Why it’s never too early to start a savings habit
Tuesday, 2 June 2026
Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.
OPINION: Youth is wasted on the young, according to George Bernard Shaw. I am not sure of the context in which Shaw said this, but I doubt that he was thinking of savings and compound interest at the time. However, being who and what I am, when I look at Shaw’s words I violently agree. I am indeed thinking of savings and compound interest.
Compound interest works best with time. The more time the better. Compound interest is simply the returns that you get on both the capital that you started with, as well as your returns on the returns that you have already made.
Returns on the returns that you already have compounds your savings and gives the snowball effect. Your savings grow more and more rapidly as time goes on: and as they accumulate you get returns on more and more previous returns. The longer this virtuous cycle goes on, the more sharply your savings grow.
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Time is, therefore, your biggest asset. The people with the most time are young people - and a newborn baby has the most time to allow compounding to work its magic.
The trouble is that young people (especially newborns) do not usually have much money; all that time (their youth) is wasted on them because they have nothing to invest.
It is this idea that attracted me to New Zealand First’s election promise to make KiwiSaver compulsory and to put $1000 in each newborn child’s account. Even the powers of compound interest will not turn that $1000 into huge riches, but the policy when implemented would make for a good start.
While we wait for this policy to be implemented (I am not holding my breath) we need to do what we can to help young people so that their financial youth is not wasted.
This is a call to grandparents and other friends and family to give some (probably small) amount to children’s KiwiSaver on a weekly or fortnightly basis. With that NZ First policy of a $1000 kickstart still just a glint in Mr Peters’ eye, and with new parents no doubt feeling financially swamped with a mortgage and buying baby stuff, it is up to us family to step in and try to build a fund that compound interest can get to work on.
First, have the parents open KiwiSaver accounts for all their children. This is easily done through the IRD and does not cost. KiwiSaver is the right vehicle for children’s savings because the funds that are saved cannot be used for anything but the child’s first home (or retirement, but that is a very long way off for a newborn). Think of any contributions as help for the child’s first home.
Second, try to enlist grandparents and other family members to make small but regular payments into the account. The more people that you can get to contribute the better, even if they are small amounts.
Third, have a look at your will – older people with grandchildren may want to leave something to those grandchildren with the direction that it goes into their KiwiSaver accounts.
Fourth, you may if you can afford it put a little money into children’s Sharesies or Hatch accounts. This allows them to choose their own investments and buy companies on the sharemarket. A couple of children who I know to be doing this are sports mad, and their investments are probably overweight to Rebel Sports and Nike. I think this is no bad thing at all – they are learning that shares are just a fractional ownership of a businesses. With relatively small amounts of money at stake this is a fairly cheap way of learning about investment.
KiwiSaver is the right means for the bulk of funds, but I do think it useful to have an account where children can play with making direct investments themselves.
George Bernard Shaw was a great wit, but starting young people off investing early and seeing savings grow is serious business. The savings probably will not grow to a house deposit, but it gets the child over the first hurdle (which is making a start) and should make for quite a tidy sum. Get your family to make a start too, and remind them that the sooner the better.
Martin Hawes is not a financial adviser, and the information and opinions here should not be taken as financial advice.