Number of investment accounts spike as Australian parents try to help kids achieve housing dream

Before her daughter could walk or talk, Erin Miller was thinking about how she could help her buy a house.

Little Harper was aged just one when her parents began putting money aside each week for a deposit down the track.

Five years later, that nest egg has grown to $10,000 — and her parents are following the same path with their younger son Beau, aged four.

“(Home ownership is) an Australian dream and a really big moment,” Miller told 7NEWS.com.au.

“It’s a great investment to have, so if we can help to set the foundations for that I think that’s where we’d like to see the money go.”

Miller, from Sydney’s southwest, was initially saving cash in a high-interest bank account.

But she made the shift to an investment account following advice from her financial adviser.

Miller knows there is “obviously financial risk with it” but said it was largely “set and forget” and she had seen positive growth.

“I was strategic with the amount. I didn’t want it to be something that I noticed or had to stop,” she said.

“I worked casually, part-time and things like that.

“So $25 per week worked out well for our family and it was something that just ticks away in the background.”

Investment platform Raiz said its number of children’s accounts had jumped 45 per cent nationally in the last 18 months.

Outer suburban areas had the sharpest increase.

“What’s particularly interesting is that many accounts are now being opened before a child turns five, including during their first year of life,” Raiz Invest chief executive Craig Keary told 7NEWS.com.au.

“This indicates that parents are thinking much earlier about their children’s financial future.”

A recent study from Flinders University found concerns around housing affordability weigh on the minds of 40 per cent of Australians.

“While we don’t know exactly what every family is saving for, we know many parents are worried about how difficult home ownership has become,” said Keary, who has worked in financial services for more than three decades.

“For others, it’s more about creating future opportunities — whether that’s helping with university ... or giving their children greater financial security.

“The common theme we’re seeing is families wanting to give kids a head start.”

Financial adviser Alex Jamieson, founder of Jamieson Private Wealth, said he was fielding more inquiries about these type of accounts and that it was “often driven by grandparents rather than parents”.

“The micro-investing platforms have removed the cost barrier with zero brokerage and fractional investing, so $25 a week now actually works,” Jamieson told 7NEWS.com.au. “Most of these accounts are held by an adult as trustee for the child — effectively a bare trust.”

Jamieson said the upside is the potential for a “higher rate of return than a cash account and usually a return above inflation”, which “matters over a 15 to 18-year horizon”. “The key issue most families haven’t thought through: under a bare trust the child becomes absolutely entitled at 18 and can spend it on whatever they like — which may not be a house deposit,” he said.

“Tax is the other trap.”

Potential tax traps

H&R Block tax communication’s director Mark Chapman said the biggest mistake parents make is assuming that putting a child’s name on an account means the income automatically belongs to the minor for tax purposes.

“In reality, the tax treatment depends on who is the beneficial owner of the money,” Chapman told 7NEWS.com.au.

“If the money genuinely belongs to the child — for example, birthday money, Christmas gifts or regular contributions that have been irrevocably gifted to them — then the interest is generally the child’s income and would be assessed to the child.

“However, if the parents are simply using the account as a way of saving their own money for the child’s future, while retaining effective ownership and control of the funds, the interest is more likely to belong to the parents and should generally be declared in the parent’s tax return.”

Chapman said parents must also remember that children are subject to special tax rules on unearned income, such as bank interest and investment earnings.

He flagged too that investment income such as dividends and capital gains may also be subject to those rules.

“Helping children save for their first home is a fantastic goal, but it’s worth spending a little time getting the structure right at the beginning,” Chapman said.

“A decision made when a child is two years old could have tax consequences 15 or 20 years later.”

‘Take them on the journey’

While her children are too young to understand exactly what their parents are doing for them, Miller said she hopes to involve them more as they get older.

“They do know that we have money put away for them, and every now and then they’ll say, ‘Can we check our money?’,” Miller said.

“It’s definitely something I want to take them on the journey of doing.”

All information in this article is general in nature and does not take into account your personal circumstances. You should always seek independent, professional financial advice from a licensed expert before making any financial decisions.