Cape Town - While most families are stretching their budgets in order to make the festive season memorable for their children, instead of shiny toys, experts say it’s well worth considering a financial gift as an alternative.
Grandparents could, for example, establish a money market account for a grandchild whose birth is imminent. This could also serve as a useful cushion to cover initial expenses, and prevent young parents from falling into debt. As the baby matures, and if funds are limited, an old-fashioned piggy bank, or a glass jar containing some coins or notes, will help the child visualise how money grows.
Shafeeka Anthony, marketing manager of JustMoney.co.za, said: “Start a conversation from an early age about how money can grow, show a child how you manage your own spending, and you will pass on valuable financial lessons.”
When considering savings and investments for a child, do your homework first, Anthony recommends.
Selecting an investment, she notes, is similar to planting a seed, in that you need to choose the seed carefully and provide suitable conditions for optimal growth.
“Considerations include how much risk you are prepared to take, as this will influence returns. Investments also have tax implications. It’s worth discussing options with your bank manager or personal financial adviser.”
Farzana Botha, communications and marketing manager at Sanlam, says one of the simplest financial gifts can be Krugerrands.
“These coins can be purchased from your bank or an authorised coin dealer, and are the easiest and cheapest way to invest directly in gold bullion. Their value is linked directly to the rand-dollar exchange rate and the dollar gold price, so you’ll always know what your investment is worth.”
Botha also suggested a tax-free savings account in the child’s name.
“This type of account has a R36,000 annual contribution limit, and a R500,000 lifetime limit. If you materialise that limit early on, the compound interest can almost triple the amount gifted over a 16-year period.”
A unit trust pools account-holders’ money, and invests it in shares, bonds, money market instruments, and other assets. Botha says these are a solid choice for children, especially as their inflation-beating performance suits informal education funds.
“You can reward the child for milestones reached by adding small amounts to the account. Unit trusts can be accessed at any time; however, they do attract tax.”
Investments are riskier than cash, but given that time is on their side, these could pay off with higher profits, financial experts add.
Thembeka Khumalo, a senior client experience manager at Satrix, said SatrixNOW clients can open an investment account for their minor children and start investing from as little as R10. Both unit trusts and exchange-traded funds are offered on the platform.
In terms of education plans, this is usually an endowment policy that matures after a set period, such as five years.
Cheryl van Rooyen, a certified financial planner at Efficient Wealth, says gifting investments can be complex, as it occurs in the context of a highly-regulated industry. As a rule of thumb, it is important to make sure the gift does not exceed the annual donations tax exemption of R100,000 per taxpayer.
“Anything above this will be subject to 20% donations tax and must be disclosed to the South African Revenue Service (SARS),” Van Rooyen said.
“A crucial factor is the name in which the investment has been registered, as there may be implications if the giver passes away. The investment can be made in the child’s name, but that child may be ineligible to access it without the consent of a guardian, unless they are 18 years of age.”
Cape Times