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How to Invest in the Share Market for Kids (Without Losing It All to Tax) · She's On The Money

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Speaker 1: My name is Tatasha Bamblet. I'm a proud First Nations
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Speaker 1: woman and I'm here to acknowledge country t Glenn Young
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Speaker 1: Ganya nianar Kaka yah y and Binahaka nian Our gay
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Speaker 1: In Nimbini yakarum Jar Dominyamiga Umagahawaka Woman damon Imlan Bumba
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Speaker 1: ban Gadabomba in and now in wakah Ghana on yak
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Speaker 1: rum Jar water Nadaa. Hello, beautiful friends, we gather on
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Speaker 1: the lands of the Aboriginal people. We thank acknowledge and
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Speaker 1: respect the Aboriginal people's land that we're gathering on today.
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Speaker 1: Take pleasure in all the land and respect all that
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Speaker 1: you see. She's on the Money podcast acknowledges culture, country,
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Speaker 1: community and connections, bringing you the tools, knowledge and resources
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Speaker 1: for you to thrive.
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Speaker 2: She's on the Money. She's on the Money.
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Speaker 3: Hello and welcome to She's on the Money. The podcast
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Speaker 3: that proves investing isn't just for trust fund babies. It's
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Speaker 3: for your kids too, who might be trust fund babies,
1:15
Speaker 3: they might be trust one babies.
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Speaker 2: Yeah, but that's not the point exact. But they don't
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Speaker 2: have to be. But they don't have to be they
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Speaker 2: could literally have no money and they could start investing exactly.
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Speaker 2: That's the end of the show. Thanks for having us.
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Speaker 3: That's all for today. Every parent wants to give their
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Speaker 3: kids the world and set them up financially, I assume,
1:31
Speaker 3: I imagine, but you don't have a strategy, the ATO
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Speaker 3: might end up with the biggest slice of their future,
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Speaker 3: which is really I.
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Speaker 2: Know it's I mean, it's a swear word in my brain.
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Speaker 3: I'm back scited, and that's why I've brought in the
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Speaker 3: woman who knows financial strategy is the greatest form of
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Speaker 3: self care.
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Speaker 2: Victoria Divine and I do love talking about the ATO.
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Speaker 2: You do do someone's going on between you guys, I do, yeah,
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Speaker 2: we both love tax okay in common. Our community for
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Speaker 2: a very long time has been asking for more investing
2:01
Speaker 2: for kids content, and we already have a playlist, so
2:04
Speaker 2: we'll make sure that's linked in the show notes so
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Speaker 2: that you don't miss out on anything. But as you
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Speaker 2: also know, Beck, we have been working with Chaz's for
2:11
Speaker 2: the longest time. Like I use chare Za's, lots of
2:14
Speaker 2: our community use chare Za's. I believe you use just
2:18
Speaker 2: uses share like we're part of the cults oh yeah,
2:20
Speaker 2: and even if we weren't working with them, I would
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Speaker 2: still be using share Z's And something that I have
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Speaker 2: been waiting for is for them to drop kids accounts
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Speaker 2: because I'm like, come on, guys, I'm so excited for this.
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Speaker 2: And in the background there's been whispers of this kid's
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Speaker 2: account for ages, but because the taxation system here is
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Speaker 2: quite complex, that obviously takes a while. But guess what,
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Speaker 2: They've just dropped no kids investing account. Really, I'm so
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Speaker 2: excited and a lot of you I know have been
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Speaker 2: hanging out for this, Like there have been people in
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Speaker 2: my dms now and I don't mean to be dramatic,
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Speaker 2: but for literal years saying I'm just waiting for Chazy's
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Speaker 2: to drop their kids investing count. Well, I can start
3:01
Speaker 2: investing because I don't want it on a different platform
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Speaker 2: or I don't want to use an investment bond, or
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Speaker 2: I don't want to do this, that or the other.
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Speaker 2: And that's so fine. But because investing for kids who
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Speaker 2: has been one of our most requested topics ever, we
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Speaker 2: thought to celebrate the fact that Sharsis now has kids counts,
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Speaker 2: would do an episode yeah, and we would talk about
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Speaker 2: this in depth how you do it, what it looks like,
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Speaker 2: and whether this is an option for you. So whether
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Speaker 2: you are a parent like me, maybe you're a care
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Speaker 2: or maybe you're like the world's best aunt, or maybe
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Speaker 2: you're just a gal who is nosy and wants to
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Speaker 2: know how this stuff works so that if ever it
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Speaker 2: comes up at brunch, you go, babe, sit down. So
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Speaker 2: do you know how the tax system works? You're my people?
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Speaker 2: Stick around. This one is for you.
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Speaker 3: Oh my god.
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Speaker 2: There are as you've probably gathered and this is why
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Speaker 2: lots of us get analysis paralysis. A lot of different
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Speaker 2: ways that you can invest for kids, but today I
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Speaker 2: have like nuanced sit down. We are specifically talking about
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Speaker 2: how to invest for your children in the share market.
4:02
Speaker 2: So we're not talking about property, we're not talking about
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Speaker 2: alternative assets, definitely not talking about cryptocurrencies, gonna say what
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Speaker 2: a bit coin. We are also going to be talking
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Speaker 2: about how to make sure that the ato yes as
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Speaker 2: much as I love them, because we know that paying
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Speaker 2: tax is a privilege. Thank you, taxation Office. We actually
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Speaker 2: don't want the taxation office to end up with your
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Speaker 2: kids pocket money.
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Speaker 3: Ideally, ideally, ideally, don't get.
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Speaker 2: Me wrong, paying tax is a privilege. But I'm always
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Speaker 2: educating myself on ways that I can lower my tax
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Speaker 2: and make it most effective and all of that. At
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Speaker 2: the same time, the more tax you're paying, the more
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Speaker 2: money you're making. That is a great outcome.
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Speaker 3: Oh that's such a good way to look at it.
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Speaker 2: More tax, more money.
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Speaker 3: Okay, so's all that is really exciting. Thank you, shareses,
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Speaker 3: And also should we start with why we should think
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Speaker 3: about buying shares for our kids?
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Speaker 2: Yeah? Absolutely, absolutely, So the answer is actually time in
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Speaker 2: the market. So like your own new investor, we're calling
5:00
Speaker 2: you new still, Like, at what point are you no
5:02
Speaker 2: longer a new investor?
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Speaker 4: Bet well, I like to think five years, okay, five years,
5:07
Speaker 4: do you know what, I'll give you whatever you want,
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Speaker 4: thank you. Maybe twenty years okay, all right, all right,
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Speaker 4: but you've started investing.
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Speaker 2: Yes, I think it's just been more than twelve months.
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Speaker 3: It is just over twelve months. Yeah, exactly, really scared.
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Speaker 3: You got a good memory.
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Speaker 2: I really like talking about investing. But time in the market, right,
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Speaker 2: and like you've seen some positive returns and that's just
5:27
Speaker 2: over twelve months. And I mean it's nothing that's going
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Speaker 2: to like help you retire. But the number one thing
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Speaker 2: we hear from people who finally take that jump and
5:36
Speaker 2: finally start investing is that they always wish they started sooner.
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Speaker 2: They're always like, oh my goodness, Like, imagine this investment
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Speaker 2: portfolio if i'd like started ten years ago. Yeah, And
5:46
Speaker 2: that's the biggest advantage that our kids have when it
5:49
Speaker 2: comes to investing. It's literally they get more time in
5:54
Speaker 2: the market than us. Like most of us, I would say,
5:57
Speaker 2: don't start. If we look at the shees on the
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Speaker 2: money community, we do not start. And this is not
6:02
Speaker 2: because we are lazy. It's not because we don't get it.
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Speaker 2: It's because we don't have cash. Beck, most of us
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Speaker 2: don't start investing until we're in our thirties. Yeah, because sorry,
6:10
Speaker 2: like even if we micro investing, and like, don't get
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Speaker 2: me wrong that she's on the money community a sleigh.
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Speaker 2: There is lots of young people starting investing young, but
6:17
Speaker 2: most of us don't have the capacity to invest to
6:20
Speaker 2: create financial freedom until we're a bit older. We all
6:23
Speaker 2: wish we started earlier, because I have said it once,
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Speaker 2: I have said in a million times investing isn't about
6:30
Speaker 2: trying to time the market. You can't. I'd be so
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Speaker 2: rich if you could Beck, because I would try my
6:36
Speaker 2: hardest to time the market. You best believe I'd be
6:39
Speaker 2: taking advantage of that system.
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Speaker 3: Me too.
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Speaker 2: But the best thing is how long you are in
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Speaker 2: the market for, because the earlier you start, the less
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Speaker 2: you contribute, but the bigger results. Yeah, okay, crazy. So
6:52
Speaker 2: compounding interest is literally according to Einstein and me because basically, yeah,
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Speaker 2: they just don't even It's really hard. I always can't
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Speaker 2: tell the difference. Yeah, but Einstein said it was the
7:04
Speaker 2: eighth wonder of the world. Yes, yes, I do believe
7:07
Speaker 2: with him. Yeah, you were in that conversation. I believe
7:09
Speaker 2: each year the money that you invested makes money, and
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Speaker 2: then that money that has been invested again makes more money.
