NZ Herald 26 July 2025

AI’m not sure banks are the ones who should be involved. But definitely, yes, older teens should be running their own bank accounts without parental involvement. I’m appalled to learn what your friends are doing.

It’s fair enough to monitor the piggy bank or bank account of a young child. That’s when a parent might take the opportunity to let the child learn about money by:

• Encouraging them to save even a tiny amount regularly — perhaps a portion of their pocket money. You can point out the way their balance grows.
• Helping them withdraw money to buy something they’ve really wanted for a while, or perhaps to buy small Christmas or birthday gifts for family — to encourage generosity.
• Letting them make withdrawals you don’t think are a good idea. This can be hard to watch, but it’s a great way a child can learn.

But I hope you would stop that vigilance once the child becomes a teenager — and tell them you’re doing that. Offer advice if they want it, but only when they ask for it.

When your friends’ offspring find out what their parents are doing, surely that will send the message that they can’t be trusted — which can lead to them fulfilling that expectation.

But if you step back and let the young ones make their own decisions, including bad ones, that shows respect. I’m no expert on raising kids, but I bet that in most cases that leads to their handling their money well.

AReducing debt affects your wealth in the same way as making an investment. So you need to compare:

• Your mortgage interest rate — let’s say it’s 5.5%.
• The return you can make on your savings, after tax and any fees.

That return is unlikely to be anywhere near 5.5%. So the clear winner is paying extra off the mortgage.

First, though, check with your mortgage lender that you can do that without penalty, and that they would let you borrow back the extra money later.

AYou’re referring to the recent statement from the Financial Markets Authority: “The proportion of KiwiSavers invested in risk category 5 funds (high volatility) has quadrupled from around 10% in 2021 to more than 40% in 2024.”

This is good news. You’re quite right that over decades shares — the main investments in most higher-risk funds — tend to grow considerably faster than bonds and term deposits. And yes, shares, along with property, are your best bets for beating inflation. So in that sense, diversified shares are lower-risk than bonds and term deposits, where your money might lose purchasing power over time.

But shares are indeed risky if you expect to spend your money within about ten years. And the shorter the time period, the higher the risk. There’s too big a chance your balance will be down when you withdraw.

By the way, most investors in KiwiSaver share funds can hope to way more than quadruple their money over 50 years. The average return on US shares — and NZ shares would be similar — has been around 10%, including reinvested dividends, over the past half century.

So let’s say a return after fees and tax might be 6%. Over 50 years, $1,000, with no added contributions, would grow to around $19,000.

AMy first reaction to your question was: What’s that? Sounds like something nasty on your nose! But on researching it, I have to admit that while I have no interest in signing up to the club, I agree with Boglehead thinking.

Bogleheads follow the investment principles of John Bogle, who founded the huge US investment company Vanguard, probably the first firm to offer index funds, in the 1970s.

Index funds invest in all the shares in a market index, such as our S&P/NZX 50 Index or the US S&P500 Index. Because their managers don’t do research to decide which shares — or bonds — to buy and sell, and when to trade, they are very cheap to run. So they charge low fees.

Research over the decades shows they perform better after fees than a large majority of actively managed funds. And it’s impossible to know, in advance, which few active funds might outperform over more than a few years.

That’s why I’ve invested in index funds, and recommended them to readers, since I first learnt about them when I lived in Chicago in the 1970s.

More recently, some index funds have been set up as exchange traded funds, or ETFs. As their name suggests, you can invest in them via a stock exchange. Both index funds and ETFs (with the exception of a small number of active ETFs) are sometimes called passive funds, or passively managed funds.

These days, many KiwiSaver and non-KiwiSaver providers offer passively managed funds. The easiest way to spot them is by their low fees. You can rank KiwiSaver and other funds by fees in the Smart Investor tool on sorted.org.nz.

So when I mention, as I often do, that it’s wise to choose low-fee funds, that’s because passive funds keep on proving to be really good long-term investments.

Other ideas that Bogleheads — and I — support are:

• Diversify to reduce risk. Passive funds will give you a wide spread of shares or bonds. But it’s good to also diversify geographically — the easiest way being through global passive funds. It’s also wise to hold a variety of types of assets. Your own home is often enough in property, but you can also use rentals or commercial property. And it’s best to put money you expect to spend within ten years in bonds, and within a few years in bank deposits.
• Share and property investments should be for the long term. As I said above, they give the highest average growth, but fluctuate too much for shorter timeframes.
• Don’t trade frequently and don’t try to time when to buy or sell investments. It’s better to just steadily invest the same amount regardless of what markets are doing — something most people in KiwiSaver do automatically.
• Keep it simple. Get into the right low-fee KiwiSaver funds and other investments for you, and get on with other more important things in life. About once a year just check you are still on track with being in the right types of assets for your spending plans, and that you’re saving enough for a comfortable retirement.

AAnd thanks to your family for doing this little experiment.

We do need to note that one year is really too short a time for a comparison. It’s common for a higher-fee actively managed fund to do really well over a single year, or even five or ten years — although the longer the period, the less likely that is.

We should also note that your numbers suggest you were using funds that have fixed fees as well as percentage fees. As I said last week, fixed fees have a big impact on low balances like yours, while they barely affect high balances.

Still, it’s good you’ve drawn the conclusion that low fees matter. They really are the best choice.

AThe rules about which employers must take part in KiwiSaver are mentioned in the KiwiSaver Employer Guide on ird.govt.nz. But I agree that there should be more accessible guidance for people whose bosses “don’t do” KiwiSaver.

There are some exemptions to employers’ obligation to contribute to employees’ KiwiSaver accounts, says Inland Revenue. For one thing, the KiwiSaver Act applies only if an employer is a NZ resident or “carries on a business from a fixed establishment in NZ” — although other employers can still choose to take part if they wish.

That may be why the company you write about is not contributing, even though it could. But you can take the issue further if you wish. “If someone thinks their employer should offer KiwiSaver but doesn’t, they could contact Inland Revenue and we would check the employer’s status and, if appropriate, advise them of their KiwiSaver obligations,” says IR.

If your employer is exempt from KiwiSaver, you can still join by approaching a provider. Like the self-employed or non-employees, you’ll miss employer contributions, but get the government input. Despite recent cuts, that’s still worth getting.