How to invest in your child’s future

Veronica Martin spoke to Nandini Joshi, Chief Operating Officer at StashAway, to discuss how women can take charge of their finances through investment, the benefits of involving children in the investment process and how the future of fintech impacts investment opportunities for children.

As a female business leader, what advice do you have for parents looking to invest for their child’s future?

Providing your children with the best opportunities is a top priority for many parents – be it academic opportunities or otherwise. Fees for tertiary education or other developmental programmes can go up to several hundreds of thousands of dollars, especially if your child wants to go abroad to pursue such opportunities. So, creating a dedicated fund is a good way to invest in your kid’s future, wherever their passions may lead them. One way to get this fund up and running is by investing early and contributing to it regularly.

Let’s say your goal is to save up to $200,000 for your newborn (that’s the average cost of doing an undergraduate degree in the UK as an international student). That gives you around 18 years to build up this fund – a healthy amount of time for compound interest to work its magic. Given that the stock market consistently earns an annual return of 6%, you’d just have to set aside $514 a month. At the end of 18 years, your initial investment of $111,024 would have earned around $89,000 in interest, enabling you to reach your target goal.

Insurance is the one investment that we hope to never utilise – it’s difficult to confront the idea that there may come a day when you can no longer provide for your dependents. But if something does happen to you, an insurance policy is a crucial safety net that will protect your family financially.

Choosing an appropriate plan could help you save on insurance premiums – for instance, term life insurance is efficient with lower premiums and maintains your freedom on investments –  something that whole life or investment-linked insurances don’t offer.

Lastly, it’s important not to lose sight of your own long-term financial needs. Parents are often caught in the middle as the “sandwich generation”, responsible for caring for their ageing parents and young children. By taking care of yourself and your own retirement needs, you’re alleviating future financial obligations your children may have to shoulder, freeing them from the “sandwich generation” dilemma.

How can women take charge of their finances and unlock their potential through investment?

Women born in the year 2000 in the Gulf Cooperation Council have an average life expectancy of 78 years, outliving their male counterparts by 2 years. This statistic underscores an inescapable fact for us women – we have more retirement years to plan for and manage ourselves.

However, women are more likely to lean on their partners for long-term financial planning, with a UBS study revealing that only 19% of women share long-term financial decisions with their spouses.

So, how can you start taking charge of your finances? The first thing to remind ourselves is that we have the capability to manage money effectively. Women have been managing family budgets under a variety of conditions for generations. It’s time to think about how that knowledge can serve us too.

Budgeting for your retirement years is a good way to start. To arrive at a savings target that is realistic for you, consider your lifestyle preferences, including how often you’d want to travel and the hobbies you wish to pursue. Once you have a figure in mind (a general rule of thumb is 70% of your current expenses), the next step is to create a savings or investment plan. If you want to safeguard your retirement fund against inflation, investing regularly in a globally diversified portfolio can help you put your money to work and ensure that it appreciates over time.

There are plenty of tools out there that can help you calculate how much you’d need to save for retirement. For example, the StashAway platform offers goal-based investing portfolios, where you can input various details, like your expected retirement age and expenses. We’ll then calculate your retirement savings target, account for inflation, and recommend how much you need to save and invest each month to reach your target.

What role does representation of women in the fintech industry play in empowering women financially?

The traditional wealth management industry was built by men, for men. Often, this gets translated into jargon-laden content and a definition of success around trading that alienates women’s needs and priorities. Having women in fintech can help bring fresh perspectives to the table, driving new initiatives that make investing accessible to everyone.

At StashAway, we have a gender-balanced C-suite (which then trickles down) where women take up half of the seats at the table, and the men are equally committed to building an inclusive space. To that end, we’ve built various educational resources and tools, such as regular webinars and newsletters, to drive financial literacy and help investors understand the top headlines shaping financial markets. We also have a ‘She Invests program’ that caters specifically to women, aiming to create safe spaces for women to meet other like-minded peers and learn how to invest confidently.

What are the potential benefits of involving children in the investment process?

Understanding money and its value can help children develop a healthy perspective on finances. Studies have found that financial education at a young age correlates with better economic outcomes, such as better credit scores and a higher savings rate later in life.

An early introduction to the basic concepts of personal finance can help children to cultivate good financial habits that feel natural rather than forced. And the right habits go a long way to getting you to your life goals as an adult. After all, it’s easy to develop a savings and investment plan, but not everyone has the discipline or patience to follow through on these plans.

Introducing the vocabulary of needs and wants early on helps children understand the intrinsic value attached to things. Games like Monopoly often involve earning, spending, saving, and investing ‘money’, creating opportunities for your little ones to learn about financial concepts in a fun and engaging way. You could also encourage your children to save for a goal, like a new toy, which can instil the habit of saving and an understanding of delayed gratification.

What are some common misconceptions or challenges parents face when investing for their child’s future?

As parents, we want the best for our children, so our first instinct is usually to build the most stable and safe financial cushion for them. Often, this means parking large amounts of cash in a bank’s savings or fixed deposit account.

However, no matter how “high-yield” such advertised interest rates may appear, they often come with several conditions, like salary crediting, insurance, or investment requirements. These conditions can make it difficult to grow the cash you’re squirrelling away for your child.

If you’re saving for longer-term goals, such as university tuition fees, consider investing in a well-balanced portfolio instead. Time is your greatest ally when you invest early for your child’s future. While the thought of your child’s education fund dwindling due to a (short-term) market downturn can be quite unnerving, the market always bounces back in the long run! Zooming out, even significant events like the 2008 financial crisis look like small blips in the market’s overall upward trajectory. With a long time horizon, you can afford to ride out short-term market fluctuations to capture long-term returns.

How does the future of fintech impact investment opportunities for children?

Fintech has already made great strides in democratising access to investing. For instance, at StashAway, we’ve focused on breaking down the barriers to entry that once made investing costly and inconvenient.

Whereas traditional financial products typically charge fees between 1.25% and 5% annually, we’ve lowered this to 0.2% to 0.8% for our investment portfolios, with costs decreasing as the value of your assets increases.  Breaking away from the status quo in the wealth management sector, we have no minimums or maximums, so you can start investing from your first $1.

Looking ahead, I’m excited about how new technological innovations like AI could shape the future of advisory and therefore investing. Our teams are already experimenting and exploring how AI could facilitate our data analysis or even draft code. The goal? To keep delivering innovative, user-friendly investment solutions to more people.

Today, my generation has a wealth of investment tools that’s so much broader than what our parents had. And I’m confident that the fintech space will continue to build on these successes to make wealth-building even simpler and more inclusive for the next generation.