7:17
Speaker 2: So it basically is like free money compounding on itself,
7:19
Speaker 2: and each year adds growth basically, not just in your contributions,
7:24
Speaker 2: like you might have only invested one hundred dollars that year,
7:27
Speaker 2: but on all the growth that's happened previously. So you
7:30
Speaker 2: don't have to throw in thousands of dollars as a
7:32
Speaker 2: lump sum. You can start small and be consistent and
7:35
Speaker 2: it will build up.
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Speaker 5: Yeah.
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Speaker 2: And one of my favorite resources, and I will link
7:38
Speaker 2: it in the show notes is the money Smart compound
7:41
Speaker 2: investment calculator. I used that when I was a financial
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Speaker 2: advisor with clients. I would like literally moneysmart dot com.
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Speaker 2: And it was just a really good conversation starter because
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Speaker 2: you can put in how much you're going to invest,
7:53
Speaker 2: you can put in the timeframe that you'll be investing in,
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Speaker 2: and you can see what compounding growth is. You can
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Speaker 2: change the interest rate based on what you're investing in.
8:00
Speaker 2: But over a ten year period. Yeah, the money that
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Speaker 2: your money makes, like the free money component, actually overtakes
8:09
Speaker 2: how much you contribute. That's so crazy, like money wins. Sorry,
8:12
Speaker 2: I like free stuff. You like free stuff. Pay attention,
8:15
Speaker 2: Sit up, we're talking. Yeah, but starting small and staying
8:19
Speaker 2: consistent absolutely beats any day of the week trying to
8:23
Speaker 2: quoite catch up later.
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Speaker 3: Yeah.
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Speaker 2: So even if it's ten dollars a week, that is
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Speaker 2: better than later down the track being like, well, I'll
8:30
Speaker 2: have one hundred bucks next year and I'll try and
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Speaker 2: invest that every month. I can almost guarantee it doesn't
8:36
Speaker 2: work out that way. I'll get into some maths later
8:38
Speaker 2: because I have a lot of stuff written down. The
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Speaker 2: other good reason to starting vesting with your kids and
8:45
Speaker 2: I have a son. He is almost two, which I
8:49
Speaker 2: find insane, like time flies back, this is insane. I
8:51
Speaker 2: hate it here. But he doesn't comprehend it yet. I'm trying,
8:56
Speaker 2: but I feel like too a little bit young. But
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Speaker 2: he t investments. He's got his investment and we will
9:02
Speaker 2: look at it together once he comprehends that it's not carrot.
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Speaker 2: Every time I show him, it's like, wow, yeah, he
9:09
Speaker 2: doesn't get it. But it builds your child's financial literacy
9:13
Speaker 2: when they want to start talking about money, when you
9:15
Speaker 2: want to start talking about money with them, it can
9:18
Speaker 2: be part of your normal family conversations. We're not I
9:22
Speaker 2: don't know. I feel like money is an overwhelming topic
9:25
Speaker 2: and so when it comes to children. This is just
9:27
Speaker 2: my personal opinion. We need to really break it down.
9:29
Speaker 2: We don't need to be like, oh, mummy and daddy
9:31
Speaker 2: earn a combined income of x, this is how we
9:34
Speaker 2: distribute that income, Like that's just a bit much. Sure,
9:38
Speaker 2: especially when you're under the age of ten, Like that's
9:41
Speaker 2: just a lot. But if you treat investing like a
9:44
Speaker 2: family chat, kids are going to grow up seeing that
9:47
Speaker 2: as part of their everyday life, not just something for
9:50
Speaker 2: the rich people. It's just like, okay, cool, I get
9:53
Speaker 2: two dollars pocket money, and fifty cents goes here, and
9:55
Speaker 2: fifty cents goes towards my investment, and it's just it's
9:58
Speaker 2: part and parcel of goes on and well why do
10:01
Speaker 2: you do that? Oh? Well, because I'm putting money aside
10:04
Speaker 2: for the future. Imagine if everybody got that opportunity when
10:09
Speaker 2: they are young to set that kind of habit totally.
10:13
Speaker 2: And most of your habits are formed before the age
10:16
Speaker 2: of seven. Yeah, like the way you approach things really
10:19
Speaker 2: does fall out from the way you were parented during childhood.
10:23
Speaker 2: And that's okay because like, again we could go back
10:25
Speaker 2: to money stories and talk about how that works, but
10:27
Speaker 2: like it really does help for you and your children.
10:31
Speaker 2: Remove this concept that money's really intimidating or money is
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Speaker 2: hard or it's hard to come by, and it changes
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Speaker 2: that mindset that stops people from even starting to invest
10:40
Speaker 2: later in life.
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Speaker 3: So true, And like this concept that it's an adult thing,
10:44
Speaker 3: but that also means that when you are an adult
10:45
Speaker 3: and you're not good with money, you feel shamed for that.
10:48
Speaker 3: It's like, hey, it's just a thing. You can learn
10:50
Speaker 3: it at a young age. You can learn it in
10:51
Speaker 3: an older age.
10:52
Speaker 2: Whatever investing is for kids, beck, Yeah, like investing can
10:56
Speaker 2: be for kids. Yeah, in the same way that fifty
10:58
Speaker 2: years ago people said investing will for women.
11:01
Speaker 5: Yeah.
11:01
Speaker 3: So true.
11:01
Speaker 2: Sorry, Like, don't get me wrong, We're not going to
11:04
Speaker 2: be setting up retirement funds and talking to our kids
11:06
Speaker 2: about like capital gains tax and you know, superannuation as
11:10
Speaker 2: deeply as we would between you and I sure, like sorry,
11:13
Speaker 2: if we start that habit really young, Yeah, they're just
11:16
Speaker 2: going to fold on and be like, well, that's just
11:18
Speaker 2: part of how you do it, right, that's it, and
11:21
Speaker 2: it gives kids the opportunity. This is just all personal opinion,
11:25
Speaker 2: but this is what I've seen fold out in my
11:27
Speaker 2: friends groups, in my family, and you know, not with
11:30
Speaker 2: my own kids yet, but I'm hoping with my kids
11:32
Speaker 2: in the future. But they start to connect what they
11:35
Speaker 2: see around them, so like they see the brands, they
11:38
Speaker 2: see products, they see tech like kids are so smart. Yeah.
11:42
Speaker 2: My nearly two year old corrected me the other day
11:45
Speaker 2: because I turned on the TV and he's obsessed with Frozen.
11:49
Speaker 2: It's basically the only show that we watch. We watch Frozen,
11:53
Speaker 2: and I clicked on our remote the Netflix button. Yeah,
11:56
Speaker 2: and he goes, no, gimmy, oh that his show is
12:01
Speaker 2: on the Disney button. That's so cute. But also is
12:05
Speaker 2: that not terrifying? Terrifying? They're so cute you because I
12:09
Speaker 2: just like flicked the TV on, hit the Netflix thing
12:11
Speaker 2: and was just like waiting for it to load. No, Dinny,
12:14
Speaker 2: Oh my god, are you kidding? Anyway, was not happy
12:17
Speaker 2: with that. But being able to talk to kids about
12:21
Speaker 2: these products and these services and the brands like hey,
12:24
Speaker 2: owning a piece of the companies they already know, like
12:27
Speaker 2: Disney like Apple, Yeah, really helps them understand what shares
12:32
Speaker 2: actually are, how the world works. When they start earning money,
12:36
Speaker 2: they get to sixteen, or they get to fourteen and
12:38
Speaker 2: nine months, they already have this mindset that saving and
12:42
Speaker 2: investing is good and positive, but they know the difference.
12:46
Speaker 2: Investing is better than saving. It's going to put you
12:49
Speaker 2: in a better position long term. You say, for short
12:52
Speaker 2: term goals. You invest for your future.
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Speaker 5: Yeah.
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Speaker 2: Imagine if everyone who was fourteen years and nine months
12:57
Speaker 2: got that literacy. I know, I'm so sexy, that would
13:01
Speaker 2: be really cool, right, Like, imagine if when you started
13:03
Speaker 2: your first job it was just like the immediate division,
13:07
Speaker 2: not just like, oh, you've got cash coming in back
13:09
Speaker 2: now to deal with it? Yeah, sorry, that that would
13:12
Speaker 2: be life changing for so many people. And they learn
13:15
Speaker 2: that good things take time, like they would have been
13:18
Speaker 2: able to see, like your fourteen years and nine months,
13:20
Speaker 2: let's say that you just go, I'm going to start
13:22
Speaker 2: my investing portfolio. Your kids five, Yeah, sorry, They've had
13:26
Speaker 2: ten years in the market to look back on. They've
13:29
Speaker 2: seen that good things take time. We're teaching them about
13:33
Speaker 2: delayed gratification. And money grows best when it is left alone,
13:38
Speaker 2: when you don't touch it, when you don't pull it
13:40
Speaker 2: out to buy new whatever. Boo boos. I don't know
13:43
Speaker 2: what are the kids buying these days. I don't know
13:45
Speaker 2: who knows.
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Speaker 1: It.
13:46
Speaker 2: Turns out I am definitely falling into that elder millennial
13:50
Speaker 2: buckets and I'm enjoying it. But when you leave it alone,
13:54
Speaker 2: it all balances out. And I just think that teaching
13:58
Speaker 2: kids not just about money, not just about not just
14:00
Speaker 2: about like putting themselves in the best position, but like,
14:03
Speaker 2: how good is the learning that patience pays off more
14:07
Speaker 2: than instant gratification ever, will, Like, if you want something,
14:11
Speaker 2: you work for it. If you want something, it's going
14:13
Speaker 2: to take time if you want it to be really good. Yes,
14:16
Speaker 2: it's not going to be really good the very first time.
