Building a Kickstarter Fund for Your Kids

Welcome to a journey that every parent considers at some point: preparing your children for a financially secure future. As your kids grow, their dreams and needs evolve, and so does the necessity for a solid financial foundation. Whether it's purchasing their first home, starting a business, or simply having the financial freedom to chase their passions, the gift of a "Kickstarter Fund" can be life-changing.

This blog is dedicated to exploring effective strategies that can help you build this fund, including creating a share portfolio, providing start-up capital for a business, setting up a trust, or investing in property.

Why Build a Kickstarter Fund?

Imagine your child at the threshold of adulthood, equipped not just with dreams and education, but also with the resources to support their ambitions. The concept of a Kickstarter Fund is to provide your child with a financial boost as they transition into ‘independence’. This isn't just about giving money; it’s about empowering your child to make confident, informed financial decisions. It's an investment in their future that goes beyond the monetary value—it teaches responsibility, financial literacy, and planning.

The Benefits of Early Financial Planning

Starting early is key. The sooner you begin, the more time your money has to grow through the power of compound interest. Early financial planning also allows you to take advantage of tax benefits, potentially lower your financial risks, and gives you a greater time horizon to diversify your investment strategies. But more importantly, it provides peace of mind knowing you’re doing something proactive for your child’s future.

Starting can be the hardest part, but you're not alone. Many parents share the desire to help their children succeed, but are unsure where to start. That’s where this guide comes in. Let’s break down some of the most effective strategies to build a robust Kickstarter Fund.

Creating a Share Portfolio for Your Child

Investing in the stock market might sound intimidating, but it's one of the most accessible ways to build wealth over time. You can start a share portfolio for your child even with a modest amount of money, and here's how:

  • Open an Investment Account: This is an investment account that is in your name as the parents, and can transition over to your child once they turn 18. This means that you retain control over the account and the investment decisions until you decide to transition the account over.
  • Choose Long-Term Investments: Since children have the advantage of time, look for stocks or mutual funds that offer growth potential over time. Diversify between different sectors and consider blue-chip stocks, which are large, well-established companies known for their stability and steady growth.
  • Reinvest Dividends: You may wish to opt for dividend reinvestment plans (DRIPs), which automatically use dividend payouts to purchase more shares. This not only increases the investment but also takes advantage of compounding.
  • Educate As You Go: Use this as an opportunity to teach your child about the stock market. Explain simple concepts like shares, markets, and dividends. As they grow older, involve them in decision-making processes, helping them understand why and how their investments are managed.
  • Don’t Ignore the Tax: When it comes to setting up any investment account, it’s important not to ignore potential tax implications such as withholding tax, capital gains tax and even estate tax exposure, which is commonly overlooked by many Australian expats investing in the US.

Funding Your Child’s Business Venture

If your child is inclined towards entrepreneurship, providing start-up capital can be a transformative gift. But before you write a check, consider these steps:

  • Evaluate the Business Idea: Discuss the business plan thoroughly. What is the market potential? What are the risks involved? This will not only help assess the viability of the business but also show your child that you respect their ideas and treat them seriously.
  • Decide on the Type of Funding: You can offer a loan, invest in the business, or give a grant. Each has different implications for both you and your child. Loans need to be repaid, which teaches financial responsibility. Investing might give you a stake in the business, while grants could be used as rewards for meeting certain milestones.
  • Set Clear Expectations: It’s crucial to be clear about expectations and responsibilities. This includes repayment plans for loans or expected involvement in the business if you’re an investor. Clear communication prevents misunderstandings and ensures that family relationships stay strong.

Setting Up a Trust for Long-Term Financial Stability

A trust can be an excellent way to provide for your child’s future needs while potentially offering tax advantages and control over when and how the funds are used. Here’s a simplified way to approach it:

  • Choose the Right Type of Trust: Decide whether a revocable trust, which can be altered or cancelled, or an irrevocable trust, which cannot be changed after it's established, best suits your family's needs. Consult with a financial adviser or a solicitor (I’d usually suggest both) to understand the implications of each.
  • Define the Terms: Trusts can be designed to disburse funds at certain ages or milestones, such as graduating from college, buying a first home, or starting a business. This not only ensures financial support throughout your child’s life stages but also teaches them to plan and use their funds wisely.
  • Involve Your Child in the Planning Process: As they grow, explain the purpose and workings of the trust. This transparency prepares them to manage it wisely when they eventually gain control.

Investing in Property for Your Child

Real estate can be a tangible way to invest in your child’s future. Whether it’s buying a property to manage as a rental or holding it until they are ready to move in, real estate can provide both financial returns and a physical asset. Here’s how to approach this investment:

  • Research Thoroughly: Look for properties in areas with good growth potential. Consider factors like local economy, school districts, and future development plans. Work with a property adviser to review property options and make recommendations for you.
  • Consider the Financials: Be realistic about what you can afford. Remember, property comes with ongoing costs like taxes, maintenance, and possibly a mortgage.
  • Plan for Management: Decide if you will manage the property yourself or hire a management company. If renting out the property, consider how the income will be saved or invested for your child’s benefit.

