According to Glenn Stevens, a former chairman of the Reserve Bank of Australia, “a child born today will not be able to afford a house today without family assistance.”
To that end, structures with small minimum balance requirements are hitting the market to facilitate intergenerational wealth transfers.
Fund managers like iTrust are finding increasing interest from parents setting up funds and trusts with as little as a $10 starting point.
The compounding benefits
The benefit of a long-term strategy, even if it starts small, is that compound interest is interest paid on the initial principal plus accumulated money on the loan or savings account.
The benefit of compound interest shows that it’s best to start investing as soon as possible. According to ASIC’s MoneySmart, if person A saves $50 dollars a week for 10 years at an interest rate of 5 per cent per annum, after 10 years person A would have $33,644. Comparatively, if person B holds off savings for five years and puts $100 dollars a week in the same investment account, person B’s bank balance would be $29,469.
Asking for donations instead of gifts
While it does not seem as glamorous as a new toy and it doesn’t have the instant gratification of a gift card, Josie Mills, a mother of two and stepmother of two more, believes it’s easier than expected to ask for a donation.
“We just mention it. We have found that our friends and family are happy to have some help as to what to give as it makes it easy for them. They also love that it is so easy for them to do, doesn’t require going to a special shop. Plus, everyone likes seeing their money used to generate value and not end up as landfill, or just another toy,” said Ms Mills.
What will the children do with it?
Ms Mills is hoping for the children to spend it on whatever sensible life purchases.
“Whatever they want as long as it is a sensible use of the money… maybe it helps put a deposit on a home, or lets them buy their first car or go on their first overseas trip. Taking the money out to spend on schoolies will not be an option in this household!” said Ms Mills.