How to get your child started on a successful investment and financial journey
Children who get a good financial education are less likely to get into debt, and are better prepared to save and invest. Here’s how South African parents can help their children set out on the road to financial success.
South African teenagers are taking a keen interest in investing. Although the numbers are still small, investment platform Satrix confirms there is a growing percentage of younger investors.
Thembeka Khumalo, senior client experience manager at Satrix, says the average age of investors on the platform is 37.
“I’m a huge believer in ‘catching them young’ and encouraging children to take up investing. We are seeing take-up of Satrix accounts from teens who participate in the JSE Investment Challenge each year.
“The beauty of that competition is it gives teenagers the opportunity to learn about investing first-hand and the prize is a Satrix voucher, which draws them into actual investing once they have tried their hand at a virtual investment experience,” she says.
Satrix has partnered with Creative Space Media to run a financial literacy platform – the Money School – for youth in grades 11 and 12. Interactive lessons are live-streamed every Thursday from 6pm to 7.30pm.
The first hour is allocated to specific topic-driven facilitation by subject experts, and the remaining 30 minutes are allocated to an interactive question-and-answer session, where learners are encouraged to ask questions and engage with experts.
Other companies collaborating with the Money School include Citadel and the South African Banking Risk Information Centre.
Duma Mxenge, the business development manager at Satrix, says children who get a good financial education as they grow up are less likely to get into debt and are better prepared to save and invest. Satrix is “deeply committed to democratising investments and communicating to South Africans just how accessible, affordable and powerful investing can be – for financial resilience, wealth creation and inter-generational wealth transfer,” he says.
“If the core principle of growing wealth rather than living beyond your means can be landed early, an individual’s financial journey can be a very successful one.”
How to start
Children under 18 need their parents to help them get started by opening savings and investment accounts for them. Two easy platforms to get your children started are Satrix and the recently launched fintech Franc, which operates as a “robo adviser” rather than a stock exchange.
Khumalo says she gives Satrix vouchers as gifts for birthdays or baby showers. You can buy a SatrixNOW vouchers with just R50. The parent or legal guardian opening the SatrixNOW minor account must have their own Fica-verified SatrixNOW account. You can then open an account for a child by selecting the “Add your child’s account” option from the profile menu on satrix.co.za/platform.
You will have to upload a copy of your child’s birth certificate, and their account can be active within 24 hours.
The only way to redeem the voucher is by opening a SatrixNOW account and investing the voucher amount. It cannot be redeemed for cash, returned for a cash refund or exchanged.
Once invested, there is a lock-in period of three years before the funds invested can be accessed, ensuring that there is real growth of the money gifted to the voucher recipient.
Thomas Brennan, cofounder of the Franc app, says parents or guardians need to first create their own Franc account before creating a child’s account.
“You can then make deposits into that Franc account on your child’s behalf and you can share the deposit link with friends and family so that they can channel cash gifts into the child’s investment,” he says.
There is clearly an appetite for a low-cost, simple investment platform with Franc picking up more than 80,000 investors in less than two years. Of these, 7% are aged 18 or younger.
Commenting on South Africa’s low savings levels, Brennan says the biggest problem is that although there are South Africans who are saving, they are not benefiting from compound interest as much as they could because their money is saved in bank accounts, where it earns low interest for low risk.
Children using Franc can choose to invest in either the Satrix Top 40 (the top 40 stocks on the JSE) or the Allan Gray Money Market Fund (cash, which is a more conservative investment).
Because Franc is a fintech app with low overhead costs, you pay an annual 1% fee and a R1 per month platform fee.
You can make four free withdrawals each year, after which a R10 withdrawal fee kicks in. You can change your investment strategy (between cash and equities) twice a year free of charge, after which a R10 fee per change kicks in.
Breaking down the tax
Although your child is likely to start small, their investment gains and returns may be subject to tax after a few years. As their parent or legal guardian who is directly or indirectly the source of their income (the funds being used to invest), you may have to declare any income your child receives in your own tax return.
If your minor child receives income from their investment, however, they would personally be liable to pay tax if their income exceeds the tax-free threshold of R95,750.
Mxenge says if the income from the investment exceeds the tax-free threshold, the parent or guardian is responsible for registering the minor for tax.
“A tax return needs to be completed if a minor earns interest above the annual exempt amount of R23,800. When your child turns 18, you are no longer liable for the income and capital gains earned from investments you have made on their behalf and the child will be required to complete their own tax return,” he says. DM168
This story first appeared in our weekly DM168 newspaper, which is available countrywide for R25.