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Ask Paul: High-interest saver or shares for baby?

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Q. My son is turning one in a few months and I was considering purchasing some shares for him instead of toys (as I'm sure he will get enough of those).

I have never purchased shares before and I have a very limited and probably traditional mindset when it comes to finances.

My thinking is long term and if I invest in one of the big four banks or Telstra he may have a little sum by the time he is 18 or so. Or should I just be saving the money for him in an interest-bearing account? - Rachel

shares for baby

Rachel, you mention banks. Telstra would do just fine, as would any decent share with a two decade or so time frame.

But my rule with long-term money in the bank is to not provide your bank with a low-cost source of money; instead, buy the bank.

It lends your money out at a higher rate than it will pay your son, so I'd rather own bank shares than a bank account over a couple of decades.

We started doing this with our kids two decades ago and bought a couple of bank shares, some Woollies and Coca-Cola Amatil and over time other well-known companies.

Shares such as CBA have done well. When they were very young CBA was around $7. Today it is over $70. Much better than a bank account!

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
Comments
Josie
November 13, 2016 5.23am

Due to high tax rate for a person under 18 years old, how do you buy shares for young children? What kind of structure required?
Thanks.

NC
November 15, 2016 1.48pm

Same question as Josie above. How exactly do you do this? Do you need to set up a trust? How can an ordinary person do this themself?

Marthese
November 24, 2016 6.11am

Same question as above .
Where are the replies posted please ?

Money
Verified
November 24, 2016 9.47am

You can find more information on buying shares for kids here: https://moneymag.com.au/buy-sh...

Thanks for reading.

- Money team

Bob
November 30, 2016 5.27am

My understanding is Paul is suggesting you buy the shares in your name to avoid the 40% tax on kids income. At least that is what I thought he recommended in past articles.

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