How to give your children a good financial head-start in life

We all want to give our children a good head-start in life and the experts say you can do this by starting an investment account for your child. June is Youth Month and a great time to start.

Young people have time on their side and the earlier they start their investment journey, the more time they spend being in the market, harnessing the value of compound growth.

Digital investment platforms, such as SatrixNOW, make investing simpler and accessible as it lets you invest any amount and even small amounts can grow exponentially over the years.

“It is also a good idea to involve children in the investment process as soon as they are old enough, as they can gain a sense of ownership over their portfolio from a young age. Consider empowering them to earn their investment contributions through household chores and ‘kidtrepreneurial’ activities,” Thembeka Khumalo, senior client experience manager at Satrix says.

She says parents can show them where their money is invested and take time to explain how things such as exchange traded funds (ETFs) work. If they are comfortable with the investment landscape by the time they turn 12, imagine how much market mastery they will have as adults.

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When to open investment account for your children

The best time to start investing for your children is as soon as they are born. “Starting early helps to maximise overall returns and build a portfolio over time. Starting early also means you can afford to take on more risk with an investment portfolio. The benefit of time means the portfolio can weather short-term market fluctuations and move in an upward trajectory in the long-term,” Khumalo says.

How to open investment account for your children

When you open an account for a child on an investment platform, the parent or legal guardian must have a FICA-verified account to get started. Once your account is opened, you will have to log in, select the “Add your Child’s Account” option from your profile menu and follow the four steps outlined to open an account for your child.

Khumalo says the process is quick and straightforward. You will get a welcome email with the new account’s username and a prompt to create a password. A second email will be sent between 24-36 hours, indicating that the account has been verified and is ready to fund.

Can extended family or friends also open an account for children?

Khumalo says only parents and legal guardians can open investment accounts for minors but extended family or friends can fund the child’s account using a debit order authority form.

You can find the form in the platforms’ help centre or you can request it from the client engagement team. The bank account holder as well as the parent or guardian must sign the form and submit it along with a copy of the family member or friend’s ID.

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What happens when the child turns 18?

When the child turns 18 and has full contractual ability by legally becoming an adult, the investment account is transferred to them. An email is sent to the email address on record detailing the process to be followed to transfer the account to the 18-year-old account holder.

Can a child make withdrawals while under 18?

Khumalo says the child cannot make legal decisions on their investments until they are 18. The parent or legal guardian will act as an authorised user on the child’s account.

“However, this is not to say that older children cannot be involved in the process and parents are encouraged to take their children along on the investment journey from as early as possible.”

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Tax implications

If a parent makes an investment on behalf of a child, all income, dividends and interest earned from the parent’s investment will be taxed. Khumalo says this applies to income received by minor children, stepchildren and adopted children. If any shares are sold and there is a capital gain, this amount must be included in the parents’ capital gains calculation.

She says another consideration is that an individual can donate up to R100 000 tax-free annually.

“Amounts over R100 000 will be subject to donations tax (current rate is 20%). A minor child’s investment does not form part of a parent or guardian’s estate. Should a parent or guardian pass away, the minor’s investment will not be subject to estate duty and other taxes.”