Buying shares for kids: a gift that keeps on giving

December 8th 2022 | Categories: Money, Family & Relationships |

Many parents and grandparents worry about how to help the children in their lives achieve financial independence. But the value of long-term investment can seem like a dry and complicated idea for kids to get their heads around.

In fact, 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 how to invest, different types of investments and possible risks and returns. What’s more, almost all those young people with at least one investment were interested enough to check performance regularly. One way to introduce investment to children may be to begin a share portfolio on their behalf. The child can 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 learn 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’s 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 further investment. Deciding on which shares to buy comes down to the amount you have available to invest and perhaps your 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 the theme the fund invests 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 cryptocurrencies; and fixed interest investments, such as bonds. You can also invest in themes such as sustainability or market sectors such as video games that may appeal to young people. Alternatively, buying shares in one company that your child strongly identifies with – like a popular pizza delivery firm, a surf brand or a toy manufacturer – may help keep them interested and excited about market movements.   Check out our Knowledge Centre for more information.  

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. 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 per cent 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.  

Taking it slowly

If you are not quite ready to invest cash but are keen to help your children to 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 a group and there is a chance to win prizes. Another option, for children able to work independently, is the federal government’s money-managed website. This is pitched at teens and provides a thorough grounding in savings and investment principles. Call us if you would like to discuss how best to establish a share portfolio for your child, grandchild or a special young person in your life.  

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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.