In a world where financial security is increasingly out of reach, establishing a consistent saving habit can yield extraordinary results for South African parents and their children. The secret isn’t how much you save, it’s when you start.
Time is the single most powerful ingredient in building wealth. If you have R1,000 a month to invest for your child, and you use the right strategy, you could set them up with more than R100 million by the time they retire, tax-free.
Know your goals before you start
Saving for your child’s future isn’t a one-size-fits-all approach. I suggest splitting the investment between short, medium, and long-term goals:
- Long-term wealth creation (retirement savings)
- Tertiary education (access needed around age 18–25)
- Financial education (smaller, short-term spending goals).
Each goal has its investment time horizon and, therefore, its strategy.
A Tax-Free Savings Account (TFSA) in your child’s name is one of the most powerful tools to build wealth. If you start from birth, and consistently invest R1,000 per month, your child will get to the R500,000 lifetime contribution limit by their early 30s.
Assuming an average return of 9.4% (the 40-year average for the MSCI World Index), that money could grow to over R100million by the time they turn 65, completely tax-free.
But this only works if they resist the urge to dip into the TFSA early. Withdrawals are permanent, and you can’t ‘replace’ what you take out. That’s why TFSAs are best used for long-term wealth creation, not short-term needs like university tuition.
Saving for education? Use a different vehicle
If you know you’ll need the money sooner, for example, to pay for university, consider using a unit trust in their name or an endowment in your name.
- A unit trust in their name offers more flexibility and lower fees.
- An endowment can provide tax advantages for high-income earners, and some allow for structured payouts to your child after your death.
If you want to avoid donations tax when passing money to your child later, you should invest directly in their name from the start. This comes with the risk that they may withdraw and spend the money irresponsibly once they gain legal control at 18, but you can mitigate that risk by educating them on the benefits of investing for the long term.
Teach as you save
Alongside formal investments, Hope-Bailie recommends opening a simple money market fund or savings account for your child. Involve them in managing it, encourage them to set goals, offer to match their savings, and use it to teach them budgeting, patience, and show the power of compounding.
It’s the best way to reduce the risk that your child taps into their TFSA too early. Financial literacy is part of the investment strategy.
Make it fun
To make investing more relatable and fun, consider using a small part of your contribution (less than 10%) for something interesting and more unusual, like Bitcoin, gold, or shares in a global company your child finds exciting. If it fails, it’s a lesson in diversification. If it succeeds, it’s a bonus. Either way, you’re teaching valuable skills.
The bottom line: It’s not magic, it’s maths
No matter your income, the message is clear: if you start early, even modest monthly contributions can lead to staggering long-term outcomes.
A R1000 a month, used wisely, could be the most important financial move you ever make for your child.
* Adrian Hope-Bailie is the founder of Fynbos Money.
PERSONAL FINANCE
