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Financial provisions for children

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Well cared for from the start: Strategies for a
Successful financial planning for children

Children's wishes change over the years: from their first bicycle to a driver's license, from ice cream parlor visits to trips abroad, and from a dollhouse to their first apartment. As they get older, their financial needs also increase. To ensure that children's futures are open to them and their wishes can be fulfilled, early financial planning is crucial. But what constitutes effective investment for children?

Why is financial planning for children important?

According to the Federal Statistical Office, the average cost of raising children up to the age of 18 amounts to approximately €174,000. Monthly expenses increase steadily with age, from an average of €679 per month for babies and toddlers to around €786 per month from school age onwards, and finally to about €950 per month during adolescence. These expenses include pocket money, food, clothing, leisure activities, educational costs, communication devices, and much more.

These costs add up quickly, and that doesn't even include expenses for a driver's license, first apartment, stays abroad, and university studies. To make it easier for their children to start their education or independent lives, parents and grandparents should therefore take early steps to secure their financial future and start saving – ideally today.

Investing money for children: These options are available

Several products are available for investing money for children. Their suitability depends primarily on the following factors:

Investment period
Risk appetite
Financial resources
Desired flexibility

It is also crucial whether you want to flexibly set aside one-off contributions for specific occasions (for example, birthdays or Christmas) or regular savings rates for the children.

Traditional saving with savings books, current accounts and fixed-term deposit accounts

Current accounts, fixed-term deposit accounts, and the classic savings book are traditional forms of saving. Some banks even offer slightly higher interest rates for children's savings accounts. There are also special accounts for specific savings goals, such as saving for a driver's license. These accounts are funded until the target capital is reached, at which point the money is paid out.

Savings accounts and money market accounts offer a high degree of flexibility. You can save a fixed amount monthly or make one-off deposits. Most products also allow for flexible withdrawals if the child needs money.

However, a minimum balance often needs to remain in the account to maintain it. Although these options are safe, they offer little return due to low interest rates. Additional fees can further reduce the return.

Suitable if:

You are looking for a risk-free investment for children
You want to deposit and withdraw money flexibly at any time
You want to save for the child in the short and long term

Our tip: Invest in fund and ETF savings plans

The return on the stock market is significantly higher compared to fixed-income products. Especially for long-term investments, stocks and funds are the highest-yielding option, even though they are subject to greater price fluctuations. They can achieve several percentage points of growth per year, thus offering not only a good return but also protection against inflation.

To spread risk, broad diversification of investments is important. ETF savings plans offer one way to do this. The capital is not invested in individual stocks, but rather spread across a wide range of investments.

An ETF tracks a stock index, for example the DAX, which contains investments from 40 different companies. Losses in individual stocks can be offset by gains in other companies.

There are even ETFs that invest in over 1,000 companies! You can decide for yourself how your money should be diversified and invested.

An ETF savings plan for children is particularly worthwhile if you plan to invest the money for at least ten years. This allows the investment time to offset potential losses. Even though you can withdraw money flexibly, you shouldn't sell shares when prices are low. The amount you contribute is flexible, although most providers require a minimum of €20 to €25 per month. However, you can also save more for your children.

Suitable if:

You want to achieve a high return
You want to take advantage of the opportunities offered by the capital market
The capital is invested for the long term.

Less suitable investments for children

Saving for children typically involves a long-term investment horizon that offers both security and returns. While products like ETF savings plans are particularly suitable for this purpose, there are also investment and insurance products that are less appropriate.

1. Special insurance policies for savings goals

Special insurance policies like "education insurance" are less suitable for saving for children. Even financial experts, such as Stiftung Warentest in issue 12/2017 of Finanztest, note that these policies are "not suitable for saving for children".

2. Protection letters for specific risks

Insurance policies that cover specific risks such as accidents, illness, or inability to attend school are also not ideal as an investment for children. These offer comparatively low returns and incur additional costs for risk coverage.

3. Building society savings contracts

Despite a potential interest rate reversal, building society savings contracts are still less profitable. They generally only pay off if the child actually takes out a building society loan. The uncertainty about whether the child will want to build or buy a home in the future makes this option less attractive.

Support in building wealth for children

Investing in your children's savings is a sensible way to enable them to achieve their wishes and goals regardless of their parents' financial situation. Saving early pays off, especially when you have 18 years before the capital is needed. Our BKC advisors are available to answer all your questions and help you find the right investment for your children. We support you in building wealth efficiently and strategically for the long term, so you can look forward to your children's future with peace of mind. Get in touch with us!