How to Save Money for Your Kids: The Right Way
Growing up is expensive – we all know that. Saving money for kids is therefore important – we will tell you in this article when and how you can start putting money aside for your children.
Saving money for kids: Why?
Why should we put money aside for our little ones? After all, children don’t need their own money in the first few years and later they get pocket money with which they can fulfil their own wishes – right?
Yes and no. Of course, the children should later learn how to handle money themselves. Nevertheless, we should start early to set up savings accounts for our children – because growing up swallows up a lot of money. And the costs increase as the child grows older. You will also receive money for birthdays and communion – you can rely on that.
Many parents would like to make it easier for their children later on to start “serious life” by giving their children a large amount of money as “starting capital” at the age of 18. Others would like to finance the driving license or education for their offspring. So there are many reasons to open savings accounts.
When should I start?
As is so often the case with saving, the principle applies here too: the earlier, the better. It’s actually that simple. Because when you save and invest money, you (or your children) benefit from the so-called compound interest effect – the longer the money is invested, the more return it generates. If you invest in shares or a fund (or ETF) for your child, the chance of making a lot of returns increases.
For this reason, the right time to start saving is always NOW. This also applies to saving for children. Even if you don’t have children yet, but you already know that you would like to have children one day, you can start putting money aside today – for example with regular savings rates.
What are the options?
As always with investing money, there are a lot of different ways to invest money for the next generation. Some examples:
- Children’s account (in the name of the young person)
- Own savings account
- Time deposit / overnight money
- (Share) Savings plan with fixed savings rates
- Savings bond
- Fund savings plan
- Savings plan with ETFs
- Insurances (more on this below)
Important: If you open an account in the name of the child, you can manage the assets but you cannot withdraw any money. The money then already belongs to the child on the account, but can only be spent when the child turns 18.
At first glance, this may sound like a disadvantage for you – but child accounts from which you cannot withdraw any money are very safe. Because even in financially difficult times (or with a tempting offer such as a dream trip) you cannot simply go to the child’s savings and bang it on the head.
Is insurance useful?
In addition to various account and savings models, so-called training insurance or child protection letters are also offered by financial service providers. Stiftung Warentest advises against such products – such insurance policies are inflexible and bring very little return, according to the experts.
In general, the type of investment when saving for children should suit you. We are talking about a large, long-term project – so find out in detail which investment option suits you best.
Does it have tax advantages?
If you invest the money not for yourself but for a child – can you save taxes? As a matter of fact, you can avoid the tax on investment income (i.e. interest and returns) if the account or deposit is in the name of the child. In this case, you can take advantage of a new tax allowance and you will not have to pay tax on the income.
Furthermore, we always recommend that you seek advice from a specialist on tax issues.