Christmas gifts for children that keep on giving

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Children look forward to Christmas and the gifts that come with it eagerly. They get very excited at the prospect of unwrapping presents to see if Santa delivered what was on their list, or to open envelopes to see how much cash they have received from family members.But what about a gift with a difference – one that will benefit them far into their future? Investing from a young age not only maximises the advantages of compounding over a longer time, but teaches children the discipline of saving before they step out into the big world.

Start simple with compounding

It is a good idea to start with investments that are easy for them to understand – especially for younger children. A simple savings account will enable them to earn interest and understand the maths behind it.If you gift them something they do not understand, they may not buy into the idea. You can then teach them the benefits of holding back on spending and adding to the account regularly.

Whether they receive a monthly allowance or whether they simply add to it with their birthday and Christmas money, show them that the more they add, the more interest they earn and the quicker their money will grow.Once they understand how a savings account works - or as they get older, you can start introducing other types of investments.

You could encourage them to take a portion of their savings to purchase a retail savings bond, where they will learn the discipline of committing their funds for a longer period in order to receive a higher reward.

An investment which does not offer access to the money, will help children work with the available cash they do have to buy what they want. This will broaden their investment world as they learn about financial products that offer a higher return for a certain level of commitment.

A life lesson about uncertainty

The next step would be to introduce older children to a unit trust. Younger children may struggle with the concept of volatility and may be discouraged should their investment balance drop.

Starting a unit trust for your child at a young age will provide them with great benefit as they start their own life, but it’s ideal to only involve them in the investment once they are older and can understand how it works.It’s also important for them to know that these are long-term investments, and that these investments are not ones from which they should draw for their shorter term needs and wants.Teach them not to look at the balance every day, and when they do, they should understand how a unit trust is priced and the risks of investing in the market.Investment risk can be daunting for some children as the idea of losing money can be a very bitter pill to swallow.

Help your child to discover their appetite for risk as that will also guide you in how to help them invest and to decide if investing in shares could be their next step.

Save young, save long, save big

Lastly, teach your children the benefit of financial planning from a young age.While their lives and circumstances may not require a full financial planning exercise, they should know when and where they can get help with financial concepts and to make important financial decisions when the time comes.

Lana Visser, is a paraplanner at Fiscal Private Client Services. She has a BCom in Quantitative Management and is currently studying towards obtaining a Postgraduate diploma in Financial Planning.

This article was first published on SmartAboutMoney.co.zaan initiative by the Association for Savings and Investment South Africa (ASISA).

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