Any new graduate will tell you there is something quite disheartening about seeing 12 per cent of your new salary being siphoned off to student loan payments.

While the scheme is currently interest free for borrowers who remain in New Zealand, the average student loan debt is more than $20,000 and graduates say that affects their ability to start saving for their retirements, or a first home.

But if you start saving now you can make it easier for them to avoid student debt.

Managed funds

Start putting money aside in a managed fund from the time your child is born and by the time they reach 18, a third of the roughly $30,000 you may have saved will have come from the investment earnings, not your contributions.

A managed fund is similar to the investments many people have via KiwiSaver – but the money is not locked in.

ASB general manager of wealth Jonathan Beale said saving for university fees was the third most common reason for customers to want to set up an investment, behind retirement planning and wanting to draw an income.

He said customers who put aside $100 a month for 18 years would contribute $24,000. If a fund delivered an average 5 per cent growth rate per year, that would turn into $36,000 by the time the child left secondary school – enough to cover fees and some living expenses too.

“From when they are born to 18 is a good timeframe and enables the investment to be more growth-oriented,” he said. “That means you get a better rate of return than a short-term savings account or term deposit.”

Beale said he would recommend a managed fund for anyone who would be saving for more than 10 years.

“Dollar cost averaging is part of it. It works in your favour. When sharemarkets go down, people always view it as a bad thing but I compare it to shopping at Country Road. My wife always gets flyers saying ‘come to the sale on Wednesday and Thursday’ and she always goes then because she knows it’s cheaper. The same thing applies, when you’re investing and you buy when it’s cheaper; when it goes back to the price it was you’ve made some money.”

Financial adviser Lisa Dudson said she recommended a managed fund to her clients when they wanted to save to cover kids’ fees. “When kids are born, start a savings plan then and there, rather than waiting. If you do it as soon as they are born, the pain is less.”

She recommended a balanced or growth fund and often suggested asking family to contribute. “Kids have so many toys these days, instead of buying so much of that stuff, ask the family to start saving.”

She said most managed funds would require savings of $100 a month but split between the parents and two sets of grandparents, that was only $33 each. “The vast majority of people can afford that. Rather than spending on toys, go to the toy library and put the difference into a fund.”

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