As a parent, you want the very best for your child. Whether it's 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 handy tips for saving for your child in a smart and effective way.
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 studies, 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 for this. 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 studies. You research the average costs of a university education, including tuition fees, books, and living expenses. This could be €50,000, for example. With this amount in mind, you can create a plan to reach this amount by the time your child turns 18.
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 how long you want to save. Make your plan concrete by taking into account factors such as the required amounts, the period in which you want to use the money, and your monthly savings capacity. Automatically transferring money to a savings account can help you to remain consistent in your saving.
Example: If you want to save €50,000 for your child's studies in 18 years, you need to save approximately €231 per month, assuming an average interest rate of 1%. By automatically transferring this amount monthly to a savings account, you will gradually build up a significant sum.
There are various ways to save money for your child. Here are four popular options:
Saving in a savings account is simple and safe. 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 on savings accounts is currently low, which means the value of your money can decrease due to inflation.
You open a savings account for your child and set up an automatic monthly transfer of €100. Despite the low interest, you know this is a safe way to set money aside.
Investing can yield more returns in the long term than saving. The compound interest effect ensures your capital grows faster. It is important to realise that investing carries 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.
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.
You can also gift money to your child. This can be done annually or as a one-off with tax advantages. The amount you gift contributes directly to your child's capital, but you no longer receive returns on this amount. Be well informed about the gift tax exemptions to benefit optimally.
You gift your child €3,000 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.
With study insurance or life insurance, you can specifically save for your child's future. You pay a premium, and the insurance pays out an amount on the end date. This offers certainty but also involves costs such as premiums and administration costs.
You take out study insurance for which you pay €150 per month. By the time your child is 18, the insurance pays out a fixed amount that can cover the study costs.
When choosing a saving method, it is important to consider a number of matters:
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.