances, I tried to find out how many kids’ accounts were opened with a kickstart and subsequently abandoned. That information wasn’t publicly available but the individual providers I polled (along with parents I knew) admitted contributions were irregular at best. Most were flat lining at $1,000 or just above.

We know from the Financial Markets Authority’s latest KiwiSaver report that at the end of March 2017 just over 1.1 million members were not contributing to their KiwiSaver funds. Of these non-contributing members 428,836 were either over 66 years or younger than 17 years. That makes sense, because at both ends of the spectrum the money taps are squeezed tight.

So does it makes sense to put a child into KiwiSaver?

As a former financial journalist and now an financial educator, it’s a question I get asked frequently. My standard advice goes something like this: “I can’t give personalised advice, only information,” which I’ll restate here as the same caveat applies.  

The argument for signing kids up to KiwiSaver used to be a lot stronger when there was $1,000 on the table for free. That’s gone now and, until they turn 18, they’re not eligible for member tax credits.

The more pertinent question parents need to ask of themselves is whether they plan to contribute to their kids’ KiwiSaver account, until they’re able to do so themselves.

If the answer is yes, then KiwiSaver makes sense, either as a way to save for a deposit on a first home, or as a big leg up on retirement.

Consider this: If you socked away $5 a day (of every working day) from age 20 till 65, you’d have close to $200,000 in retirement. That doesn’t even include the impact of regular contributions from your working life, your employer’s contributions or the compounding effect of the $521 in additional member tax credits. It simply assumes an annual rate of return of 5% on that money put away yearly.

For parents stretched to meet their daily living costs, making regular contributions to little Joey’s or Jane’s account may seem unrealistic. Even less so if little Joey or Jane has siblings. Still, I wouldn’t rule out willing relatives (for example grandparents) keen to channel funds into something that will have a legacy and won’t be binned by the next birthday.

Also, from my own experience kids grow up way faster than you expect. When they hit working age, those with a 10 or 18 year head start in the savings department will be massively advantaged.

Rather than give my teens pocket money, I give them $20 a week paid into their KiwiSaver accounts which are finally seeing some traction. I’m also using it as a training tool to get them interested in and excited about personal finance. When they see their accounts growing as they are, they appreciate how compound interest works, plus they’re starting to wrap their heads around how stock markets work.

And there’s the rub. Adolescent or adult, complacency is the biggest enemy when it comes to money and saving. Unlike adults, whose entrenched financial habits can kill their retirement future, kids are a blank slate. The best offense against poverty in old age is an early education in money.  

This section is made possible by Simplicity, New Zealand’s fastest growing KiwiSaver scheme. As a nonprofit, Simplicity only charges members what it costs to invest their money. It already has more than 12,500 plus members who, together, are saving more than $3.8 million annually in fees. This year, New Zealanders will pay more than $525 million in KiwiSaver fees. Why pay more than you need to? It takes two minutes to switch. Grab your IRD # and driver’s licence. It really is that simple.