Saving for children: Investing intelligently and creating a solid foundation for the next generation

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Children are our future and parents therefore want their offspring to have a solid financial foundation in addition to health and happiness. This includes medium-term savings goals, such as the money needed for a good education. It is also important that children learn to manage their private finances intelligently at an early age.

If you set the course early on, you can lay the foundations for prosperity and security even with a manageable income and long-term investments. To this end, you should be familiar with suitable investment forms when investing money for children. It is also best to clarify questions about inheritance and the timely transfer of assets at an early stage.

This article provides you with an initial overview so that you can plan in a targeted manner.

The most important facts in brief

• Starting to save early increases the compound interest effect, minimizes risks and creates wealth even with small amounts.
• Upcoming higher expenses such as education and housing are more easily achieved through goal setting and suitable investment forms.
• Regular amounts make saving easier and lower the average cost of units in investment savings (cost average effect).
• Saving for children is the practical economics lesson for the next generation.
• Planning for the children’s inheritance should also be taken into account, not least for tax reasons.

Why building wealth for children is so important

Being a parent means feeling responsible – whether the children are young or grown up. This is expressed primarily through parental love. However, young people need quite a bit of money during their lives, in addition to the direct costs of clothing and food.

This is needed, for example, for:

• major purchases such as computers or bicycles
• school and graduation trips
• Driver’s license and first car
• a stay abroad
• your own apartment
• costs during and for studies

When the costs add up, things get tight despite a part-time job or training salary. And young people are unlikely to be able to build up adequate reserves from their pocket money. So it’s a real blessing if parents, grandparents or godparents have made provisions for their children early on, giving them a head start.

Investing money in children’s accounts: practical business lessons for minors

Children today are learning more and more about how the economy works. This is a good thing, too, because the earlier they understand the basics of money and investing, the better they’ll be able to handle it later. A good start to gaining this knowledge is to invest money in a children’s or youth savings account. In this way, you take responsibility for dealing with fixed budgets and making the necessary provisions for the future at an early age.

It is not only the children who benefit from investing their first funds, but also the parents themselves. After all, if children learn how to handle money and invest it properly at an early age, this will be an enormous help to them later on. And in this way, parents can protect their own savings and have less to worry about their children spending amounts imprudently later and the money not being enough in the end.

Build assets for children: The longer the period, the easier it is to save up

Parents can give their offspring gifts that they will only appreciate many years later. Small monthly sums, invested over one or more decades, can build up into a sizable fortune. Time and an appropriate return provide the additional compound interest effect.

The important thing here is that the return achieved on a longer-term investment is always also higher than inflation.

Laying the foundations early: How can children learn to handle money?

Even at an early age, children can learn that you have to pay money for certain things. They see their parents spending money when they go shopping, so they understand that you have to pay money for the things you want. Even though they don’t yet understand how the system of money and prices works. They already recognize the need to be frugal and not spend everything you own.

Dealing with money is one of the essential parts of our daily lives. It is therefore important that children learn it at an early age. The time required for this is determined in particular by the increasing age of the children. The following is therefore a presentation of some points in ascending order according to age.

Dealing with pocket money

When managing their own pocket money, children learn, for example, when they should buy something and when they should rather save up for something.

Saving for goals

Saving for things they want – whether it’s a new toy or a particularly cool pair of shoes – is a way for kids to understand what it means to have and manage money.

Earning your own money

Another important step is to show children how to earn their own money. For example, they see that their parents go to work every day and get paid for it. In this way, they realize that you are paid for your work and that you have to be active yourself in order to earn money.

You can foster a practical relationship with your own “work” in your children by paying them for small services. These might include mowing the lawn or helping grandparents with their errands.

In keeping with the status of the parents, it is equally important to teach the children the basic differences between employees and the self-employed when it comes to dealing with money.

Their own account and the function of the bank

Teaching basic skills in handling different types of money is also important. For example, as children get older, they can learn to open and manage their own accounts at the bank. Parents can help with this by explaining to children what costs are involved (such as account management fees) and how best to manage their account.

Building on this, children can later be shown that there are different forms of investment. The relationship between risk and return should also be explained in good time.

Overall, it is important that children learn the importance of money and how to handle it at an early age. In this way, they can later successfully gain a foothold in their professional lives and build a financially stable future.

And remember, it’s more beneficial to make mistakes with a limited budget as a child than to take financial risks later in life as a young adult and get the receipt.

Wealth accumulation for children and young people: sensible forms

The days of saving for long-term desires with a savings account are long gone. Today, it is important to take your child’s future plans into account when determining the savings goal and term. Whether you want to invest money for later purchases, expand his knowledge of money management, or combine both: You need to consider how often and how much you want to invest. In addition to the option of making regular smaller contributions, you can also pay larger sums once or choose a combination of both.

But no matter which form of investment you choose: You minimize the risk and increase the compound interest effect if you start as early as possible.

Call money account and time deposit

Call money accounts or time deposits offer secure investment opportunities for your offspring. However, you have to buy the security with a modest return. It can be an ideal form of investment to help young children make the transition from “piggy bank” to bank.

