Parent and grandparents often want to set aside funds for their young children so they can be used to help further their later education or for some other worthwhile purpose. Here are some useful tips on how to do it in the best possible way.
First, consider the investment time frame. When is the earliest point you would wish the child to have access to the funds? If there is at least a five year time frame then some of the funds should be invested in assets that will grow in value over time, such as shares. For a shorter period, more stable assets such as term deposits may be more appropriate.
Putting funds into KiwiSaver is an option, however, the funds will only be accessible if they buy a first home, reach the official retirement age, leave the country or suffer hardship. There are diversified funds with investment profiles similar to KiwiSaver but which are not locked in. These funds are invested in a mix of fixed interest, property and shares.
Use the investment as a way of teaching your child about saving for the future. Review it with them once a year or so, and as the years go by explain more about how it works. They may choose to add more funds of their own to achieve a particular goal they have in mind.
Take heed that later in life, your child may enter into a relationship and, if you have invested a large sum on their behalf, you may wish to get advice on protecting it from a relationship property claim.
Given that student loans are generally interest-free, your child may be better to keep their funds invested through their study years and use them as a deposit on a home or to set up a business.