14:18
Speaker 5: Yeah.
14:19
Speaker 2: Yeah, that's so good to teach people.
14:21
Speaker 3: That is really really a really good lesson. And I think, like, well,
14:25
Speaker 3: I appreciate everything you're saying. Is it backed by research?
14:28
Speaker 3: You know me Stat's girlhood.
14:30
Speaker 2: Yeah, thank you for like changing the treaty here. But
14:33
Speaker 2: kids who learn about investing early, they obviously grow portfolios,
14:37
Speaker 2: but they don't just grow portfolios, they build habits that
14:40
Speaker 2: help them avoid financial stress later in life. Perfect. That's
14:44
Speaker 2: very sexy. Yeah. And research also tells us that early
14:48
Speaker 2: financial literacy is linked to stronger wealth accumulation and less
14:53
Speaker 2: risky money behavior as an adult.
14:55
Speaker 3: Okay, that checks out.
14:56
Speaker 2: So whilst I'm saying, oh, how beautiful, like in teaches
15:00
Speaker 2: your kid patients, Yeah, ownership and decision making is actually
15:05
Speaker 2: going to become ingrained from a research perspective to set
15:09
Speaker 2: them up for the rest of their lives.
15:10
Speaker 1: Yeah.
15:11
Speaker 2: Yeah, that's pretty exciting, right.
15:13
Speaker 3: Yeah.
15:14
Speaker 2: And I have had the privilege of running this community
15:16
Speaker 2: for like seven years now, that's crazy. Yeah wow. And
15:20
Speaker 2: during that seven years, I have had the absolute privilege
15:23
Speaker 2: of talking to our community members literally every single week,
15:27
Speaker 2: deeply interviewing them every single week about their money stories.
15:31
Speaker 2: But the difference between people who grew up with parents
15:33
Speaker 2: that talked about money and they had financial literacy. We're
15:36
Speaker 2: not saying people who grew up with money that is
15:38
Speaker 2: a different story again, definitely, but those who didn't grow
15:41
Speaker 2: up with financial literacy is like night and day. And
15:45
Speaker 2: one of the regrets that I have over the last
15:47
Speaker 2: seven years is that I haven't been better at tracking
15:50
Speaker 2: that data because like, how powerful would that be? Like
15:54
Speaker 2: we have, you know, all of our surveys and all
15:55
Speaker 2: of our research, but there's a very big difference between
15:58
Speaker 2: getting you to fill in a research and then like
16:00
Speaker 2: anecdotal evidence where I'm documenting it. Anyway, one day I'll
16:03
Speaker 2: do a PhD and it will probably be your money stories.
16:05
Speaker 2: So I'm doing that because I'm interested. Yeah. Also, Beck,
16:11
Speaker 2: doctor devine sounds pretty cool. That's so cool. Imagine being
16:15
Speaker 2: like I'm a doctor and then they're like, oh, can
16:17
Speaker 2: you help on this airplane, I'll be like, no, in
16:19
Speaker 2: money so funny, Oh my god. I've But the difference
16:24
Speaker 2: between kids who or adults that we talked to who
16:28
Speaker 2: had conversations about financial literacy, and we're not talking about like, oh,
16:33
Speaker 2: mom and dad gave me pocket money, Like we're talking
16:35
Speaker 2: like they shared just money stories. Maybe they've gone through
16:38
Speaker 2: bankruptcy and their parents were really constructive about what that
16:41
Speaker 2: meant and how that worked. Like we're not talking yeah,
16:43
Speaker 2: financial literacy, as in you gave your child money and
16:46
Speaker 2: then oh wow, they're so good at money as an adult. No,
16:49
Speaker 2: it was the conversations totally. It's like the way you
16:52
Speaker 2: grow up. It's mindset.
16:54
Speaker 3: Yeah, I completely agree, and I do. You just want
16:56
Speaker 3: to take this opportunity to really quickly shout out to
16:58
Speaker 3: people like myself who were young and not very financially literate,
17:02
Speaker 3: but also couldn't for the ben necessities, the basic noess
17:07
Speaker 3: and that's like such a difference. That is a difference,
17:09
Speaker 3: but it's still it's still beneficial to learn all these
17:12
Speaker 3: things because you can that cycle in the future. So
17:16
Speaker 3: I do just want to quickly shout out to them
17:18
Speaker 3: as well, because this is still very, very helpful no
17:21
Speaker 3: matter what your money story is, one.
17:22
Speaker 2: Hundred percent, and even if you're like Victoria, like and
17:25
Speaker 2: we aren't silly here at Sheese on the money, we
17:27
Speaker 2: know we're in the middle of the cost of living crisis.
17:29
Speaker 2: Oh yeah, we know that so many parents are going
17:32
Speaker 2: to listen to this and be like, oh my god,
17:33
Speaker 2: Like I just learned how to invest for my kids,
17:36
Speaker 2: and I have literally no cash flow because my husband
17:38
Speaker 2: and I fight every Thursday afternoon after I get back
17:41
Speaker 2: from grocery shopping because I always blow the budget and
17:43
Speaker 2: we don't know what we're going to do about that. Yeah,
17:45
Speaker 2: that is okay. Yeah, I think the crux of this
17:48
Speaker 2: story is know what investing is, know how it works,
17:51
Speaker 2: be able to have these conversations with your kids. Honestly,
17:55
Speaker 2: the best thing that you can do is be open
17:57
Speaker 2: and honest around money within reasons age appropriateness, but even
18:02
Speaker 2: just saying, oh, like, let's go back to baby Beck, right, Like,
18:05
Speaker 2: I know that you didn't grow up with a heap
18:06
Speaker 2: of money, and I know that you didn't have a
18:08
Speaker 2: lot of finance and money conversations, Like you probably understood
18:13
Speaker 2: that money was scarce. You probably like you picked up
18:16
Speaker 2: on that because kids are smart, Like you get it,
18:18
Speaker 2: like asking mom for money that would have given you
18:21
Speaker 2: like that pit in the bottom of your stomach because
18:23
Speaker 2: you didn't want to do it, because you knew that
18:24
Speaker 2: stress mum out totally. So imagine if the conversations in
18:29
Speaker 2: your household weren't about how much money we didn't have.
18:31
Speaker 2: But opic we're going to do the budgeting this week
18:34
Speaker 2: for the grocery shop. We only have fifty dollars. How
18:36
Speaker 2: do you reckon?
18:37
Speaker 3: We could spend it totally?
18:38
Speaker 2: Like, oh, this dinner and like back when you were little,
18:42
Speaker 2: dinners being ten dollars was pretty reasonable. Yeah, but like
18:45
Speaker 2: you know, what could we cook for ten dollars? Oh,
18:47
Speaker 2: we could do this? What if we took this out? Yeah,
18:50
Speaker 2: and didn't have that in that pasta dish? That brings
18:52
Speaker 2: it down to eight dollars. We've got another two dollars
18:54
Speaker 2: to play with over here, like kids get it? Yeah,
18:57
Speaker 2: and it actually really helps. And it's not just my
19:00
Speaker 2: instead around to our beck we don't have enough, yea,
19:02
Speaker 2: it's like we have to work with this. Let's raise
19:06
Speaker 2: this as an opportunity.
19:07
Speaker 3: Yeah, that's so true.
19:08
Speaker 2: And I'm not saying that that makes it easier. No,
19:10
Speaker 2: money is still bloody hard, oh god, But we're all
19:14
Speaker 2: raising little humans and we want them to have good
19:17
Speaker 2: mindsets r So what can we do that doesn't cost
19:20
Speaker 2: a scent?
19:20
Speaker 3: So true? I think it's a really good place to
19:22
Speaker 3: go to a really quick break, because I.
19:25
Speaker 2: Do want to talk more about investing an investment strategy,
19:28
Speaker 2: whether it's relatable.
19:29
Speaker 3: Or not perfect. I can't wait to hear it. Don't
19:31
Speaker 3: go anywhere, guys. Welcome back everyone. So if someone is
19:39
Speaker 3: listening and can see the benefits and they want to
19:41
Speaker 3: invest in the share market for their kids, what are
19:44
Speaker 3: their options?
19:45
Speaker 2: There are good options, which is very exciting. Let's backtrack
19:49
Speaker 2: a little bit because I need to give you a
19:50
Speaker 2: little bit of like history. Yes, before we jump into
19:55
Speaker 2: what they can do. Children can't own direct shares, So
19:59
Speaker 2: if they're un the age of eighteen, they actually can't
20:02
Speaker 2: enter into a binding contract. So legally to purchase a share,
20:06
Speaker 2: which is an asset, they would need to sign their name.
20:09
Speaker 2: They can't do that because they can't give informed consent,
20:12
Speaker 2: gotcha right. So that means that as a parent who
20:16
Speaker 2: wants to help their children invest it, like, you can't
20:19
Speaker 2: go down to the AX and just be like, oh,
20:21
Speaker 2: I'm going to open a share trading account in baby
20:23
Speaker 2: Beeck's name and I am going to invest in like.
20:26
Speaker 2: It just doesn't work that way, unfortunately. So you actually
20:30
Speaker 2: have two options to choose from. So you could invest
20:33
Speaker 2: in your name for your children, or you could set
20:37
Speaker 2: up a children's account. It's not in their name, but
20:41
Speaker 2: it is allocated to them, and you are nominated as
20:45
Speaker 2: the trustee on that account. So that sounds a little
20:48
Speaker 2: bit confusing because I'm starting to use words like trustee
20:51
Speaker 2: and like, you know, a miner's account and whatnot. It's
20:54
Speaker 2: not trustee literally just means you're the responsible party for it.