However, call money and time deposits are not suitable for building up long-term assets. However, these forms of investment are suitable if you want to save up amounts for the short or medium term or safely store gifts of money for later use. With the overnight deposit account, the focus is on flexibility. For example, you can deposit gifts of money today and use it to buy an e-bike next season.

Fixed-term deposits are a form of investment in which you invest a certain amount for a contractually fixed term. You no longer have any flexibility, but the interest rates are slightly higher than for overnight deposits. This type of investment makes sense if you already know what you are saving for in the near future. This can be, for example, a stay abroad or the driver’s license, which is coming soon.

The first account for your own money

Many banks offer parents the opportunity to open their own account for their children. This is often free of charge up to a certain age and comes with other benefits. This children’s account can be used to store regular pocket money or one-off amounts such as birthday or Christmas presents. In this way, children learn in a protected environment to independently dispose of a certain amount of money and to save it for the fulfillment of their own wishes.

Making the most of the time as they grow up: Fund savings plans

Invest in shares at an early age and thus create the basis for a secure and profitable investment. With a securities account at a bank and a fund or ETF savings plan, one-off amounts can be made in addition to regular amounts. In this way, money gifts are also invested profitably in addition to regular savings installments. The investment is made in funds or ETFs. Banks often offer specially designed children’s custody accounts with favorable conditions.

Despite fluctuations on the market, a respectable return is possible with securities if one assumes long-term asset accumulation. This not only allows you to save for your offspring. It also enables other family members to participate in investing. With fund savings, you benefit from the cost average effect. This means that since the same amount is always invested, fewer shares are bought when prices are high and more when prices are low.

Keep in mind that this is a riskier investment compared to conservative savings vehicles. Experience has shown that broadly and globally invested index funds or ETFs offer optimum risk diversification. Important: You should always assume a long-term investment horizon of at least ten years.

Insurance savings – provision for specific events

Insurance companies also offer products designed for specific situations within families. Parents, for example, can arrange for their children to be paid out in the event of their death. Furthermore, some insurance products aim to pay out at a specific time, such as the start of an education (education insurance).

Early transfer protects children’s inheritance

According to a saying, it is better to give with warm hands than with cold ones, i.e. after death. This is a good idea, for example, if the young family lacks the equity required to purchase a home.

Unlike the so-called advance inheritance, a gift is generally not taken into account later on in the inheritance process. This means that, if desired, several children can be provided for in different ways. In many cases, inheritance to one’s own descendants is tax-free, but the tax-free amounts vary between the individual cantons. It may therefore be advisable to transfer part of the assets to the children during their lifetime.

Please note that this is a highly complex topic and no tax advice can be given at this point. Therefore, if necessary, contact a lawyer for inheritance law in good time.

Offspring learn how to build up assets: parents and children invest together

Well-informed, you can start saving for your kids with just a few steps:

• Involve children as soon as they open their first account: Children are most likely to learn when they take action themselves. That’s why it’s important for them to open their own accounts at a young age. This way, they not only see their money grow, but also get a feel for how the financial system works. Later on, for example, it will be easier for them to develop an understanding of the 3-pillar principle in Swiss pension provision. Of course, once they reach a certain age, they should always be involved in the investment decisions and see that it is their money that is at stake.
• Suitable investment form for the goal: Before things can get started, a goal must first be set. Should the money be saved for a driver’s license, the first car or for education? Once this question has been answered, the investment or risk mix can be defined. It is advisable to seek professional advice here.
• Ensure regularity: To automate the savings process and achieve the recommended regularity, it is advisable to set up a standing order. That way, you don’t have to remind yourself to transfer money every month.
• Use long periods for opportunities on the capital market: When investing money for children, a long period of time is available, depending on the savings goal. Experience has shown that investments in the stock market are a good choice here. Although the risk is higher compared to conservative forms of saving, in the past price drops have been compensated for over periods longer than ten years. The prerequisite for this is broad diversification, such as that offered by equity funds or ETFs. Here, savings plans can also be invested with small regular amounts of money.

Other articles worth reading:

• Background on the vested beneficts act for occupational pension
• Stock market crash – how should you react?
• Digital asset management: meaning & variants

Frequently asked questions (FAQ)

What is the importance of sustainability when saving for children?

When children grow up and receive gifts of money from you, they may wonder where it came from. It may not go down well if the capital they have saved has been increased by returns from coal-fired power plants or weapons corporations. So keep in mind that topics like climate protection and ESG are highly relevant to young people today.

How much money should I save each month for the kids?

Basically, of course, the amount of savings contributions depends on your personal possibilities. However, the following example is helpful in answering the question: If you save 100 francs a month, this will result in a capital of around 33,000 francs in 20 years with conservative savings methods (three percent interest). So roughly a good basis for financing a course of study. If invested in the stock market, the monthly savings contributions could already generate a capital of around 52,000 according to long-term experience (around seven percent return).

What about government support programs?

Saving for underage children is not directly subsidized by the state. Individual responsibility applies here. In Switzerland, parents are financially supported on the one hand by the family allowance and on the other hand by tax allowances for children. How you use this money is ultimately up to you.