The secret to a good life?
The answer, according to the late great Sir Winston Churchill: “Choose your parents well.”
Unless you’re a Buddhist, you’ll find that a mind bender but don’t hurt yourself thinking on it.
The point is that parents (and willing grandparents) greatly impact how we all turn out.
I have mine to thank for several things, the least of which is being strong advocates for advanced education. Long ago, when I hung up my point shoes, both persuaded me to pursue a university education.
No, university is not a prerequisite to being a ‘success’ in life, and neither am I hung up on rankings.
Research repeatedly shows those who go on to study after high school are rewarded for their efforts, earning (on average) twice as much as their peers who don’t go.
One of the greatest gifts you can give a kid, apart from feeding them well, spending time and loving them up proper, is to help them offset the burden of paying for their education.
While Kiwi Boomers and a few Gen X’s here received their tertiary education for free in New Zealand, today’s students will graduate with an average loan worth $40,000; although the median is closer to $17,000. Depends hugely on whether you stay at home I imagine.
The Newsroom reported in January that since 1992, 1.5 million people have borrowed $34.3 billion in student loans. Of that, $23.3 billion has been repaid, but the cost of write-offs arising from those who fail to repay (moving overseas or else dying) is rising. *See Newsroom article here.
Between tuition increases and the cost of living crisis, it’s little wonder people are struggling to repay their debts, especially in a low-wage economy such as New Zealand.
If it wasn’t hard enough being a poor student, today’s cohort is also angsting over how to one day repay their student debt, while concurrently saving for a first-home deposit and their retirement. Is it any wonder Kiwi kids are flocking overseas in search of a better future.
Surely there has got to be a better way?
Canada’s education plan
Overseas, in North America anyway, parents are trained to start setting aside money for their kids education via dedicated education investment funds.
Canada uses what’s known as a Registered Education Savings Plan. It incentives parents to start investing early by providing matching (capped) funds which make a meaningful difference over time.
My kids (thanks to their grandfather) were among those to benefit. They were registered at birth giving them a massive saving uplift by the time hit their ’20s.
Thanks to the magic of compound interest, plus average returns of around 10%, they both ended up with around $80,000 toward their education. That was a function of about $8k each in their accounts before their fifth birthdays and then following a set and forget plan.
KiwiSaver is not currently set up to do this, but it should. Or at least something similar should be established to incentivise more parents to start saving for their kid’s education.
New Zealand needs to invest in its future, and the future is our children, not housing. Yes, having a leg up on the property ladder is important, but New Zealand has become blindsighted by its obsession with housing, even within KiwiSaver.
Currently, the only way you can access your KiwiSaver nestegg early is if you want that money for a first home deposit. Outside of that, you have to wait until you’re 65, you leave the country forever, you’re fall very ill, or end up on the bones of your arse financially. Incidentally, and unsurprisingly, hardship withdrawals have risen massively in New Zealand since Covid.
Parents who get KiwiSaver and understand money are using KiwiSaver smartly. If their kids were in the picture in 2007-2010, they likely took advantage of the $1,000 kickstart, which was cut in half by National when John Key took the reigns.
The annual KiwiSaver carrot of $521 remains, but only for those over 18 who pay $1,043 a year minimum into their accounts. Smart parents are paying in their kid’s accounts to help them get this on their behalf.
Sadly, thousands of KiwiSaver accounts are underfunded or neglected. Around 40% of people who have accounts don’t contribute to them regularly.
It’s true a portion of the public can’t afford the extra $20 a wee these days but the vast majority of us waste $20 a week on crap we could do without. The opportunity cost of not investing that money is higher than you may think.
If you invest $20 a week over 18 years, your kid or grandkid would have the benefit of $88,000 potentially. That assumes an average return of 6% and doesn’t account for fees or tax. But even with a Prescribed Investor Rate (PIR) of 10.5% and fees of .25% which is at the low end, that leaves a lot for tertiary costs. Even with inflation!
Canada is doubling down on its investment in the future of its kids.
This news below, taken from the Government’s website, should be applauded.
“Beginning in April 2028, the Government of Canada will automatically open a Registered Education Savings Plan (RESP) to receive the Canada Learning Bond (CLB) for an eligible child:
- born in 2024 or later
- with a valid Social Insurance Number (SIN)
- that is not already named as a beneficiary of an RESP by age 4
Also, beginning in April 2028, the age limit to claim the CLB retroactively will be extended from 20 to 30 years.
This will ensure that eligible beneficiaries will not lose out on funds for their post-secondary education if they decide to postpone their studies.”
The Canada Learning Bond provides for $500 in the first year and then $100 each subsequent year until a child turns 15 (the maximum value is $2,000). On top of this, there’s something called the Canada Education Savings Grant, which provides an equal matching benefit up to a maxiumum of $7,200.
KiwiSaver would be well served by having an educational component built in so that kids studying past high school, be it at a college, university, tech or trade schools, could tap their fund.
The government would be wise to incentivise parents, grandparents, charitable relatives and friends to seed these accounts by offering matching funds like they do in Canada, up to a limit; $100 a year sounds reasonable up to a maximum of $2,000.
They should also reintroduce the $1,000 kick-start for baby EduSavers. It doesn’t have to be within KiwiSaver, but it’s a structure and name brand that people are familiar with.
Too nanny state? We can’t afford it?
Fine.
Even without the Government doing a thing, parents (grandparents, etc.) who can should think about setting up sidecar investments for their kid’s education. Having fewer kids graduating without a debt noose is a good thing and could prevent the brain drain we’re currently witnessing.
Without a better, educated workforce and a brighter future for our kids, New Zealand is sunk.
It turns out I chose my parents well, after all. Maybe it helps to be a Buddhist too:)
