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Hi Frances,

I was talking to a young person (aged 17) the other day about KiwiSaver versus Sharesies or a similar self-service share app.

They had been discussing the subject with an older work colleague and came away thinking that it was a good idea to be the master of your own destiny and not pay fees to a KiwiSaver provider. Apparently, it's an easy way to make some good money.

I said it was not necessarily a good idea as you would have to have amazing self-control to not withdraw any investment or money made, and also you automatically miss out on a 3% contribution from your employer (if it's not part of your remuneration package). Plus, there's an awful lot of information to consider when buying shares – when to sell, when to hold, and long-term strategies, and if you aren't in the know, luck will only get you so far, I feel.

I know they aren't starting KiwiSaver until they turn 18, but when that happens, what's your advice?



Hi L,

You make some good points. For my answer, I’m going to start with what’s technically the best option, and then also look at what happens when we include human nature in this.

KiwiSaver perks

KiwiSaver is a fantastic scheme, but it is designed for the working world. All of the perks happen between the ages of 18 and 65, and mostly for people who work for a company, not those who are self-employed.

If you’re under 18 or over 65, your employer doesn't legally have to make any contribution to your KiwiSaver account. Everyone else who puts in 3% of their pay gets it matched (less tax) by their boss.  

It’s the same for the annual government "tax credit" of $521, which is free money you get if you put in $1042.86 over the course of that year – as long as you’re between 18 and 65.

Now, some bosses come to the party and still give an employee the matching contribution even when they don’t have to. If that’s available for the person you were talking to, they should absolutely sign up to KiwiSaver to get it. Otherwise, it’s like missing out on a free pay rise.

What about when you’re over 18?

Not signing up to KiwiSaver once you’re in the zone of 18 to 65 is financially shooting yourself in the foot. I don’t often say things that strongly, because I’m a big believer that different things work in different situations. But for KiwiSaver, this is always true.

You don’t want to miss out on the employer contribution and government tax break. Those incentives double your money before you’ve even earned anything on your investment. 

You won’t reliably double your money every year with any other investment out there.

Oh, you might find some that claim to double your money or can double it over a longer timeframe, but they’re often scams or hugely risky. 

This is an easy win, and you want to grab those with both hands when you can.

You also mention they're worried about not paying fees to a KiwiSaver provider. I agree that you don’t want to pay big fees. But there are lots of low-fee options there. Sites like Sorted’s Fund Finder let you rank providers by their fees, making it easy to find good, low-cost options. 

However ...

Once you’ve put in 3% to make sure you’re getting the full employer match and government tax break, there’s a school of thought that says you shouldn’t bother putting any more in. This school of thought says you should start investing on your own after reaching that milestone, whether it’s through Sharesies or some other platform.

Here’s why I think that idea has merit.

You want all the free perks from KiwiSaver, but after that, any more money you put into it is locked away until you hit 65, or buy a house. There are plenty of other things you might quite reasonably want to do with your money before then.

  • You might want to start your own business – but that takes money. 
  • You might want to retire early – which takes money. 
  • You might want to take a career break, and go travelling for a year or so – which takes money.

All of these are perfectly legitimate uses of your own money, but you’re not allowed to break into your KiwiSaver for them.

Investing outside of KiwiSaver, however, creates a second pool of financial security that you can use however you see fit.

The human factor

Whether this 17-year-old should have both KiwiSaver and outside investments depends a little on their personality, as well.

Putting just 3% of their income into KiwiSaver won’t be enough to give them a good financial future. The standard rule is that you should sock away 10% of everything you earn, or more if you can.

The good thing about KiwiSaver is that you set your contribution level where you want it to be, and then it happens automatically.

So, if they say they’ll do 3% and then forget to invest outside of KiwiSaver … well, that’s no good. An automatic payment into their investment account of choice, which happens the day after payday, could help them avoid this trap.

The second thing is that, while it’s good to have outside investments you can access, there’s also a big drawback … that you can access them.

So, they need to ask themselves if they have the self-control to leave their investments alone to grow, and not cash them in because they got bored, or wanted a new car when their old one was perfectly fine.

If they’re someone with self-control, great. If not, then maybe locking it away in KiwiSaver is for the best.

In terms of your point about there being a lot to learn about shares, I think yes and no. You definitely want to learn enough so that you feel comfortable with what you’re doing, and you know how to achieve your goals.

But I think that a lot of people expect investing in shares to be far more complicated than it really is. The secret to good investing isn’t watching the markets and regularly buying and selling at the perfect time.

The research shows us that for most people it’s to find something like an index fund with low fees, stick your money in for several years, leave it alone, and cash out when it’s the right time for you, usually after a couple of decades.

It’s the boring way that normal people become millionaires every day.

If they’re worried about finding the right fund, then there are lots of funds around that look and behave like KiwiSaver funds. Most of the places that offer KiwiSaver funds also offer a fund outside of KiwiSaver that has exactly the same investments in it but isn’t bound by the KiwiSaver rules of only cashing out for a house or when you turn 65. So, that’s an even easier option.

The short version of my answer?

Under 18, if they can get any perks from the boss, KiwiSaver is a good idea.

Between 18 and 65, KiwiSaver is a no-brainer, at least for the minimum of 3% contributions.

When under 18, or when over 18 and contributing over the 3% mark, it’s a decision based on the options you'd like to have in the future, and whether you trust yourself to stick with the plan you’ll need to get there.

Learn more about KiwiSaver in this episode of the Cooking the Books podcast

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