Many parents, grandparents and other caregivers, often worry about how to help the children in their lives achieve financial independence. One may think that the value of long-term investment would seem like a dry and complicated idea for kids to get their heads around.

However, many young people would like to know more about money, according to a Young People and Money survey by the Australian Securities and Investments Commission MoneySmart website. The survey found more than half of the 15 – 21-year-olds surveyed were interested in learning more on how to invest, different types of investments, along with possible risks and returns. What’s more, almost all those young people with at least one investment, were curious enough to regularly check performance.

One way to introduce investment to children may be to begin a share portfolio on their behalf. The child can then follow the progress of the companies they are investing in, understand how the market can fluctuate over the short- and long-term, as well as how to deal with some of the paperwork required, such as filing tax returns.

How to begin:

Setting up a share portfolio doesn’t need to be onerous. It is possible to start with a minimum investment of around $500, using one of the online share trading platforms. Then you could consider topping it up every year or so with a further investment amount.

Deciding on which shares to buy comes down to the amount you have available to invest and perhaps your particular child’s interests.

If the initial investment is relatively small, an exchange traded fund (ETF) may be a useful way of accessing the hundreds of companies, bonds, commodities or theme the funds you choose to invest in, providing a more diversified portfolio.

ETFs are available in Australian and international shares; different sectors of the share market, such as mining; precious metals and commodities, such as gold; foreign and crypto currencies; and fixed interest investments, such as bonds. You can also invest in themes such as sustainability or market sectors, such as video games, which may appeal to young people.

Alternatively, buying shares in one particular company that your child strongly identifies with – like a popular pizza delivery chain, a surf brand or a toy manufacturer – may help keep them interested and excited about tracking market movements.

Should you buy in your name or theirs?

Since children cannot own shares in their own right, you may consider buying in your name, with a plan to transfer the portfolio to the child when they turn 18. But be aware that you will pay capital gains tax (CGT) on any profits made, and the investments will be assessable in your annual income tax return.

On the other hand, you could buy the shares in trust for the child. While you are considered the legal owner, the child is the beneficial owner. That way, when the child turns 18, you can transfer the shares to their name without paying CGT. 

Your online trading platform will have easy steps to follow to set up an account in trust for a minor. There is also some annual tax paperwork to consider with this option. You can apply for a tax file number (TFN) for the child and quote that when buying the shares. If you don’t quote a TFN, pay as you go tax will be withheld at 47 percent from the unfranked amount of the dividend income. Be aware that if the shares earn more than $416 in a year, you will need to lodge a tax return for the child. See a registered tax agent for further details. 

Taking it slowly:

If you are not quite ready to invest cash but are keen to help your children better understand share investment, you could consider playing it safe by playing a sharemarket game, run by the ASX.

Participants invest $50,000 in virtual cash in the S&P/ASX200, a range of ETFs and a selection of companies. You can take part as an individual or as a group, and there is a chance to win prizes.

Another option, for children able to work independently, is the federal government money managed website. This is pitched at teens and provides a thorough grounding in savings and investment principles.

Please call us if you would like some further guidance on how best to establish a share portfolio for your child, a grandchild or a special young person in your life.

Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.***