20:58
Speaker 2: Sure like it. Say there's a s'saxation word that basically
21:02
Speaker 2: a legal word that just means, like trustee means that
21:05
Speaker 2: you're the like you're responsible. Okay, so you're gonna happily
21:08
Speaker 2: do that. You could also get a little bit more
21:11
Speaker 2: complex and you could set up a family trust. But
21:14
Speaker 2: if you've listened to me before, I would say that
21:17
Speaker 2: that's not for everybody. Lots of people like to look
21:19
Speaker 2: that up, lots of people like to entertain that as
21:22
Speaker 2: an option, and I think more and more of us
21:24
Speaker 2: are stumbling across this family trust structure. I'm going that
21:31
Speaker 2: might be a good idea because of the rise of AI. Yeah,
21:35
Speaker 2: and I say that because you if you go to
21:37
Speaker 2: chat GPT and say, how could I invest for my children,
21:39
Speaker 2: which is a great place to start, Like we love
21:41
Speaker 2: research chat GPT is going to go. Oh well, there's
21:44
Speaker 2: three main options. You could invest in your own name,
21:46
Speaker 2: you could set up a kid's account with a platform
21:48
Speaker 2: that allows it, or you could set up a family trust.
21:51
Speaker 2: But what they don't tell you is how expensive family
21:53
Speaker 2: trusts are. What they don't tell you is how complex
21:56
Speaker 2: they can be. That it's a second layer of like
21:59
Speaker 2: literal ta compliance. You need to make sure that you're
22:03
Speaker 2: auditing that trust and it also has its own tax return. Yeah,
22:07
Speaker 2: so when you go for simple questions like that, maybe
22:11
Speaker 2: you don't get the background. We actually have an episode
22:15
Speaker 2: talking about family trust. Make sure it's linked below to
22:18
Speaker 2: make sure that if you're really interested, you can go there.
22:20
Speaker 2: I have disclosed before that I have a family trust, yes,
22:23
Speaker 2: but honestly, babe, that's because I have businesses. Yeah, I
22:27
Speaker 2: don't invest for my kids in that, and I have
22:29
Speaker 2: no intention of using that for my kids. Got you Okay, Like, yeah,
22:33
Speaker 2: not advice, but personally I wouldn't do that. Okay, Yeah,
22:36
Speaker 2: give your stories because I am a licensed yes individual anyway,
22:43
Speaker 2: So option one, let's dive into it a little bit more. Yeah,
22:47
Speaker 2: you are a regular adult. You open a regular adult
22:51
Speaker 2: investment account and you hold the investments in your name.
22:55
Speaker 2: So you've gone exactly the same way Beck you did.
22:58
Speaker 2: You got shareses, but the money in there, you've got
23:01
Speaker 2: it like earmarked or your kid, so there's not any
23:05
Speaker 2: difference in how you would invest individually as to how
23:09
Speaker 2: you might invest for your child. Lots of people do
23:12
Speaker 2: it this way. This method is I would say, pretty
23:16
Speaker 2: bread and butter. Comes with all the usual options, the
23:19
Speaker 2: normal fees, the tax rules that apply to your marginal
23:23
Speaker 2: tax rate, all the same tax rules, all the same
23:26
Speaker 2: laws apply as an adult account. Just because you've got
23:29
Speaker 2: it earmarked for your child doesn't mean the ATO knows
23:33
Speaker 2: that if your TFN is linked to that account, it
23:37
Speaker 2: means that some of that income will contribute to your
23:41
Speaker 2: taxable income, which is where people who have higher income
23:44
Speaker 2: start to go, Well, you know, if I'm paying forty
23:46
Speaker 2: seven percent tax, I don't really want to do that,
23:48
Speaker 2: and you might start to look at other options. But
23:51
Speaker 2: it's for you is a complex decision. Yeah, okay. So
23:56
Speaker 2: let's say you've invested for eighteen years and then you
23:59
Speaker 2: have said to your kid, this is yours all along,
24:00
Speaker 2: and you want to transfer it to your kid. That's
24:02
Speaker 2: fantastic to transfer it to your kid. You can't just
24:05
Speaker 2: change names. You have to sell those shares to give
24:09
Speaker 2: them the money. You can't just transfer shares into somebody
24:12
Speaker 2: else's name, or you have to dispose of them and
24:15
Speaker 2: then reinvest them if that's what you want to do.
24:18
Speaker 3: But by this point the share price might be higher.
24:22
Speaker 2: Yes, I see it, because you've had all this sexy
24:24
Speaker 2: compound interest because you've been investing for them for like
24:28
Speaker 2: eighteen years. What happens is you get a really big
24:33
Speaker 2: CGT event, so a capital gains tax event will happen
24:37
Speaker 2: because the at will go, oh fantastic, Beck, you want
24:40
Speaker 2: to sell those shares. Yeah, I know you're only investing
24:43
Speaker 2: ten dollars a week or whatever, but we looked at
24:46
Speaker 2: it and you now have like a couple of hundred grand.
24:49
Speaker 2: So you're actually going to be up for tens of
24:51
Speaker 2: thousands of dollars of tax on this when you sell it,
24:55
Speaker 2: because it's capital gains. Oh my good. So you've paid
24:58
Speaker 2: your tax along the way, okay on the money that
25:01
Speaker 2: your money is aren't And that's fine, sure, but capital
25:04
Speaker 2: gains happens when you dispose of an asset if that
25:08
Speaker 2: makes sense. So it does, so you might not find
25:11
Speaker 2: that as sexy of an option when you go. But
25:15
Speaker 2: I want it to be in Beck's name. I don't
25:17
Speaker 2: want it to sit in mum's name forever. You're eighteen.
25:19
Speaker 2: The intent was to give it to you to manage
25:21
Speaker 2: on your own. But we'll also lose a fair chunk
25:24
Speaker 2: of this money if we dispose of it and put
25:26
Speaker 2: it in your name because we have to play CGD.
25:28
Speaker 3: Is there any way of so you go, You got
25:32
Speaker 3: to pay that eventually, I assume if you want to,
25:34
Speaker 3: like ever, that's.
25:35
Speaker 2: How you want to do it, because legally the shares
25:37
Speaker 2: aren't linked to your child like they true, that was
25:40
Speaker 2: always in your name and it's just your intention to
25:43
Speaker 2: give it to them at some point. Legally they're yours,
25:46
Speaker 2: they're not your child's. Yeah, you do get more flexibility
25:50
Speaker 2: with that money though, So like I used to talk
25:54
Speaker 2: to a lot of people about investing for their children,
25:57
Speaker 2: and you just never know how your kid's going to
25:58
Speaker 2: grow up, So do the absolute best that we can.
26:02
Speaker 2: But that doesn't mean that your child will necessarily make
26:07
Speaker 2: the best decisions in the entire world. And if you
26:10
Speaker 2: set up a structure that automatically rolled into their name
26:12
Speaker 2: at the age of eighteen. I have seen it go
26:16
Speaker 2: awry where that eighteen year old is not a responsible
26:19
Speaker 2: eighteen year old. They might be struggling with addiction, they
26:22
Speaker 2: might be struggling with gambling, they might have issues with
26:28
Speaker 2: impulse control. There might just be a really good eighteen
26:31
Speaker 2: year old who came into a lot of money and
26:33
Speaker 2: got really excited totally, So that might be kind of
26:37
Speaker 2: cool that if you're investing under your own name, you'd
26:39
Speaker 2: be like, you are not getting that cash hold of
26:40
Speaker 2: right now, you cannot be responsible. Yeah, yeah, yeah, I
26:45
Speaker 2: like that. Yeah, Okay, so you didn't work that hard
26:48
Speaker 2: and invest that many years investing beck Yeah, to then
26:51
Speaker 2: hand it over to somebody who might not be the
26:53
Speaker 2: most responsible person in the world at that point in
26:55
Speaker 2: their life, it'd.
26:56
Speaker 3: Be hard to watch.
26:57
Speaker 2: Let's talk about option two. Yes, I could tell you
27:00
Speaker 2: a lot of gossip, but I will leave that on
27:02
Speaker 2: the table. The second option was a kid's account with
27:06
Speaker 2: you as the trustee. So you're the responsible person. So
27:10
Speaker 2: ultimately you open a kid's account in your name as
27:13
Speaker 2: a trustee for your child. And there are a few
27:15
Speaker 2: platforms that offer this. At this point in time, shares
27:18
Speaker 2: is being I would say, newest to the market and
27:20
Speaker 2: the one that I've been waiting for. The investment legally
27:24
Speaker 2: belongs to the child, but as the trustee, you manage
27:27
Speaker 2: it for them until the age of eighteen. And these accounts,
27:31
Speaker 2: they still come with rules, right, So the child will
27:34
Speaker 2: have to have a tax file number and it needs
27:37
Speaker 2: to be linked to the account, not to the parents. Okay,
27:40
Speaker 2: So any income is then reported under the child's tax
27:44
Speaker 2: file number. So that means that the miners tax rules
27:48
Speaker 2: do apply.
27:49
Speaker 3: Are you okay?
