Give your children the gift of future thinking this festive season

By Imraan Jakoet, Head of Invest at Graviton

Have you been presented with your children’s 2024 Christmas wish list yet?  If you have, chances are it includes the latest tech gadget or fashion accessory – with investment products featuring low on the list, if at all…

A gift that lasts

Your children – even if they’re already teenagers – have the benefit of time on their side.  They have their entire lives ahead of them and an investment made on their behalf now will have several decades to benefit from compounding – depending on when they choose to withdraw the funds. By giving your children a smaller physical present now and investing the balance of your gifting budget, you’re not only teaching them the benefits of investing for the future, you’re actively showing them how to balance current and future consumption needs.

Crunching the numbers…

Personal finance journalist and author Maya Fisher-French once used the example of purchasing an iPod at the time of its launch (November 2001) at a cost of US$399 (roughly R3 300 at the time) versus investing that same amount in Apple shares. Had you bought Apple shares instead – fast forward to just a little over 10 years, at the beginning of 2012 your investment would have been worth US$26 000 (roughly R197 000 at the time).  You can read the full article here, but let’s look at a current example.

Stanley Quencher mugs – currently retailing at R1 299 – are all the rage, and perhaps your child has expressed a desire to own one. Let’s say, instead of buying this particular item, you purchase a similar item at a lower cost and you invest the money on your child’s behalf instead.  If you invest this amount in an exchange traded fund (ETF) or a lower-cost index unit trust, in five years the investment could be worth R2 092 and in 10 years you could expect the investment to be worth R3 369 (assuming a 10% annualised return).

This also gives you an opportunity to involve your children in the decision-making process. By showing them the potential future value of their money today, you’re reinforcing the benefits of considering future needs and how to plan for them.

Accessing the funds

Naturally, the longer the money is invested, the more chance it has to grow. When the funds are accessed will depend on the purpose of the investment, as well as your personal circumstances. Many families are feeling the effects of low growth in the economy and salaries that perhaps haven’t kept pace with inflation. This may mean that planning for your children’s tertiary education may be a concern. Starting to invest a small amount, regularly, when they’re young will make it more manageable for them to realise their dreams – whether that be studying further or starting their own small business.

Available investment options

These are just some examples of investments that give you market growth, as opposed to a bank account earning interest:

• Exchange traded funds (ETFs) – An ETF is essentially a ‘basket’ containing different shares and it tracks the performance of an underlying index (such as the FTSE/JSE Top 40 Index, for example) or an asset, like property or commodities. ETFs are simple to invest in, easy to understand and can be used for short-, medium- or long-term investing – although it’s advisable to hold an investment like this for at least three to five years to realise the full benefits.
• Unit Trusts – Unit trusts allow you to pool your money with other investors, making them an accessible and affordable way to obtain market growth. There are many different unit trusts available and it’s best to obtain advice from a suitably qualified financial adviser before making a selection.
• Tax-Free Savings Accounts – Tax-Free Savings Accounts, or TFSAs, were launched in South Africa in 2015 to entice investors to use these vehicles to growth their wealth, without paying income, dividend or capital gains tax on their investment. You can invest a maximum of R36 000 a year – or less if you choose – for each child, with a lifetime maximum contribution limit of R500 000.

Giving your children a head start in life, and instilling the importance of saving and investing to ensure financial security may be one of the best gifts you can give them. It’s a gift that will open up a gateway to possibilities and opportunities in the future.

Contact us for more information on this topic.

Collective investment schemes are generally medium- to long-term investments. Please note that past performance is not necessarily a guide to future performance and that the value of investments /units/unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available from the Manager, Sanlam Collective Investments (RF) Pty Ltd. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The fund may from time to time invest in foreign countries and therefore it may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates.

Tax Free Savings Accounts: Annual limit of R36 000, lifetime limit of R500 000, 40% tax penalty applicable for contributions above the limit, per individual.