Building a generation of life-long investors
While the overall cost to the Government will be relatively minor – in fact, the full suite of KiwiSaver changes is projected to save $2.5 billion over the next four years – this small shift has the potential to make a real difference.
If it helps even a handful of young people begin their investing journey earlier, then that's a win in my book and 10 out of 10 to the Government for making that change.
Why starting early matters
The potential payoff for someone who starts investing young is huge. Helping our kids, grandkids, nieces and nephews understand this – and supporting them to become lifelong investors – is one of the greatest financial gifts we can give them.
While saving 3.5 percent to 4 percent of your pay from a part-time job might not amount to a lot, what a young person does have a lot of is time – around 50 years in fact. And young people need to use this time to their advantage. Over time, even modest contributions can grow significantly.
Here's an example of just how powerful time and the magic of compounding are:
Investing $20 a week from age 16 to 65 at an average return of 7 percent would grow to over $405,000.
Delaying investing by 10 years would cut your final balance in half to $199,000.
Delaying investing by 15 years means you'll need to contribute three times as much to reach the same end amount ($59 a week).
When it comes to compounding, the earlier you start, the less you need to contribute later to reach the same goal.
The $50,000 opportunity for 16- and 17-year-old KiwiSaver members
The introduction of the new rules around KiwiSaver for 16 and 17-years-olds has the potential to add over $50,000 to an individual's nest egg at 65 (based on minimum wage for a 10-hour work week and 4 percent KiwiSaver contribution). That's a substantial return for just two years of investing and a contribution of just $978 from your wages (the remaining $1,119 would have been contributed by your employer and the government).
Increase your saving rate from 4 percent of your wage to 20 percent for those two years, and this could see the end value of your portfolio increase to more than $170,000.
Investing early is about giving your future self-options
Clearly, the example above is just one in a long list of scenarios. The likelihood of an individual commencing and then ceasing saving after two-years are low, but we have used this example to highlight the power of time – a valuable commodity that we believe young people need to make the most of.
In the following table we show how your money could grow if you invest $50 a week, starting at different ages, assuming a 7 percent annual return. In my view, some of the key points to note include:
How the power of compounding accelerates over time. Though it takes nearly 20 years to reach the $100,000 mark, it takes less than 10 years to reach the next milestone of $200,000, and fewer than five years to surpass the $300,000 mark. This demonstrates the snowball effect of compounding – the larger your portfolio grows, the more it earns, and the faster those earnings build on themselves.
Though it takes nearly 20 years to reach the $100,000 mark, it takes less than 10 years to reach the next milestone of $200,000, and fewer than five years to surpass the $300,000 mark. This demonstrates the snowball effect of compounding – the larger your portfolio grows, the more it earns, and the faster those earnings build on themselves. How time lets your money work harder than your contributions. Though someone who started investing at 30 contributes only about 27 percent less than someone who started investing at 16 ($91,000 vs $127,400), their portfolio at 65 is roughly one-third the size ($370,806 vs $1.02 million). This is because compounding doesn't grow your money in a straight line – it grows exponentially. The longer your money stays invested, the more it benefits from earning returns on returns. By waiting, even a few years, you miss out on the most powerful years of growth.
The power of compounding: What $50 a week can really do
How to make the most of time and KiwiSaver
Start saving/investing more than you think you can. It might sound hard, especially when that part-time wage is your first real taste of financial freedom. But if you can get into the habit of investing 15–20 percent (or more) of your weekly pay, the payoff over 50 years could be massive. Compounding works wonders over time.
Understand the difference between saving and investing. Saving in cash or term deposits is a great first step, and it's a good way of saving for short-term goals. But long-term wealth is built through investing in growth assets like shares.
Make risk work for you. With time on your side, young investors can afford to take on more investment risk. You have decades to ride out market ups and downs. That means holding a higher allocation to growth assets in your portfolio.
Take advantage of the government contribution from 1 July 2025. From this date, if you contribute $1,042.86 into your KiwiSaver account each year (so around $20 a week), then the government will contribute $260.72. This equates to a 25 percent return on your contribution, something that shouldn't be ignored*.
No job required. You don't need a job to receive the government contribution. You just need a KiwiSaver account, and to contribute to that account every year. For every dollar contributed by you, the government will contribute 25 cents up to the maximum contribution of $260.72*.
Ask mum, dad, nan or pop to top up your contributions. If the contributions from your part-time job don't quite get you to $1,042.86 a year that allows you to maximise the government contribution, consider asking your parents or grandparents for a top-up.
Final thoughts from someone who's been around (a while)
Many things have changed since I was 16 – the minimum wage, mobile phones, the internet, TikTok, the cost of living and the cost of buying a home. But one thing that hasn't changed is the power of small, consistent habits.
If more young people learn to put away 15–20 percent of their income and understand how to invest it wisely, the ripple effect over their lifetime could be enormous. Starting early isn't just about retirement – it's about giving your future self more choices. Whether it's buying a first home, setting up a business, taking a break to travel, or retiring on your own terms – good financial habits now can create freedom later.
If you have a teenager in your life – a child, grandchild, neighbour, student – talk to them about KiwiSaver. Help them open an account. Explain how compounding works.
In the long run, the habit of investing early can matter even more than the amount saved, and if this small change to KiwiSaver inspires even a few more teens to become lifelong investors, that's a big win.
Summary of changes to KiwiSaver announced in Budget 2025
From 1 July 2025, 16- and 17-year-olds will be eligible for the government contribution.
From 1 July 2025, the annual government contribution to KiwiSaver will halve to 25 cents for each dollar a member contributes each year, up to a maximum government contribution of $260.72.
From 1 July 2025, members with an income of more than $180,000 will no longer receive any government contribution.
From 1 April 2026, the government will extend employer matching to 16- and 17- year-olds.
From 1 April 2026, the default rate of employee and employer contributions, which is currently 3 percent, will go to 3.5 percent. From 1 April 2028, it will go to 4 percent.
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* Individuals aged 16-64 are eligible for the government contribution to KiwiSaver.
Disclaimer: This information is general in nature and should not be regarded as specific investment advice. Craigs Investment Partners do not accept liability for the results of any actions taken or not taken upon the basis of this information, or for any negligent mis-statements, errors or omissions. Those acting upon this information and any recommendations do so entirely at their own risk. Craigs Investment Partners did not take into account the investment objectives, financial situation or particular needs of any particular person in the preparation of this information. This information does not constitute a representation that any investment strategy or recommendation is suitable to your individual circumstances or otherwise constitutes a personal recommendation. Craigs Investment Partners recommend seeking advice from a licenced financial adviser about your financial situation and goals before acquiring any financial products or making any investment decision. To talk to one of Craigs Investment Partners' financial advisers, please call 0800 272 442. Craigs Investment Partners Limited is a NZX Participant firm. The Craigs Investment Partners Limited Financial Advice Provider Disclosure Statement can be viewed at craigsip.com/tcs. Visit craigsip.com.
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