Bonds, Not Piggy Banks: Building Your Child’s Wealth

Investing for your children isn’t just about stashing cash in a piggy bank or high-interest savings account anymore. These days, mums and dads are looking at bonds – those boring-sounding, slow and steady investments – as a smart way to build a nest egg for their kids’ future. In a world where share markets and crypto can be a wild ride, bonds offer a gentler path to grow wealth for your child. This article walks through how bonds work, how they might fit your family, and how to get started (even if you’ve never invested before). Casual, practical, no fluff. Let’s dive in!

Why Consider Bonds for Your Kids?

Stability. When you buy a bond, you’re lending money to a government or company and they pay you regular interest (coupons). Unlike shares that can swing around, bonds aim to provide predictable income with fewer ups and downs. That stability is handy for long-term goals – education, a first home deposit, an 18th birthday gift, or a “launch into adulthood” fund. Money Magazine has highlighted this “slow and steady” role for kids’ investments, noting parents like the gentler introduction compared with high-volatility assets.

A timely opportunity. Bonds had a rough patch when interest rates spiked in 2022, but with rates having risen and possibly easing over the next few years, locking in today’s higher income can be attractive. If rates fall in future, existing higher-coupon bonds can gain in value. That makes 2025 a reasonable time to give bonds a second look.

Diversification and peace of mind. Quality government bonds and investment-grade corporates can stabilise your child’s savings, providing regular income without the white-knuckle volatility of shares.

The Basics

• Government Bonds: Backed by the Commonwealth Government. If held to maturity, you receive fixed coupons and your principal back. There are also inflation-linked bonds (Treasury Indexed Bonds) that adjust with CPI.

• Semi-Government Bonds: Issued by state/territory financing authorities. Secure, but usually accessed via brokers or bond funds.

• Corporate Bonds: Issued by companies. Investment-grade issues pay more than gov bonds but carry issuer risk. Minimum parcels for direct purchase can be large, so most parents access corporates via bond funds or ETFs.

• Municipal/Other: Less common in Australia; typically accessed via diversified fixed-income funds.

How You Earn:

1) Interest payments

2) potential price gains (bond prices rise when market interest rates fall, and vice versa).

Key risks: Interest-rate risk, inflation, and credit risk. Diversification (via funds/ETFs) helps smooth these.

Getting Started: Step-by-Step for Parents

1) Set your goal and timeframe

What’s the “why” and “when”? Uni fees in 10–15 years? A home deposit at 21–25? Longer timeframes suit steady compounding; shorter horizons call for more conservative choices.

2) Learn the basics together (optional but fun)

Explain bonds like a story: “We lend to the government/company; they pay us interest.” Show a simple compounding example so kids see how interest-on-interest grows over time.

3) Choose your path

• Direct government bonds via the ASX: Exchange-traded Treasury Bonds/Indexed Bonds can be bought through standard brokers in small parcels.

• Bond funds or ETFs: One-ticket diversification across gov/semi-gov/corporate bonds with low effort. Great for set-and-forget.

• Micro-investing apps (bond-focused): Apps now let you invest tiny amounts into professionally managed bond portfolios (including dedicated kids’ sub-accounts).

• Investment bonds (insurance-style): Long-term, tax-effective structures popular for kids’ savings (earnings taxed at a flat rate within the product; withdrawals can be tax-free after 10 years). Good for higher-income families and patient timelines.

4) Open an account “in trust for” your child

Kids under 18 generally can’t own brokerage accounts directly. Open a trustee account in your name for them, or use a kids-enabled platform/app. Keep simple records that funds are held for the child.

5) Make your first investment (start small, stay regular)

Kick off with a lump sum (birthday money, tax refund) and set a monthly top-up. Reinvest income to harness compounding.

6) Monitor and involve your child

Check progress every few months, celebrate interest payments, and show them the growth. Turn it into a mini family project to build money confidence.

7) Be mindful of tax

Minors’ unearned income is hit with penalty rates above a small threshold (“kiddie tax”). Practical approaches:

• Hold assets in a trustee account and have income assessed at the lower-income parent’s marginal rate; or

• Use investment bonds (earnings taxed within the bond; tax-free after 10 years under the rules), or other tax-managed options suited to education goals.
  If/when transferring ownership at 18+, plan for any CGT and do it in a tax-smart way. If unsure, get advice.

Where Aussies Can Buy Bonds

• ASX via your broker: For government bonds (eTBs/eTIBs) and bond ETFs.

• Specialist fixed-income brokers: For specific corporate/semi-gov bonds (often larger minimums).

• Micro-investing/robo platforms: Low minimums, automated deposits, kid-friendly sub-accounts.

• Investment bond providers: Apply online or via advisers; pick an investment option and contribute over time.

Final Thoughts: Slow and Steady Wins The Race

Bonds won’t win the flashiest-asset contest, but they deliver what many parents value most: consistency and calm. Whether you prefer rock-solid government bonds, diversified bond ETFs, or an easy micro-investing app, a bond-led approach can quietly compound into something meaningful for your child. Teach them along the way, stick to the plan, and let time do the heavy lifting.

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it, you should consider its appropriateness for you, having regard to those factors. Before making any decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement.