It’s important to start saving early for your child’s financial future. Even with a small monthly savings amount, you can accumulate a respectable sum over the years. We will show you how you can release your child into adulthood with over 75,000 euros. So much can already be revealed: It doesn’t work with the good old savings account.
On June 15, 1818, the first savings book was issued by the Berliner Sparkasse and from there it began its triumphal procession. The savings (bank) book is a classic savings document in which all deposits and withdrawals and interest income are noted. The savings book is transparent and reliable:
The little red book is ideal for introducing children to saving: the savings go straight from the piggy bank to the children’s savings book – preferably on the much-advertised World Savings Day (October 31, 2022). So far it’s all good and commendable. Only: Savings book interest has been so incredibly low for many years that the money does not increase, but simply becomes less and less valuable. What a bizarre situation! A whole nation raises its children to be financial ignoramuses who waste money year after year.
Saving means not spending money, but putting it aside for a later purpose. When you put it in your savings account, you’re lending money to the bank, and you want to get paid for it – that is, receive interest. Currently, this is usually 0.01 percent p.a. There are even financial institutions that charge negative interest on savings accounts: you have to pay for making the money you save available to the bank. What a twisted world!
Suppose you have saved 10,000 euros in your savings account. You don’t need the money right now and just want to leave it untouched. With an interest rate of 0.01 percent, your assets will increase by a whole euro after one year: 10,001 euros. After ten years you would have just ten euros more in your savings account!
Unfortunately, there is more bad news. The keyword is inflation. She is responsible for making your money worth less and less. Ten euros are still ten euros. But you can buy less for it because the prices have gone up. Inflation has hovered below a moderate two percent for many years. It is currently just over four percent. What does that mean in concrete terms for the money in your savings account?
There are still 10,000 euros in the savings account at 0.01 percent interest. With an inflation rate of four percent, your 10,000 euros still have purchasing power of 9,601 euros after one year. After ten years, a meager 6,655.25 euros remain.
The example impressively shows how threatening the combination of inflation and zero interest rate situation really is. At the same time, this knowledge can also help to put the savings account where it belongs: ad acta, namely cleared and dissolved.
So where does the money go? That depends on what you’re saving for. In order to achieve short and medium-term investment goals, the money must be available flexibly. You have to bite the bullet and use day and time deposit accounts.
For long-term wealth accumulation – which is usually the case with children’s savings accounts – stocks or, even better, ETFs are an excellent choice. Why? With shares you have participated in the productive capital of our economy. It’s historically proven that investing in stocks for the long term can provide you with solid returns – with manageable risk. ETFs (Exchange Traded Funds) are funds in which shares – sorted according to a specific topic – are bundled. For example, there are ETFs that replicate the DAX or other indices. And there are ETFs dedicated to a specific theme: health, green energy, biotechnology, and many others. They are publicly traded, inexpensive and easy to use.
The huge advantage of ETFs is the broad diversification over many stocks. For example, the MSCI All Country World stock index tracks the performance of nearly 3,000 stocks from 23 developed and 27 emerging markets. A total loss with such an investment is more of a theoretical nature.
But what if you are one of those savers who are reluctant to deal with the topic of money and wealth accumulation? You have no desire or no time to take care of an optimal strategy for your own wealth accumulation or that of your children? Luckily there is a workaround for that too!
The magic word is Robo Advisor or digital asset manager. These are sophisticated programs that take care of selecting and managing your investments. It sounds complicated, but it’s easy for you to handle: The robo advisor asks you very precisely about your personal ideas, such as your willingness to take risks, your investment horizon or your personal financial situation. On this basis, he will put together a suitable portfolio for you.
At investify – a multiple award-winning robo advisor – work is strictly based on scientific knowledge. First, a wide-ranging basic investment with ETFs is put together – always taking your information into account. Building on this – and that’s the icing on the cake – you can also choose from over twenty themed investments that are particularly close to your heart: Future Energy, Dividend Kings or Aging Population and Gold.
Particularly important: Savings plans are possible and the process is transparent. The costs are low and you are very flexible with deposits and withdrawals – changes are possible at any time.
It’s important to start saving early for your child’s financial future. Even with a small monthly savings amount, you can accumulate a respectable sum over the years. You are supported by a powerful and often underestimated tool: compound interest.
Example: When your child is born, you start a monthly savings plan of 50 euros. Assuming an annual return of a moderate five percent (even seven percent would be realistic), after ten years you will have EUR 7,751.13. On your child’s 18th birthday, a whopping 17,336.58 euros came together. A driver’s license can easily be paid for with this. If you invest the child benefit for your child (currently EUR 219), you can release your child into adulthood with EUR 75,934.23.
A note on the question of whether the custody account should be in the child’s name or in your name: There is a tax advantage if the custody account is in the child’s name. But: Children are usually insured free of charge via their parents in health insurance. This is only possible if the child’s investment income does not exceed 425 euros per month. And: According to the current status, no Bafög is paid if the child’s assets exceed 7,500 euros.
Start building wealth for your child as early as possible. Leave the children’s savings book in the drawer and rely on competent digital asset managers like investify. Farewell to the children’s savings account!