The financial security of our children is important to all of us. In view of the rising cost of living and growing pension gaps, it is becoming increasingly important to make early provision for the next generation.
But which investment strategies really make sense for a household with children to ensure a secure future? In this article, we shed light on the importance of saving for children and present various options and tips for building up your children's assets to give you a comprehensive overview to help you make a decision.
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- An additional $25,703 per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video conference from the comfort of your own home.
- Sit back and watch your child's assets grow – our experts will take care of the rest.
Why saving is important for children
Children enrich our lives in many ways, but they also bring with them financial obligations. According to current data, parents in Germany spend an average of 763 euros per month on their children.
Interestingly, these expenses increase with the age of the children: for children up to the age of six in one-child households, the Federal Statistical Office calculated average expenses of 679 euros per month, while for 12 to 17-year-olds the costs rise to 953 euros per month. These figures illustrate how important it is to build up financial reserves at an early stage in order to meet the growing needs of children.
It's never too early to build wealth
Saving early pays off. The older children get, the greater their needs and wishes become - be it a trip abroad, a driving license, their first car or a year of study abroad. By saving consistently, parents, grandparents and godparents can create financial security for their children's future.
The compound interest effect plays a decisive role here: the earlier you start saving, the more the saved assets benefit from the interest on interest, which leads to considerable capital growth in the long term.
The pension gap is widening: private provision is essential
In times when the statutory pension alone is often no longer enough to secure your standard of living in old age, private provision is becoming increasingly important. By saving for your children early on, you lay the foundation for their financial independence and protect them from future pension gaps. A well-thought-out investment strategy can help to ensure that your children do not have to rely solely on state benefits later on.
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December 02, 2024
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What components should wealth accumulation for children include
Effective wealth accumulation for children should take several important components into account:
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Free advice: Sound advice helps you to develop the best investment strategy for your child. Experts can analyze individual needs and suggest suitable solutions.
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Tax exemption: In Germany, 25% capital gains tax is payable on investment profits. However, certain forms of investment can keep these gains tax-free, so that your child has more money at their disposal.
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Right of control: It is important to retain control over your child's finances to ensure that the money saved is not used for ill-considered spending. Some forms of investment allow you to retain control even after your child's 18th birthday.
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Flexibility: Life is dynamic and financial circumstances can change. Flexible savings plans allow you to adapt savings rates and payments to your life situation.
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Condition protection: Ensure financial stability for your investment to avoid risks from future changes such as tax reforms or interest rate changes. Some investment products offer protection against such imponderables.
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Transparency: A transparent investment allows you to track the development of the investment at any time and ensure that there are no hidden costs.
Wealth accumulation for children - these are your options
There are various ways to make financial provision for your child's future. Below we present some of the most common investments for your offspring(s) so that you can make an informed decision.
The classic savings book
Both the savings book for children and a call money or fixed-term deposit account were long regarded as the traditional method of saving money on behalf of a child. The investments offer a high level of security, as the capital paid in or various gifts of money are not subject to the fluctuations of the capital market.
However, both the interest rates on savings accounts and the returns offered on fixed-term deposits are extremely low these days and are often even below the inflation rate, which means that the money loses purchasing power. In addition, flexibility is limited and there are often restrictions on the availability of the money. In view of these disadvantages and flaws, traditional children's accounts have become less attractive than more modern solutions.
Fund savings
With fund savings, you invest regularly in investment funds that invest the money in various securities. This enables a certain degree of diversification and the chance of higher returns than with a savings account.
However, these financial products in conjunction with a junior custody account are often associated with high management fees and performance can vary greatly. In addition, there is often a lack of transparency as to which specific securities are included in the fund. Compared to other solutions, fund savings can therefore be disadvantageous.
Own investments
A children's custody account allows you to invest in shares or other securities independently. However, without professional advice, there is a high risk of making wrong decisions that can lead to losses.
Even the use of robo-advisors, i.e. automated investment advisors, cannot always guarantee optimal results and carries the risk of losses. A children's account without the appropriate expertise and advice is therefore often at a disadvantage compared to other solutions.
ETF savings plan
An ETF (Exchange Traded Fund) is an exchange-traded fund that tracks an index such as the DAX or the MSCI World. An ETF savings plan allows you to invest regularly in such ETFs.
This offers the advantage of low costs, as ETFs are passively managed, and broad diversification, as the portfolio contains many different securities. However, ETFs are subject to capital market fluctuations, which can lead to losses in value. Nevertheless, they are a popular and often sensible investment option for long-term wealth accumulation.
ETF pension insurance for children and grandchildren
ETF pension insurance in your own name combines the advantages of the capital market with those of pension insurance. It enables you to save for your child in the long term and with a return by investing in low-cost and broadly diversified equity funds.
A major advantage over most other investments is the average return of around 6% per year, which is higher than overnight or fixed-term deposits. ETF insurance also offers tax advantages, as the gains are tax-privileged under certain conditions. The flexibility to adjust the savings rate and the option of retaining control over the investment even after your child's 18th birthday make this form of investment particularly attractive.
We'll help you find the right investment for your child!
- An additional $25,703 per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video conference from the comfort of your own home.
- Sit back and watch your child's assets grow – our experts will take care of the rest.
Advantages of ETF insurance:
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Tax advantages: Income is generally not taxed until it is paid out, often at a more favorable tax rate, which increases the net return.
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Flexibility: Modern ETF insurance policies allow premiums to be adjusted flexibly and offer transparency regarding the performance of the investment.
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Right of control: You retain control over your child's investments, even after they reach the age of majority, and can ensure that the funds are used in accordance with the original objectives.