27:50
Speaker 2: And you know how I feel about those miners. Yes,
27:52
Speaker 2: tax rules, and the ATO applies special miners tax rates,
27:59
Speaker 2: and I don't really like them because they're astronomical sometimes
28:05
Speaker 2: and we'll get into that. But the reason they do
28:08
Speaker 2: this is not to punish your kid because they're investing early.
28:11
Speaker 2: It's because they needed to change the tax rules because
28:14
Speaker 2: really rich people were taking advantage of them and using
28:17
Speaker 2: their kids to distribute their income at a really low rate,
28:21
Speaker 2: and that's not cool. So basically they were designed to
28:25
Speaker 2: stop all these tax rules were designed to stop parents
28:28
Speaker 2: from putting investments into their kids' names and then avoiding
28:31
Speaker 2: paying tax.
28:32
Speaker 3: I can ask a really really quick question. Of course,
28:34
Speaker 3: you can always confuse by if you can't actually legally
28:37
Speaker 3: get a job until fourteen years and nine months, which
28:39
Speaker 3: is a very random also a very random time, they.
28:42
Speaker 2: Why not make it fifteen years?
28:44
Speaker 4: Then?
28:44
Speaker 3: How how would a miner be making money?
28:47
Speaker 2: Anyways of ways that miners can make money child actors? True,
28:52
Speaker 2: of course you might actually come from a relatively wealthy
28:55
Speaker 2: family and have an asset distributed to you on pom
28:58
Speaker 2: birth you got you, And this is where it used
29:02
Speaker 2: to only not only apply you could have done it,
29:05
Speaker 2: but it was more complex and like historically, investing was
29:09
Speaker 2: much harder to get into, Like we've talked about this before,
29:12
Speaker 2: Like there were really high amounts of money that you
29:14
Speaker 2: had to invest to even invest in the sher market
29:16
Speaker 2: for the first time. And nowadays, with platforms like chares is,
29:19
Speaker 2: you can invest for as little as one sense, so
29:21
Speaker 2: they're so much more accessible. But historically, really rich families
29:24
Speaker 2: would be like, oh, well, we'll give baby Beck ten
29:27
Speaker 2: thousand dollars worth of PHP shares when she's born, and
29:30
Speaker 2: we bought them in British sterling with rich rich you
29:34
Speaker 2: know what I mean, So like you might just be
29:37
Speaker 2: basically dress fun baby, and we need a way of
29:39
Speaker 2: tracking that. This system was born and then people started
29:44
Speaker 2: taking advantage of it and the tax system and the
29:46
Speaker 2: ADO man was like, ah ah, no, no, you've got
29:49
Speaker 2: to stop this, and so they put rules on it.
29:51
Speaker 2: And now those rules do feel restrictive because investing has
29:55
Speaker 2: become more accessible. And now investing is more accessible, you
29:58
Speaker 2: and I could do it, and we're in doing small amounts.
30:01
Speaker 2: We're not trying to take advantage of the system. But
30:03
Speaker 2: the system still crucifies you. Basically got you because they
30:09
Speaker 2: have assumed that mainly this system will be used by
30:12
Speaker 2: the rich rich understood, okay, okay, And these like these
30:16
Speaker 2: tax rates apply to unearned income, So if you were
30:20
Speaker 2: working as a child, that's different than unearned income because
30:25
Speaker 2: like if you're a kid and someone's gifting you money
30:27
Speaker 2: into your share portfolio and you're making money from that,
30:30
Speaker 2: like you didn't work for it, basically, and that's sexy
30:33
Speaker 2: because we love not working for money. But also the
30:35
Speaker 2: ATO sees that as unearned income, so things like dividends
30:38
Speaker 2: and interest and distributions from an ETF or a managed
30:43
Speaker 2: fund fall under that earned income. Like once you're fourteen,
30:46
Speaker 2: years and nine months and it's a little bit more vanilla,
30:49
Speaker 2: like your wage from a part time job. They go, oh, no, no, no,
30:52
Speaker 2: that's legitimate work, and it's just taxed at normal adult rates.
30:56
Speaker 2: Like the minus rules don't apply. That's why you might
30:58
Speaker 2: be like thee. None of these rules applied when I
31:00
Speaker 2: was under eighteen and I had my first job, because
31:03
Speaker 2: you were earning the income. This is what we're talking about,
31:06
Speaker 2: is the unearned income. So if you've followed me thus
31:11
Speaker 2: far and you're still hanging out, letting me talk to you,
31:14
Speaker 2: probably in your car at minus tax rates. One, thank
31:17
Speaker 2: you for having me. Two, let me tell you what
31:21
Speaker 2: those thresholds are and get into the nitty gritty. So
31:24
Speaker 2: your kid can earn up to four hundred and sixteen
31:26
Speaker 2: dollars each in every single financial year or right now,
31:30
Speaker 2: we're just talking about the twenty twenty five twenty twenty
31:32
Speaker 2: six financial year rules. First, four hundred and sixteen dollars
31:36
Speaker 2: tax free. Great. If you earn between four hundred and
31:40
Speaker 2: seventeen and one thy three hundred and seven dollars sixty
31:45
Speaker 2: six percent tax, Jeez, isn't that rude?
31:49
Speaker 3: That's insane?
31:51
Speaker 2: More than that. So if you earn more than thirteen
31:54
Speaker 2: hundred and seven dollars, It's forty five percent, which is
31:59
Speaker 2: the highest margin tax bracket for an adult on the
32:02
Speaker 2: whole amount over thirteen hundred and seven dollars plus the
32:08
Speaker 2: five hundred and ninety four dollars from the earlier tier.
32:11
Speaker 3: Okay, why don't they just make it slightly more than
32:13
Speaker 3: the adult rates? So adults are like, Okay, well, I
32:15
Speaker 3: won't do it anymore. It's not it's no longer effective. Like, no,
32:18
Speaker 3: we're going to go above and beyond with it.
32:20
Speaker 2: We've really said, hahaha, have fun trying to set your
32:24
Speaker 2: kid up for life.
32:25
Speaker 3: Yeah, like, oh, so we actually don't care about the
32:28
Speaker 3: poor people that are actually trying to make money. We're
32:29
Speaker 3: thinking only of the rich and we don't want you
32:31
Speaker 3: to a benefit anymore, which is yah.
32:32
Speaker 2: So this this all stuff that we have to be
32:35
Speaker 2: really aware of, crazy because like, let's be honest, it
32:39
Speaker 2: might work out for the best. And I do have
32:41
Speaker 2: a strategy that can be helpful in minimizing tax later
32:44
Speaker 2: in the episode that we will get to. But so
32:47
Speaker 2: beck money win. Many kids accounts have low account fees, Okay,
32:52
Speaker 2: thlus the money win. The love of money win. Withdrawals
32:56
Speaker 2: must benefit the child, ah, so that you can't just
32:58
Speaker 2: withdraw the money and be like, huh, that's my now lol.
33:01
Speaker 2: It must benefit the child because the account operates like
33:04
Speaker 2: a bear trust, So that means that any withdrawals need
33:08
Speaker 2: to be used for the child's benefits. So it needs
33:10
Speaker 2: to be for things like education or future savings or
33:13
Speaker 2: similar to that. Like you might be going, oh, I'm
33:16
Speaker 2: actually using it for them. It has to be for them,
33:19
Speaker 2: not just because you decided to withdraw it. Parents can't
33:22
Speaker 2: legally use the funds for themselves. How do they regulate that.
33:27
Speaker 2: It's a very hard honesty system basically, but if you
33:31
Speaker 2: get audited by the ATO, they'll be kbeck. So you
33:34
Speaker 2: pulled out one thousand dollars from your kid's account, could
33:37
Speaker 2: you please show us where that went? And it's twenty
33:39
Speaker 2: twenty six, so sorry. They've probably got the tracking on
33:43
Speaker 2: what account it came from, what account it went to,
33:45
Speaker 2: and they can probably trace it. So as much as
33:47
Speaker 2: it's an honesty system, they could probably work it out
33:50
Speaker 2: from doing a deep dive into bank statements that includes
33:53
Speaker 2: during financial hardship. I see, So if you were investing
33:57
Speaker 2: in your own name, yes, it's earmarked for your but
34:00
Speaker 2: if you were experiencing financial hardship, you could pull it
34:02
Speaker 2: out in no worries. No one's going to question you
34:04
Speaker 2: because technically it's legally yours. Okay, amazing. So what I
34:09
Speaker 2: would say is you never ever, ever, and I've said
34:11
Speaker 2: this a million times one, it will be investing in
34:13
Speaker 2: your emergency fund or any money that you might need
34:17
Speaker 2: to access for you. It's just the child in there. Yes,
34:21
Speaker 2: transfer of ownership happens at eighteen, so when a child
34:25
Speaker 2: reaches adulthood, the account can formally be transferred into their
34:28
Speaker 2: name without triggering capital gains tax. Oh soon, know how
34:32
Speaker 2: I said before, like, that's an issue if it's in
34:34
Speaker 2: your name because it was always legally theirs and you
34:37
Speaker 2: were just the trustee. We're dropping the trustee. They don't
34:40
Speaker 2: need the supervision anymore because they're of age. Some accounts
34:44
Speaker 2: actually give you the ability to transfer it up to
34:47
Speaker 2: the age of twenty five if you feel like your
34:52
Speaker 2: kid maybe not ready for it at eighteen, got you?
34:55
Speaker 1: Okay?
