Smart saving for your child: Tips for a worry-free future

As a parent, you want the very best for your child. Whether it is a good education, a nice home, or simply a carefree future, financial security is a valuable gift. But where do you start with saving for your child? In this blog, we give you simple steps and useful tips on how to save for your child in a smart and effective way.

Step 1: Determine the Goal of Saving

Before you start saving, it is important to be clear about what you are saving for. Do you want to contribute to your child's education, a future home, or other important milestones? By setting a specific goal, you can better estimate how much you need to save and how long you will need to do so. A clear goal provides direction and motivation, and it feels great to know that you are making a valuable contribution to your child's future.

Example: Suppose you want to save for your child's education. You research the average costs of a university education, including tuition, books, and living expenses. This could, for example, be €50,000. With this amount in mind, you can create a plan to reach this amount by the time your child is 18.

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Step 2: Create a Savings Plan

With a clear goal in mind, the next step is to draw up a savings plan. Determine how much money you want to set aside per month and for how long you want to save. Make your plan concrete by considering factors such as the required amounts, the term over which you want to use the money, and your monthly savings capacity. Automatically transferring money to a savings account can help you stay consistent with saving.

Example: If you want to save €50,000 for your child's education in 18 years, you need to save about €231 per month, based on an average interest rate of 1%. By automatically transferring this amount to a savings account monthly, you will gradually build up a considerable amount.

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Step 3: Choose the Right Saving Method

There are several ways to save money for your child. Here are four popular options:

1. Saving in a Savings Account

Saving in a savings account is simple and secure. You can regularly deposit money into an account in your child's name. The big advantage is the protection offered by the deposit guarantee scheme up to an amount of €100,000 per person per bank. However, the interest rate on savings accounts is currently low, which means the value of your money may decrease due to inflation.

Advantages:

• Easy to open and manage.
• Protected by the deposit guarantee scheme.
• Flexibility in depositing amounts.

Disadvantages:

• Low interest rate potentially means loss of value due to inflation.
• Slow growth of the saved amount.

Example:

You open a savings account for your child and set up an automatic monthly transfer of €100. Despite the low interest rate, you know that this is a safe way to set aside money.

2. Investing

Investing can yield a higher return in the long term than saving. The compound interest effect ensures that your assets grow faster. It is important to realise that investing involves more risk than saving, as the value of investments can fluctuate. Only invest money that you can afford to lose and can commit for the long term.

Advantages:

• Potentially higher long-term returns.
• Growth through the compound interest effect.

Disadvantages:

• Higher risk, possibility of depreciation in value.
• Costs such as transaction costs and taxes.

Example:

You invest €200 per month in a mix of shares and bonds. Over 18 years, with an average annual return of 5%, your investment could grow to more than €70,000.

3. Gifting

You can also gift money to your child. This can be done annually or as a one-off payment with tax advantages. The amount you gift contributes directly to your child's assets, but you no longer receive a return on this amount. Be sure to research the gift tax exemptions to benefit optimally.

Advantages:

• Direct transfer of assets to your child.
• Possibility of tax benefits.

Disadvantages:

• No more return on the gifted amount.
• Limitations on annual tax-free gifts.

Example:

You gift €3,000 to your child annually, which falls within the tax-free gift limit. This money can be used directly by your child for future expenses such as studies or a house.

4. An Education or Life Insurance Policy

With an education or life insurance policy, you can specifically save for your child's future. You pay premiums, and the insurance pays out an amount on the maturity date. This offers certainty but also involves costs such as premiums and administration costs.

Advantages:

• Certainty of a payout at a specific time.
• Specific goals such as education or housing.

Disadvantages:

• Costs for premiums and administration.
• Potentially lower return than other options.

Example:

You take out an education insurance policy for which you pay €150 monthly. By the time your child is 18, the insurance pays out a fixed amount that can cover the study costs.

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Step 4: Consider Important Matters

When choosing a savings method, it is important to consider a number of matters:

Saving:

• Interest and costs: Choose a savings account with a good interest rate and minimal costs.
• Conditions: Pay attention to minimum deposit or withdrawal restrictions.
• Security: Ensure that the account falls under the deposit guarantee scheme.
• Management: An account that is easy to manage online offers convenience and overview.

Investing:

• Account name: Determine whether the account is in your name or your child's name.
• Costs and risks: Compare providers based on costs and risk profiles.
• Free disposal: Note that your child can freely dispose of the assets from the age of 18 if the account is in their name.

Gifting:

• Tax-free gifting: Parents are allowed to gift a certain amount tax-free annually.
• Conditions: Pay attention to specific conditions for tax-free gifts, such as age limits and the purpose of the gift.

Insurance:

• Premiums and conditions: Compare premiums and read the policy conditions carefully.
• Term and payout: Check how long the insurance runs and when it pays out.

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Saving for your child is a valuable way to contribute to their future. Whether you choose saving, investing, gifting, or insurance, it is important to have a clear plan and regularly evaluate whether you are on the right track. At Vive, we are ready to help you with smart financial solutions and personal advice, so that you can save for your child's future with peace of mind.

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