Smart saving for your child: Tips for a carefree future

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 useful tips 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 it will take. 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 investigate the average costs of a university education, including tuition fees, books and living expenses. This could be, for example, €50,000. With this amount in mind, you can make a plan to reach this amount by the time your child is 18.

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 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 stay consistent with your savings.

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

Step 3: Choose the Right Savings Method

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

1. Saving in a Savings account

Saving on a savings account is easy and safe. You can regularly deposit money into an account that is in your child's name. The big advantage is the protection 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 that the value of your money can decrease due to inflation.

Benefits:

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

Disadvantages:

• Low interest rates may mean 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 higher returns in the long term than saving. The compound interest effect ensures that your assets grow faster. It is important to realize that investing involves more risk than saving, because the value of investments can fluctuate. Only invest money that you can afford to lose and set aside for the long term.

Benefits:

• Potentially higher return in the long term.
• Growth through the compound interest effect.

Disadvantages:

• Higher risk, chance of depreciation.
• Costs such as transaction fees and taxes.

Example:

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

3. Donating

You can also gift money to your child. This can be done annually or as a one-time gift with tax benefits. The amount you gift directly contributes to your child's assets, but you will no longer receive a return on this amount. Inquire about the exemptions for gift tax to take full advantage.

Benefits:

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

Disadvantages:

• No more return on the donated amount.
• Restrictions on annual tax-free donations.

Example:

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

4. A Study Insurance or Life Insurance

With an education 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 security but also involves costs such as premiums and administration fees.

Benefits:

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

Disadvantages:

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

Example:

You take out an education insurance policy where you pay €150 per month. By the time your child is 18, the insurance will pay out a fixed amount that can cover the tuition fees.

Step 4: Consider Important Matters

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

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.
• Safety: Make sure the account is covered by the deposit guarantee scheme.
• Management: An account that is easy to manage online offers convenience and overview.

Investing:

• Account naming: 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: Keep in mind 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 give a certain amount of money tax-free each year.
• Conditions: Pay attention to specific conditions for tax-free donations, such as age limits and the purpose of the donation.

Insurances:

• 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.

Saving for your child is a valuable way to contribute to their future. Whether you choose to save, invest, donate or take out 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.