34:55
Speaker 2: So I'm not just saying, oh my god, Victoria saw
34:58
Speaker 2: all of these things happen. No, this is an industry
35:00
Speaker 2: wide thing. I think it's not. I'm sorry. I think
35:04
Speaker 2: it's just a teenage thing. You turn, you're not immediately
35:07
Speaker 2: like your frontal lobe still has so much growing too.
35:10
Speaker 2: It's so young. I look back at me at eighteen,
35:13
Speaker 2: and I thought I was so smart. Girls, sit down,
35:15
Speaker 2: I know. And one thing worthy of thinking about as
35:19
Speaker 2: always is minimum investment amount. Some platforms like chare Z's,
35:24
Speaker 2: and this is not even me promoting them, but literally
35:27
Speaker 2: like Shares is let you buy fractional shares with no
35:30
Speaker 2: minimum amount, So it's totally possible to invest, like literally
35:33
Speaker 2: back one dollar or that fifty dollars birthday money that
35:36
Speaker 2: they got from their aunt in a card, or just
35:39
Speaker 2: popping in ten dollars a week. So that's completely feasible.
35:42
Speaker 2: And that continuity and consistency really does matter, and it
35:46
Speaker 2: makes investing accessible even if you don't have a really
35:49
Speaker 2: big lump sum at the start.
35:50
Speaker 3: Amazing.
35:51
Speaker 2: And historically on other episodes talking about investing, I've talked
35:56
Speaker 2: about investment bonds and things like that, and they do
35:59
Speaker 2: have a minute investments, usually of hundreds of dollars. It's
36:02
Speaker 2: just not feasible for everybody. No, So like, yes, don't
36:05
Speaker 2: get me wrong, there's lots of different structures, but like,
36:09
Speaker 2: I think it's really important to also be accessible, and like,
36:11
Speaker 2: I'm sorry, your kid isn't going to sit down with
36:13
Speaker 2: you at like six and be like, oh, I'm investing,
36:16
Speaker 2: and you're letting them invest hundreds of dollars each transaction? Yeah? Crazy, Sorry,
36:20
Speaker 2: really get them money from exactly? Like how much are
36:23
Speaker 2: you paying your kid in pocket money? And if it's
36:25
Speaker 2: that much, why are you listening to she's on them? True? Okay,
36:30
Speaker 2: I love that you're here. But if you can afford
36:33
Speaker 2: to give your kids thousands of dollars to invest on
36:36
Speaker 2: a regular and consistent basis, you've made it. You probably
36:39
Speaker 2: don't need us.
36:40
Speaker 3: Yeah, congratulations, you actually pass the course, so she's in
36:43
Speaker 3: the money calls.
36:44
Speaker 2: Yeah, you actually graduated ages ago. That's all good. But
36:48
Speaker 2: like we're just talking about a relatively relatable here.
36:52
Speaker 3: Yeah, but thank you so much for being his stiff.
36:55
Speaker 2: Appreciate it. And I mean, having a separate account does
36:58
Speaker 2: let you separate their future mone from the money that
37:00
Speaker 2: you have. Having it in yours can get a little
37:02
Speaker 2: bit murky. That's where you sometimes find parents who are
37:05
Speaker 2: choosing that strategy to oh, well, I'm going to have
37:09
Speaker 2: my kids account on Chasias and I might just use
37:11
Speaker 2: another platform. You don't really like having two platforms, but
37:14
Speaker 2: you just like wanted to keep them separate. Yeah, and
37:16
Speaker 2: it could get a little bit messy and then you're
37:18
Speaker 2: paying double fees and then you're like, anyway, it's just
37:21
Speaker 2: not as fun when everything's in your name. I would
37:24
Speaker 2: say it's easier for their quote future fund to blur
37:27
Speaker 2: with you, like your general savings. You might ife an
37:30
Speaker 2: invest it anyway, and a kids account. I would say
37:34
Speaker 2: it just creates a like psychological and legal like boundary. Yeah,
37:40
Speaker 2: but like for me, it's about the psychological boundary mostly
37:43
Speaker 2: like love the legals of it, but like, I just
37:45
Speaker 2: love that your kid would have their own little platform.
37:48
Speaker 2: So like you log in and you show them their kids.
37:50
Speaker 2: They can see their growth and that's theirs and it's
37:54
Speaker 2: clear and it's consistent and it helps you stay on track.
37:57
Speaker 2: So true, and you can be like, oh, you could
37:59
Speaker 2: look at mmiesmummies. There's a little bit more complex, but
38:02
Speaker 2: here's this like and we're having fun conversations. For me,
38:05
Speaker 2: investing for kids is so exciting because I know that
38:09
Speaker 2: you're doing it because you want to put your future
38:10
Speaker 2: kid first, Like you're just like, I want you to
38:12
Speaker 2: have the best financial future, And like, I don't think
38:14
Speaker 2: I've ever met a parent who says I don't want
38:18
Speaker 2: better for my kid than I had. Like, we all
38:21
Speaker 2: want better for our kids. Whether we can afford that
38:24
Speaker 2: or not, we want that. But importantly, even if you're
38:27
Speaker 2: investing really small amounts, it's an educational tool. When kids
38:31
Speaker 2: can log in and see their own little balance growing,
38:34
Speaker 2: it turns investing into something tangible, and you are giving
38:37
Speaker 2: them the financial literacy that you never had. Yeah, even
38:40
Speaker 2: if it's ten dollars, do you know how excited ten
38:44
Speaker 2: dollars to kids? Oh my lord, we can't buy lunch
38:47
Speaker 2: for ten dollars anymore, but could basically convince any under
38:52
Speaker 2: ten year old to wash your car, vacuum it out,
38:55
Speaker 2: all for under ten bucks, you know what I mean.
38:57
Speaker 2: They think that's so much money. You might not, but
39:01
Speaker 2: they see that and you go, oh my god, your
39:02
Speaker 2: ten dollars is now worth eleven dollars. Isn't that so crazy?
39:05
Speaker 2: It's so crazy. That was a dollar of free money
39:07
Speaker 2: and you didn't even have to vacuum the car. That's incredible, right,
39:10
Speaker 2: And the idea around or like the concept of having
39:14
Speaker 2: a kid's account is that it's tax free it transfer,
39:16
Speaker 2: which we love to see because obviously we don't want
39:19
Speaker 2: to pay more tax than we have to. So when
39:21
Speaker 2: they turn eighteen, you can usually transfer the portfolio into
39:23
Speaker 2: their name without triggering CGT because it was legally theirs
39:27
Speaker 2: and you were just the trustee as opposed to you
39:29
Speaker 2: it being in your name back and like having to
39:31
Speaker 2: go through the legal rigmarole. You're kind of just removing
39:34
Speaker 2: yourself as a trustee. And if the investments were in
39:36
Speaker 2: your name, that transfer would have triggered a CGT event
39:40
Speaker 2: at your tax rate, Yes, on your tax return, got
39:43
Speaker 2: you got you got. So it's not even your kid
39:45
Speaker 2: who pays a tax that comes up for you.
39:47
Speaker 3: Yeah, that really is shocking.
39:48
Speaker 2: So I pay your own tax, you rich, and then
39:51
Speaker 2: you make me pay your tax still I know, no illegal.
39:53
Speaker 3: That part really shocks me. So the taxing sounds pretty
39:57
Speaker 3: complicated and like scary. It almost like and I don't know,
40:00
Speaker 3: this is probably not right, but I'm almost like, Okay,
40:03
Speaker 3: what's the point.
40:04
Speaker 2: Those tax rates I gave you before sound astronomical and overwhelming,
40:08
Speaker 2: and that is what usually scares parents off. But I
40:10
Speaker 2: do want to and I promised some maths. I do
40:13
Speaker 2: want to break it down for you. So the big
40:15
Speaker 2: rate only kicks in if the account in total, not
40:18
Speaker 2: if you invested four hundred and sixteen, but if the
40:21
Speaker 2: account makes more than four hundred and sixteen dollars of
40:24
Speaker 2: investment income in one year.
40:26
Speaker 3: So let's say you put a dollar in and somehow
40:28
Speaker 3: that dollar has turned into four hundred and seventeen.
40:30
Speaker 2: Dollars, like you might be talking about tax on that
40:34
Speaker 2: one dollar above the four hundred and sixteen dollar threshold threshold.
40:39
Speaker 2: So these are things like your dividends. So you know
40:42
Speaker 2: when you open your portfolio and you have more than
40:45
Speaker 2: a one thousand dollars in there now, but we're not
40:48
Speaker 2: talking about your thousand dollars. We're talking about the money
40:50
Speaker 2: that has been made by your port golarge. Should we
40:52
Speaker 2: be talking about the dividends and the distributions. And this
40:55
Speaker 2: is not on capital growth of the shares unless you
40:58
Speaker 2: sell them. Okay, if you're investing for your kid for
41:01
Speaker 2: the long term, I'm assuming you're not planning on selling them, right, Yeah,
41:05
Speaker 2: And there are ways to minimize investment income, So based
41:09
Speaker 2: on what you choose to invest in, if you focus
41:12
Speaker 2: on like high growth, low yield ETFs, So like ETFs
41:16
Speaker 2: that have really strong growth but don't pay lots of dividends,
41:21
Speaker 2: which is exactly opposite to what I think I've told
41:23
Speaker 2: you before. Like, if you go and listen to my
41:25
Speaker 2: adults investing content and you're like, V, what's your favorite
41:28
Speaker 2: type of share, I'm like, go, the one that makes
41:30
Speaker 2: me money because it increases in income, and the one
41:32
Speaker 2: that pays me money for owning it. Yeah, I love
41:35
Speaker 2: a little double dip. I want to be making money totally.