By starting early and choosing the right investment strategies, you can build a substantial Kickstarter Fund for your child. Each family’s needs and capacities are different, so it’s important to tailor your approach.

How to Involve Your Child in Financial Planning

Involving your child in their own financial planning is not just a practical way to prepare them for the future; it's also a profound educational opportunity. When children understand and participate in financial decisions, they develop essential life skills like budgeting, investing, and strategic thinking. Let’s explore some effective strategies to educate and engage your children in managing their finances, ensuring they are well-prepared to handle their Kickstarter Fund responsibly as they grow.

Start with Financial Literacy Basics

Before diving into more complex topics like stocks or real estate, ensure your child has a solid understanding of basic financial concepts. Here’s how to get started:

  • Discuss Money Openly: Make money a regular topic of conversation in your household. Discuss your own financial decisions, challenges, and successes openly with your child. This demystifies money and shows that financial management is a normal part of adult life.
  • Use Everyday Experiences: Utilise everyday situations to teach lessons about money. For example, take your child grocery shopping and show them how to compare prices, use coupons, and stick to a budget. Explain why you choose certain brands or quantities, and involve them in making decisions.
  • Allowances and Budgets: Give your child an allowance and encourage them to manage it within a budget. They can learn to save for specific goals and make spending choices, which teaches them about the value of money and delayed gratification.

Teach Investing with a Hands-On Approach

Investing can be a complex subject, but with the right approach, it can be incredibly engaging for a young mind. Here’s how to introduce your child to investing:

  • Simulated Stock Market Games: Use online tools or apps that simulate stock market trading. These platforms often use real market data, providing a realistic, risk-free way to learn about investing.
  • Small Real Investments: If possible, allow your child to choose a small stock investment. Help them research companies they’re interested in (perhaps they like video games or sports brands). This not only makes the process more interesting but also gives them a stake in their learning.
  • Discuss Results Regularly: Make a habit of discussing how their investments are doing. Explain why certain stocks might be up or down and discuss news that could affect their investments. This keeps them engaged and learning continuously.

Advanced Financial Planning

As your child matures, introduce more advanced concepts tailored to the financial strategies you’re employing for their Kickstarter Fund:

  • Participate in Family Financial Meetings: Include your child in discussions about your family's financial planning, such as reviewing your financial goals, discussing investment strategies, or planning for major expenditures. This helps them understand the broader financial picture and the planning it requires.
  • Encourage Them to Follow Financial News: Introduce your child to basic economic concepts by encouraging them to follow financial news. Discuss how economic events (like interest rate changes or economic downturns) affect personal finances and investments.
  • Use Financial Tools: Introduce your child to financial tools such as budgeting apps, investment tracking software, or online calculators. These tools can help make abstract concepts more concrete and interactive.

Creating a Partnership

Building a financial partnership with your child involves more than just teaching them about money—it’s about building trust, respecting their opinions, and guiding them as they make their own decisions. Here’s how to cultivate this partnership:

  • Respect Their Decisions: Even if you have the final say, respect your child's opinions and decisions regarding money. This can build confidence and a sense of responsibility.
  • Set Financial Goals Together: Work with your child to set specific financial goals for their future, such as saving for a car or college expenses. Discuss what it will take to reach those goals and monitor the progress together.
  • Encourage Questions and Learning: Always encourage your child to ask questions and seek out information. The more curious they are, the more they learn.

By engaging your child in these ways, you’re not just planning for their financial future; you’re giving them the tools and knowledge to secure it themselves. In the next section of this blog, we’ll delve deeper into each financial strategy, providing detailed guidance to help you and your child make informed, confident financial decisions together. Stay tuned, and remember, the journey you undertake today will help pave the way for your child’s financial independence tomorrow.

Conclusion

Building a Kickstarter Fund for your child is one of the most valuable gifts you can provide. It goes beyond mere financial support; it’s about equipping them with knowledge, skills, and resources to secure their own future. Remember, the key to successful financial planning is not just in choosing the right strategies, but also in involving your child in the process. This not only prepares them for the future but also strengthens your relationship through shared goals and mutual trust.

Start today by having a conversation with your child about their financial future, or they’re a bit too young at this stage, then just start setting some funds aside. Schedule an appointment with a financial adviser to discuss your options, and begin to lay down the building blocks for your child’s financial independence. With careful planning and proactive involvement, you can help pave the way for your child’s successful and secure future.

 

To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3

To learn more about how we may be able to help you, please contact us:

✆         +65 8282 5702
✉         jarrad.brown@gfcadvice.com
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.

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