Opening an investment account for your child is one of the easiest ways to give them a head start in life.

There are many low-cost digital investment platforms available with low minimum investment amounts, so you can contribute as little as R50 per month. A few examples are SatrixNOW, EasyEquities and app-based Stash which all allow you to invest for your child in long-term assets like shares on the stock market.

Most unit trust companies allow investments to be opened in the name of a child, although their minimums are usually between R300 and R500 a month.

As Thembeka Khumalo, senior client experience manager at Satrix explains, while young people may not have a lot of money, they have time on their side. The earlier they start their investment journey, the more time they will have to be invested in the market, harnessing the value of compounding growth.

“It’s beneficial to involve children in the investment process as soon as they’re old enough, as they can gain a sense of ownership over their portfolio from a young age,” says Khumalo.

“Consider empowering them to earn their investment contributions through household chores and ‘kidtrepreneurial’ activities. Show them where their money is invested and take time to explain how things like exchange-traded funds (ETFs) work.

“If they’re comfortable with the investment landscape at age 12, imagine how much market mastery they’ll possess as adults.”

Khumalo gives a breakdown of what you need to know to start investing for your children.

When to open an investment account for your child

The best time to start investing for a minor is as soon as they are born. Starting early helps to maximise overall returns and build a portfolio over time.

Starting early also means you can afford to take on more risk with an investment portfolio. The benefit of time means the portfolio can weather short-term market fluctuations and move in an upward trajectory in the long term.

How to open an investment account for your child

When opening an account for a minor on an investment platform, such as SatrixNOW, the parent or legal guardian must have a FICA-verified account to get started.

Once the parent’s account is opened, they would need to log in, select the “Add your Child’s Account” option from the profile menu, and follow the four steps outlined to open the child’s account.

The process is quick and straightforward. A welcome email will be sent with the new account’s username and a prompt to create a password. A second email will be sent within a day or two, indicating that the account has been verified and is ready to be funded.

Can extended family or friends open an account for your child?

Only parents and legal guardians can open investment accounts for a minor, but extended family or friends can certainly help to fund the child’s account using a debit order authority form.

What happens to the account when your child turns 18

When a minor turns 18 and has full contractual ability (i.e., is legally an adult), the investment account is transferred to them.  An email is sent out to the email address on record (parent or guardian’s) detailing the process to be followed to transfer the account to the 18-year-old account holder.

Can your child make withdrawals and/or investment decisions while under 18?

No, the minor cannot make legal decisions on their investments until they are 18. The parent or legal guardian will act as an Authorised User on the minor’s account. This is not to say that older children can’t be involved in the process. You should definitely take your children along on the investment journey from as early an age as possible.

What type of products should you include in your child’s investment account?

The Satrix Access Range is a great place to start, offering access to the market in a diversified manner and at a low cost. Or you could simply choose one of the many global ETFs that invest in a large range of companies across the world. Examples are the Satrix MSCI World ETF, the 1nvest MSCI World ETF, the Sygnia Itrix MSCI World ETF, and the CoreShares Total World ETF.

Tax implications of opening an investment account for your child

If a parent makes an investment on behalf of a minor, all income, dividends, and interest earned from the parent’s investment will be taxed. This applies to income received by minor children, stepchildren, and adopted children. If any shares are sold and there is a capital gain, this amount must be included in the parents’ capital gains calculation.

Another consideration is that an individual can donate up to R100 000 tax-free annually. Amounts over R100 000 will be subject to donations tax (current rate is 20%). A minor child’s investment does not form part of a parent or guardian’s estate. Should a parent or guardian pass away, the minor’s investment will not be subject to estate duty and other taxes.

Stash for Kids

Stash for Kids is a great app-based investment platform that allows you to put money away for your child for as little as R5 a time. It has no fees and the funds are invested in the 40 largest companies listed in South Africa.

The app allows you to top up the investment for as little as R10. This can be a great way to reward your child for doing chores or excelling at an exam.

The app is backed by Liberty. You can download it via the App Store or Google Play.

This article first appeared in City Press.