41:39
Speaker 2: Because I call me greedy, I don't even care. I
41:41
Speaker 2: just want to get wealthy, and that's what most of
41:43
Speaker 2: us want. But for a children's account, you might consider
41:49
Speaker 2: an ETF that just has really strong growth but doesn't
41:52
Speaker 2: pay a lot of dividends. So your kids investment worth
41:56
Speaker 2: still growth, but their yearly income is going to be lower. Yeah,
41:59
Speaker 2: a lot of like dividends being paid into their account.
42:02
Speaker 2: And because capital gains tax only applies when you sell
42:05
Speaker 2: an asset, essentially you're deferring the tax on that growth
42:09
Speaker 2: until later, and ideally when later happens, your kid's an adult,
42:14
Speaker 2: and it's not a sixty six percent tax rate, it's
42:16
Speaker 2: their marginal tax rate of whatever they earn and like
42:19
Speaker 2: they'll never experience that sixty six percent tax rate. Got you?
42:23
Speaker 3: Okay, okay, So how do we actually pick something that
42:26
Speaker 3: is high growth and low yield? Yield yield yield ye
42:32
Speaker 3: old year old.
42:33
Speaker 2: It's one of those things. It just comes back to research.
42:37
Speaker 2: And I think that's a really good question because like
42:39
Speaker 2: high growth low yield sounds complicated and also like something
42:43
Speaker 2: that not lots of people might be like, oh, yeah,
42:45
Speaker 2: I'd love just growth. Yeah, but that happens. That's a
42:48
Speaker 2: valid strategy. It's actually really simple when you know what
42:52
Speaker 2: to look for. So if you've decided v this strategy
42:56
Speaker 2: is for me, that's exactly what I want to do.
42:59
Speaker 2: What you're trying to find are investments that make most
43:02
Speaker 2: of their return from the value of the company increasing,
43:06
Speaker 2: so not because they pay out big dividends every few months.
43:10
Speaker 2: So a really good example of a big company that
43:13
Speaker 2: pays out dividends consistently. And I've used it on the
43:15
Speaker 2: show before, Nab the Bank. I just use this because
43:20
Speaker 2: I feel like I used to have lots of clients
43:22
Speaker 2: that used it, and I know it like the back
43:24
Speaker 2: of my hand. That is a bank share. And as
43:27
Speaker 2: we know, bank shares are pretty stable in the market,
43:30
Speaker 2: like they don't increase in value significantly over time. They do,
43:33
Speaker 2: but they don't you know, have year on year growth
43:35
Speaker 2: of the value of the asset. But they do pay
43:38
Speaker 2: consistent dividends. And that's why lots of people when you're
43:41
Speaker 2: talking about blue chip shares, they're picking things like the
43:44
Speaker 2: HP and one of the big four banks and all
43:47
Speaker 2: of that kind of like I would say, old school.
43:50
Speaker 2: When you're thinking about investment, you think boring, old school,
43:53
Speaker 2: your grandpa probably invested in it kind of shares. The
43:56
Speaker 2: reason people like those is they're consistently paying dis ends.
44:00
Speaker 2: They're not necessarily increasing in value astronomically, but they're slow
44:04
Speaker 2: and steady, they're proven, they pay out dividends. We love
44:08
Speaker 2: making money. That's probably not what you're looking at here,
44:11
Speaker 2: got you. So, when you're researching ETFs or managed funds,
44:16
Speaker 2: you're going to look for two things. You're going to
44:18
Speaker 2: look at the distribution yield, and you're also going to
44:20
Speaker 2: look at the growth focus that that ETF or that
44:23
Speaker 2: managed fund has, and that's going to just be in
44:25
Speaker 2: the funds description like it will say this fund is
44:29
Speaker 2: focused on growth or this fund is focused on increasing
44:33
Speaker 2: sharehold dividend distribution. You go cool, So it's focused on
44:37
Speaker 2: paying me, or it's focused on increasing how much that
44:40
Speaker 2: company is worth. Now because they are high growth, they
44:43
Speaker 2: probably could be more volatile, so we need to be
44:46
Speaker 2: careful but more risk, but you've got more time. Kids
44:50
Speaker 2: have time on their side to ride out these waves
44:52
Speaker 2: in the market. Yeah, so like that's kind of a win.
44:55
Speaker 2: And if the distribution yield, just to give you some numbers,
44:58
Speaker 2: is around one to one zero point five percent, I'd
45:02
Speaker 2: say that's generally low. Gotcha. Those are often like global
45:06
Speaker 2: or US ETFs as they usually like to like those
45:09
Speaker 2: companies usually like to reinvest the profit of the company
45:13
Speaker 2: back into their growth rather than giving them to shareholders.
45:16
Speaker 4: Sure.
45:17
Speaker 2: Sure, so you're probably looking at newer companies as well,
45:19
Speaker 2: whereas old tried true.
45:20
Speaker 3: They're like, well, we.
45:21
Speaker 2: Don't really need any more buildings, we don't need to
45:24
Speaker 2: increase how many stuff we have, we don't need to
45:26
Speaker 2: develop any new products, like we can just give it
45:29
Speaker 2: to the shareholders. That's usually not their focus. Australian shares
45:34
Speaker 2: and ETFs tend to have higher yields, so you're looking
45:38
Speaker 2: at on average, I'd say between three and four percent.
45:41
Speaker 2: Because Australian companies they like to pay out to their shareholders.
45:44
Speaker 2: I love to give your dividence.
45:46
Speaker 3: Why is that the case? Why do they have what
45:49
Speaker 3: are Australian chairs of a higher yield?
45:51
Speaker 2: Oh we're just so generous as a nation. No, that's
45:54
Speaker 2: not necessarily true. It has to do with how our
45:56
Speaker 2: tax system is set up in comparison to how international
45:59
Speaker 2: tax is stems are set up. And companies are usually
46:03
Speaker 2: incentivized to pay out or distribute dividends to investors. And
46:07
Speaker 2: we've talked about it before, but here in Australia we
46:10
Speaker 2: have something called franking credits and usually their most effective
46:13
Speaker 2: inside the uernuation environment. But when an Australian company earns
46:17
Speaker 2: a profit, it pays company tax. Any profit my business
46:22
Speaker 2: has earned beck and any profit any ASX big big
46:25
Speaker 2: dog companies earn, we pay thirty percent. Okay, so pay
46:29
Speaker 2: thirty percent tax. And after that it can pay some
46:32
Speaker 2: of those profits out to shareholders as dividends to stop
46:37
Speaker 2: that money then being taxed twice, because like if I've
46:39
Speaker 2: paid the tax as a business owner and then I
46:41
Speaker 2: distribute it to a shareholder and it's already had tax
46:44
Speaker 2: paid on it. The company attaches and I like to
46:47
Speaker 2: call it an IOU. It's like a little flag on
46:49
Speaker 2: the money when it comes through to you get your
46:51
Speaker 2: IOU thing and it says, hey, this is a franking credit,
46:55
Speaker 2: and that's the little post it note that's sitting on
46:57
Speaker 2: your money to let the ato no tax has already
47:00
Speaker 2: been paid on this. So when you get it and
47:03
Speaker 2: you submit it to the ater and go, hey, cool,
47:05
Speaker 2: so I got this dividend, but thirty percent of the
47:06
Speaker 2: tax has already been paid on it, you actually get
47:08
Speaker 2: a tax credit as a shareholder showing that the tax
47:12
Speaker 2: has already been paid at a company level. So if
47:14
Speaker 2: your tax rate is thirty percent or lower, you don't
47:17
Speaker 2: actually have to pay any more tax on the They're
47:19
Speaker 2: like that all comes out in the wash, no worries back.
47:21
Speaker 2: You earn thirty percent tax and that company that you
47:24
Speaker 2: owned also paid thirty percent tax. But if your tax
47:27
Speaker 2: rate is higher, you just pay the difference. So for
47:30
Speaker 2: most of us, given most of us in the shees
47:32
Speaker 2: on the money community are on either a thirty percent
47:35
Speaker 2: or a thirty seven percent tax rate, that's a good
47:37
Speaker 2: deal because even if you're on thirty percent, you end
47:39
Speaker 2: up only paying seven percent tax. That's pretty good, right,
47:42
Speaker 2: So those like little franking credits, it sounds dumb, like
47:44
Speaker 2: why don't you just call it an IOU tax? Anyway,
47:49
Speaker 2: that's what makes sense in my head. Yeah, franking credit complicated,
47:52
Speaker 2: it's simple. Yeah, totally mean. Like if I said to
47:54
Speaker 2: somebody who'd never heard of it, franking credit, you'd be like,
47:56
Speaker 2: who's frank?
47:57
Speaker 3: Yeah, I don't even know what to stard.
47:59
Speaker 2: I owe him credit.
48:00
Speaker 3: Ye.
48:01
Speaker 2: But with the higher tax rates for kids, going back
48:04
Speaker 2: to this, even if your dividends are franked, if your
48:07
Speaker 2: tax rate is sixty six percent, you actually still have
48:09
Speaker 2: to pay the difference of thirty six percent. It's still
48:12
Speaker 2: not the end of the world. But we need to
48:13
Speaker 2: be educated. Yes, And because the system is relatively new
48:17
Speaker 2: in Australia, like literally, in comparison to most countries, we
48:22
Speaker 2: are basically just over two hundred years old. Remember there's
48:25
Speaker 2: a whole conversation in that we're not two hundred years old.
