A Christmas Gift That Grows: Investment for the Next Generation

With Christmas just seven weeks away (crazy, huh!), many of us are starting to write gift lists. For children and grandchildren, that usually means toys, gadgets and clothes. They're exciting on the day, but often outgrown or forgotten within a year.

This year, you could consider a different kind of gift: one that keeps growing long after the wrapping paper is gone.

Starting a personal investment account for a child or grandchild isn't the most traditional Christmas present. But give it 15 years, and it could help with a first car, university costs, a gap year or even a future home deposit.

The Power of Starting Early

Time is the biggest advantage a young investor has.

When investment earnings are reinvested, they start earning returns of their own. This is called compounding. Over a long period, it can turn relatively modest amounts into something meaningful.

A child who receives an investment today has something most adults wish they'd had: 15 or more years for their money to grow.

What Could $1,000 Become?

Here's how a one-off $1,000 Christmas gift could grow over 15 years, depending on the average annual return:

A single gift could more than double in value, without anyone adding another dollar.

What If You Added $1,000 Every Christmas?

The numbers get much more interesting when the gift becomes a tradition.

If you invest $1,000 this Christmas and another $1,000 every Christmas after that (15 contributions in total), the account could look like this after 15 years:

A newborn today would be approaching 16. A five-year-old would be about to turn 20. That's right when some of life's first big expenses tend to arrive.

What Could It Help With?

A balance of $20,000+ could make a real difference at an important stage of life:

• A first car. It could buy a reliable used car outright, so they don't need a car loan.

• Education costs. It could help with university fees, textbooks, a laptop or accommodation.

• Training or an apprenticeship. It could pay for tools, equipment or course fees.

• Travel or a gap year. It could fund experiences that broaden their horizons.

• A head start on home ownership. It could form part of a future deposit.

Just as valuable, it can help start conversations about saving, investing and patience. Those are lessons that tend to stick.

Things to Consider Before You Start

Investing on behalf of a child involves a few practical decisions:

• Ownership. Children generally can't hold investments in their own name until they turn 18. Accounts are often held by a parent or grandparent, sometimes "on behalf of" the child.

• Tax. Investment earnings may be taxed in the hands of the account owner. Special tax rates can also apply to unearned income received by children under 18, so the structure matters.

• Control. Decide when and how the funds will be handed over, and whether there are conditions on how they can be used.

• Investment choice. A diversified, growth-focused portfolio may suit a long timeframe, but it will still rise and fall along the way.

• Alternative structures. Options such as investment bonds or education-focused products may suit some families better, depending on their goals and tax position.

Getting these details right from the start can make the gift simpler and more tax-effective over time.

A Gift With a Story

Imagine giving a young adult their account statement on their 18th birthday and explaining that it started with a single Christmas gift and grew every year since.

The value isn't just financial. It shows them that someone was thinking about their future long before they were.

Summary

Christmas gifts don't have to be measured by how long they take to unwrap. Sometimes the most meaningful presents are the ones that quietly grow in the background.

If you'd like to explore setting up an investment for a child or grandchild, including the most suitable ownership structure and investment approach, now is a good time to start the conversation, well before the Christmas rush.

Book a chat with Lucy here