Farewell to the children’s savings account? Why a digital investment is the better alternative for your child’s future
Farewell to the children’s savings account? Why a digital investment is the better alternative for your child’s future
There are things that are unmistakable and you recognize them at first glance: What fits in your pocket and smiles at you in bright HKS13 red? Of course – the savings book! Every child knows it, German savers love it and nobody needs it. That may sound harsh, but it gets to the point. Mind you: Saving is not superfluous, but saving with the savings book. But first things first.
The Sparbuch – the German’s favorite form of saving
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:
- It has a fixed interest rate
- It can be terminated with a notice period of three months
- A maximum of EUR 2,000 can be made available per month
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 29th).
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.
How the money in the savings account is getting less and less
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 be paid for it – meaning you get interest. Currently, this is mostly 0.01 percent pa 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!
Calculation example
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 the fact that your money is becoming less and less valuable. 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 specifically for your money in the 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 a 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.
No saver is helplessly at the mercy of inflation and negative interest rates. There are very good opportunities to invest the savings with little risk and good earnings potential – also and especially for children.
The alternative to the savings account
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 capital formation – which is usually the case with children’s savings accounts – stocks or, even better, ETFs are an excellent choice. Why? With shares you participate in the productive capital of our economy. It has been historically proven that you can generate a solid return with a long-term investment in stocks – with manageable risk. ETFs (Exchange Traded Funds) are funds in which stocks are bundled according to a specific theme. 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 almost 3,000 stocks from 23 developed and 27 emerging countries. 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 don’t feel like it or don’t have the time to think about an optimal strategy for your own wealth accumulation or that of your children? Luckily there is a workaround for that too!
Robo Advisor: The digital helpers when saving
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 – 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 thematic investments that are particularly important to you: 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.
Another ally in saving
It’s important to start saving early for your child’s financial future. Even with a small monthly savings amount, you can collect a respectable sum over the years. You will be 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 yield of five percent, 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 219 euros), you can let your child come of age with 75,934.23 euros.
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.
Conclusion
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 . Farewell to the children’s savings account!