48:28
Speaker 2: We are thousands and thousands of years old. But colonization
48:31
Speaker 2: happened two hundred years ago, right. Australia encourages investors to
48:36
Speaker 2: really focus on homegrown companies and yields often higher here. Yeah,
48:40
Speaker 2: because we are our newer economy, got you, got you
48:44
Speaker 2: comganization crazy, I mean, let's not even you know how
48:48
Speaker 2: I feel about that.
48:50
Speaker 4: I know, I know.
48:51
Speaker 2: Okay, So a tax.
48:53
Speaker 3: System basically rewards assie investors. Yeah, we're rewarded for sticking local.
48:59
Speaker 3: I see O God, they love it, they love it.
49:02
Speaker 3: What happens when we look at something like a US ETF.
49:06
Speaker 2: Okay, so if we look at I guess one of
49:08
Speaker 2: the most popular ETFs IVV, that's I shares core s
49:13
Speaker 2: and P five hundred ETF, you can buy it on
49:15
Speaker 2: the ASX. So you can go and buy it as
49:17
Speaker 2: an Australian investor and it gives you international exposure. You
49:19
Speaker 2: don't have to do anything complicated. You can literally just
49:21
Speaker 2: buy it on your shares thes app. I'm not saying
49:23
Speaker 2: you should invest in this, just to be very clear,
49:26
Speaker 2: just because I talk about a share, I am sharing it.
49:28
Speaker 2: And I have picked this investment as an example just
49:31
Speaker 2: because it's popular. Yeah, So you do your research, you
49:35
Speaker 2: do everything. But I've picked it because it is literally
49:37
Speaker 2: one of the most popular international ETFs, and I feel
49:41
Speaker 2: like I have to caveat this past performance is not
49:44
Speaker 2: a reliable predictory future performance back. But for the purposes
49:47
Speaker 2: of this I am using the averages of this fund
49:49
Speaker 2: over the last twenty years. Okay, anyway, that was a mouthful.
49:52
Speaker 2: The average growth of IVV is about nine percent over
49:58
Speaker 2: the last twenty years, and that includes capital growth and
50:01
Speaker 2: some dividends that have been reinvested. If you look at
50:05
Speaker 2: their stats sheet, which if you just google the ETF,
50:08
Speaker 2: it'll be like one of the first links that you
50:10
Speaker 2: can click, the average yield is one point two percent,
50:14
Speaker 2: which includes dividends and any other income it generates. And
50:17
Speaker 2: if we go back to what I said before, I
50:19
Speaker 2: think that's low. So if we started investing for a
50:23
Speaker 2: kid one hundred bucks when they're born and then invest
50:26
Speaker 2: one hundred dollars a month until their eighteenth birthday, I'm
50:28
Speaker 2: not saying you have to do that. That's just the
50:29
Speaker 2: example I've decided to use. If we just use this
50:32
Speaker 2: as a really solid example, and we use that growth
50:35
Speaker 2: and that yield average and pay tax out of the
50:38
Speaker 2: dividends and reinvest the rest, the total that would have
50:42
Speaker 2: been invested over that period of time is twenty one thousand,
50:45
Speaker 2: six hundred dollars. The portfolio though, over that period of
50:49
Speaker 2: time would be worth fifty one thousand, six hundred and
50:53
Speaker 2: fifty four dollars, okay, which is a total growth of
50:57
Speaker 2: thirty thousand and fifty four dollars. And you might but like,
51:00
Speaker 2: we're talking about tax and you you said, it's really
51:02
Speaker 2: high tax rate. So the yield for this example that
51:05
Speaker 2: I've just made up, backed by the money Smart Compound
51:09
Speaker 2: interest calculator and the ATO resources that are available free
51:12
Speaker 2: for you to use, it doesn't actually hit over the
51:15
Speaker 2: four hundred and sixteen dollars tax free threshold until they're
51:18
Speaker 2: fifteen years old. Okay. Sorry, that's fifteen years in the
51:22
Speaker 2: market where you haven't gone over. We're not doing the
51:25
Speaker 2: sixty six percent. And even then, once they hit fifteen,
51:29
Speaker 2: it's only four hundred and thirty four dollars for that
51:33
Speaker 2: first year, yep, which means your child when they turn
51:37
Speaker 2: fifteen is only paying tax on eighteen dollars. Oh tuo okay,
51:41
Speaker 2: And sixty six percent of eighteen dollars is eleven dollars
51:44
Speaker 2: and ninety three cents. Ah ah ah. That sixty six
51:48
Speaker 2: percent tax rate scares away lots of parents. And I've
51:50
Speaker 2: just told you for the first fifteen years, yeah, you
51:54
Speaker 2: don't meet the threshold. Yeah, you know, after that you
51:57
Speaker 2: pay eleven dollars a ninety three cent crazy. So then
52:01
Speaker 2: if we extrapolate that out, because obviously year on year
52:04
Speaker 2: your portfolio is now worth more, you're going to be
52:06
Speaker 2: paying tax every year after the age of fifteen. Ah
52:09
Speaker 2: huh until they turn eighteen, which is where that sixty
52:12
Speaker 2: six percent tax rate will drop off and it will
52:14
Speaker 2: go to their normal tax rate. They pay on that
52:17
Speaker 2: portfolio a total amount of tax of two hundred and
52:20
Speaker 2: seventy seven dollars. Okay, not bad, not bad, not bad. Oh,
52:22
Speaker 2: that's actually a really good deal from my perspective. So
52:25
Speaker 2: a two hundred and seventy seven dollars tax bill on
52:29
Speaker 2: thirty thousand dollars of returns back, what do you think
52:33
Speaker 2: about that? That's pretty good. I've put together this example
52:36
Speaker 2: because so many parents are like, oh my god, I
52:38
Speaker 2: wouldn't never invest for my kids because that sixty six
52:41
Speaker 2: percent tax rate is astronomical and like it's not worth it.
52:45
Speaker 2: But you need to do the maths, Like sixty six
52:48
Speaker 2: percent sounds honestly terrifying. I don't like that at all either. Yeah,
52:53
Speaker 2: but you're paying sixty six percent on the money that
52:55
Speaker 2: your money made. Yeah, and once your money's making more
52:58
Speaker 2: than four hundred and sixteen dollar over that period of time, sorry,
53:02
Speaker 2: most of us aren't even going to be able to
53:04
Speaker 2: invest for our kids one hundred dollars a month. And
53:06
Speaker 2: that's what we used as to the example.
53:08
Speaker 3: Let's be real, so they might not even happen in
53:10
Speaker 3: their first eighteen years of life exactly. So I guess
53:13
Speaker 3: like with the right strategy, you can minimize the tax
53:15
Speaker 3: when you're investing in your child's day.
53:17
Speaker 2: Yeah, exactly, And that's what I'm trying to illustrate with
53:20
Speaker 2: a really good example. And then you can transfer the
53:22
Speaker 2: shares into their name, like you can basically remove yourself
53:25
Speaker 2: as to trustee because they were always the legal guardian
53:28
Speaker 2: or they were always the legal owner of that account
53:30
Speaker 2: without triggering a CGT event, which I would say is
53:33
Speaker 2: a win as well. Yeah, like money win because like
53:36
Speaker 2: we've minimized tax, but then money whin there's no CGT
53:38
Speaker 2: event when it becomes your kids. And I would say
53:42
Speaker 2: the one thing here that we need to remember is
53:44
Speaker 2: that investing for kids is not about making the millionaires. Yeah,
53:47
Speaker 2: that would be very cool and like, if you set
53:49
Speaker 2: them up with the right financial literacy, they can probably
53:52
Speaker 2: make themselves millionaires. Really, and like, I don't know, there's
53:55
Speaker 2: probably a whole conversation in another podcast in this, but like,
53:59
Speaker 2: I also don't want want to serve money to my
54:01
Speaker 2: children on a silver platter and be like, oh, you
54:04
Speaker 2: didn't work for this, nor worries like I want them
54:07
Speaker 2: to work for this. I want them to have that
54:09
Speaker 2: work ethic anyway. For me, it's about giving them a
54:12
Speaker 2: head start that you probably didn't get, or giving them
54:16
Speaker 2: the headstart that you believe they deserve in both money
54:19
Speaker 2: and financial literacy. And that to me is so important
54:24
Speaker 2: because the biggest things kids have on their side is time.
54:27
Speaker 2: So true. So I think it's a really good place
54:30
Speaker 2: to leave it because I'm ready to go on with
54:32
Speaker 2: another example.
54:33
Speaker 3: So okay, well before that happens, if you want to
54:36
Speaker 3: know more about Cheersy's new kids investing account, we'll put
54:39
Speaker 3: it in the show notes.
54:40
Speaker 2: Absolutely honestly, I'm a fan, and as much as I've
54:43
Speaker 2: told you before my investing strategy, I'm kind of like
54:45
Speaker 2: the app is really shiny, and I think Harvey needs it.
54:49
Speaker 2: So you just watch me go, and honestly, if this
54:52
Speaker 2: episode has made you feel a little bit more confident
54:54
Speaker 2: for your kids financial future, please don't forget to hit
54:57
Speaker 2: subscribe because we've got so much more content to help
55:00
Speaker 2: you invest confidently coming your way this year, and we
55:02
Speaker 2: will see you guys on Friday. By go bye.
55:12
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