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Security: The insurance wrapper protects ETF insurance against certain risks and provides an additional layer of security for your child's investment.
This combination of potential returns, tax advantages and security makes ETF pension insurance one of the best solutions for long-term wealth accumulation for children.
Tip: It is important to compare the specific conditions and costs of different providers in order to find the best ETF insurance for your needs.
ETF savings plan and ETF insurance in comparison
Both the ETF savings plan and ETF insurance offer attractive opportunities for wealth accumulation. However, it is important to know the differences in order to make the right decision for you.
Differences between ETF savings plans and ETF insurance:
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Contractual partner: With an ETF savings plan, you conclude a contract with a bank or broker, while ETF insurance is provided by an insurance company.
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Tax treatment: ETF insurance policies benefit from tax advantages such as deferred taxation and possible partial exemptions, while ETF savings plans are subject to withholding tax on income of 25% and church tax during the savings phase.
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Cost structure: ETF savings plans are often less expensive in terms of management fees, while ETF insurance policies include additional costs for the insurance wrapper, but these may be justified by tax advantages and additional benefits.
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Flexibility: Modern ETF insurance policies have become more flexible in recent years and now offer similar benefits to ETF savings plans, including online transparency and easy premium adjustments.
Advantages of the ETF savings plan:
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Lower costs: ETF savings plans generally have lower management fees as they do not contain an insurance wrapper.
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High flexibility: Payments can be structured flexibly and adjusted or paused as required.
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Transparency: The performance can be viewed at any time and there are no hidden costs.
Disadvantages of the ETF savings plan:
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Tax burden: Income is subject to withholding tax during the savings phase, which can reduce the compound interest effect.
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No lifelong annuity: Unlike ETF insurance, the ETF savings plan does not offer the option of a lifelong pension payment.
Advantages of ETF insurance:
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Tax advantages: Higher net returns can be achieved through deferred taxation and possible partial exemptions.
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Lifelong pension: The option of converting the capital saved into a lifelong pension payment offers additional financial security.
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Protection from creditors: In certain cases, the insurance offers additional protection of the saved capital against creditors.
Challenges of ETF insurance:
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Higher costs: Additional fees for the insurance cover can increase the overall costs, but are usually more than offset by higher returns.
Tip:
If you value tax benefits and the option of a lifelong pension, ETF pension insurance may be the better choice. If, on the other hand, low costs and high flexibility are important to you, the ETF savings plan is an attractive option. It is important to consider your individual goals and needs and, if necessary, seek professional advice, ideally free of charge.
Experiences of parents
Many parents have already had positive experiences with ETF pension insurance for their children. Here are some testimonials:
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Anna M., 35: "The ETF insurance for my daughter gives me the good feeling of making long-term provisions for her future. The tax advantages and the possibility of a later pension payment convinced me."
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Markus K., 40: "After intensive research, I opted for ETF insurance. The combination of potential returns and security is ideal for me to make financial provision for my children."
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Sophie L., 38: "I was pleasantly surprised by the flexibility of ETF insurance. I can adjust the premiums to my financial situation and know that the money for my children is excellently protected.
Which solution is best for your children or grandchildren?
Securing the financial future of your children or grandchildren requires careful planning and choosing the right investment strategy. Factors such as the time horizon, the savings goal, flexibility, transparency and security play a decisive role.
Consider the time horizon
The longer the investment period, the more your children benefit from the compound interest effect. Long-term investments, especially in ETF annuity insurance policies, offer the opportunity to balance out market fluctuations and achieve higher returns. An early start maximizes these benefits and lays the foundation for a solid financial base.
Assess the savings goal correctly
The amount of the planned savings sum influences the choice of suitable form of investment. For higher savings goals, such as financing a degree or buying a home, ETF pension insurance can be particularly advantageous, as it combines attractive potential returns with tax advantages. A clear definition of the savings goal helps to develop the right strategy.
Not all models are flexible and transparent
According to Stiftung Warentest, some investment options, primarily with traditional banks or brokers, may contain hidden costs. Or they are characterized by a lack of flexibility. Tax issues and fees can also reduce the net return. It is therefore essential to choose transparent products that provide clear information about costs and benefits and can be flexibly adapted to your life situation.
Security is also a value
Protection against tax changes, legislative reforms or fee increases is an important aspect of investing for children. ETF pension insurance often offers additional protection here by guaranteeing stable framework conditions and security. This minimizes risks and ensures reliable planning.
Would you like to retain control over your child's investments even after their 18th birthday?
With many forms of investment, such as children's or junior custody accounts, the right of control is transferred to the child when they reach the age of majority. If you want to retain control over the investment after the 18th birthday, an insurance solution offers the option of continuing to exercise the right of control and ensuring that the funds are used in accordance with the original objectives.
We'll help you find the right investment for your child!
Conclusion
Financial provision for children requires careful planning. An ETF savings plan makes it possible to save for your child in the long term and with a focus on returns. Regular payments and a long-term investment horizon can create a solid financial basis. Aspects such as time horizon, savings goal, flexibility, transparency and security should be taken into account by the guardians in order to make the best decision for the future of your child or grandchildren.
Every family has individual needs and goals. It can therefore make sense to take advantage of a free consultation to develop the best strategy for your personal situation. This will ensure that the investment you choose is optimally tailored to your children's future.
In this context, the example of ETF pension insurance often proves to be an advantageous option. It combines the potential returns of the capital market with the security of a pension insurance policy and offers tax advantages as well as flexibility in the premium structure. It also allows you to retain control of the investment even after your child's 18th birthday.
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