Many of us grew up with a savings account in our name that our parents had set up for us, complete with a little passbook tucked away in a drawer. It was a tradition that worked just fine for first cars, family vacations or an education fund – for a generation or two. But in today’s world, things are very different. Interest rates have been low for so long that traditional savings accounts just aren’t delivering like they used to. So more and more parents and grandparents are starting to invest for their child’s future in a more strategic way.

Today, that means looking beyond the savings account – even though it still plays a role when it comes to short-term needs or gifts that are coming up in the near future. But when it comes to long-term goals like saving for a child’s education or a down payment on a house, you want to think about other options that might offer stronger long-term growth potential.

We’re talking about a situation where the time horizon is 15 to 20 years – or even longer. That’s a whole different ball game and one that opens up more possibilities. There are a bunch of different types of investment options and financial planning strategies that you can use when saving for kids – and that means being able to choose the one that best fits your goals and your risk tolerance.

A lot of people start thinking about investing in shares or a diversified investment portfolio as a way to save for their kids. Even though share markets are unpredictable and can be a roller coaster ride, in the short term you can expect to see some ups and downs, but over the long term, the historical data shows that quality investments have generally outperformed cash. That’s not to say that your investments won’t fluctuate in value – they will. But a long-term view can really help to smooth out the impact of volatility. And when you’re making regular contributions, you’re giving yourself a much better chance of weathering the ups and downs.

A Simple Comparison

To give you a sense of just how different the long-term outcomes can be, let’s take a look at a simple example:

• Initial investment: $500
• Monthly contribution: $50
• Investment period: 20 years

Using some long-term historical averages (and keep in mind that these are just hypothetical):

• A savings account earning 4.2% per annum
• A diversified share portfolio returning 9.9% per annum

After 20 years, the difference between the two is pretty striking. The savings account may end up around $19,000, while the share portfolio could hit $37,000.

Now I know that’s just an example and that investments don’t always work out as neatly as this example would suggest. But it does give you an idea of just how much of a difference a long-term investment strategy can make.

The Tax Stuff That Families Often Miss

But it’s not all about the returns – tax and reporting obligations matter too. And it’s here that things can get a little complicated. When it comes to managing investments for kids, you need to understand the tax rules and obligations that apply. These include things like having a Tax File Number (TFN), how you structure the investment, and whether the child’s TFN or a parent’s TFN is used – and also what kind of tax rates the child might be subject to.

And if you’re selling investments at a profit, you’ll need to worry about Capital Gains Tax (CGT) too – which can be a real headache. That’s why it’s so important to get professional advice before you start setting up any investments for your kids. And when it comes to that advice, always make sure you carefully review all the terms, conditions and disclosures in any financial product or service agreement. You want to make sure you understand what you’re getting into and what you’re committing to.

Should You Use a Trust?

Some families like to use trusts as part of their strategy – particularly when big sums are involved. But trust accounts and formal trust structures are not just simple bank accounts – they involve their own set of tax and compliance obligations. And while they can offer flexibility and asset protection, they also come with added complexity and cost. That’s why you should only consider using a trust after getting some tailored advice.

Getting Some Expert Help

When it comes to planning for your child’s financial future, having a financial adviser on your side can be a real game-changer. They can help you navigate all the different investment options, risk tolerance and long-term financial goals that can be so overwhelming. And by working with a professional, you get access to a whole range of services – from managed funds and diversified portfolios to insurance and retirement planning. That’s what they’re there for. One of the main benefits of getting a professional to look at your finances is that they can help you spread your investments out so that you don’t put too much in one thing. This means you won’t get caught out by market ups and downs, and you won’t feel like panicking and selling up. Your adviser will also be on hand to help you adjust your plan if your circumstances or the market change.

Weighing up the options

Saving and investing for your kids is one of the most important things you can do for them. The key is to make sure you’re doing what’s right for you and your family – that will depend on what you want to achieve, how long you’ve got to get there and where you are with taxes.

You might be thinking about opening a savings account, investing in a whole portfolio or setting up a trust – whatever you choose is all about understanding the trade-offs and getting it right from the start.

At Insight Wealth we take the hassle out of it all – we help families cut through all the jargon, weigh up the pros and cons and come up with a plan that’s tailored just for you. We’re all about providing the right support and advice to help you achieve your long-term goals.

Real financial planning is about looking at the whole picture – where you are now, where you want to be, and how you’re going to get there. It’s not just about saving a bit of cash, but about building a secure future for your family.

Before you make any big decisions, make sure you get some proper advice – from a financial adviser and a tax expert – to make sure you’re doing the right thing by you and your kids.