Saving smart for your child: Tips for a worry-free future

As a parent, you want the very best for your child. Whether it's a good education, a nice home, or just a worry-free future, financial security is a valuable gift. But where do you start saving for your child? In this blog, we'll give you simple steps and helpful tips on how to save smartly and effectively for your child.

Step 1: Determine the Savings Goal.

Before you start saving, it's important to be clear about what you're saving for. Do you want to contribute to your child's college 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 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 college education. You research the average cost of a university education, including tuition, books and living expenses. For example, this could be €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 create a savings plan. Decide how much money you want to set aside each month and how long you want to save. Make your plan concrete by considering factors such as the amounts needed, the time period you want to use the money, and your monthly savings capacity. Automatically transferring money to a savings account can help keep consistent savings.

Example: If you want to save €50,000 for your child's college education in 18 years, you need to save about €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 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 in a savings account is easy and safe. You can deposit money regularly into an account held in your child's name. The big advantage is the protection provided by the deposit guarantee system up to an amount of €100,000 per person per bank. However, interest rates on savings accounts are currently low, so the value of your money may decrease due to inflation.

Advantages:

• Easy to access and manage.
• Protected by the deposit guarantee system.
• Flexibility in depositing amounts.

Disadvantages:

• Low interest rates mean possible loss of value due to inflation.
• Slow growth of the amount saved.

Example:

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

2. Investing

Investing can provide greater long-term returns than saving. The interest-on-interest effect makes your wealth grow faster. It is important to realize that investing carries more risk than saving because the value of investments can fluctuate. Only invest money that you can spare and lock in for the long term.

Advantages:

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

Disadvantages:

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

Example:

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

3. Donate

You can also gift money to your child. You can do this annually or once with tax benefits. The amount you donate will contribute directly to your child's assets, but you will not receive a return on this amount. Inquire carefully about gift tax exemptions to take full advantage.

Advantages:

• Direct transfer of wealth to your child.
• Opportunity for tax benefits.

Disadvantages:

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

Example:

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

4. Study Insurance or Life Insurance

Student insurance or life insurance allows you to save specifically for your child's future. You pay a premium and at the end date the insurance pays out an amount. This provides security, but also comes with costs such as premiums and administration fees.

Advantages:

• Certainty of a benefit at some point.
• Specific goals such as study or housing.

Disadvantages:

• Premium and administrative costs.
• Possibly lower return than other options.

Example:

You take out study insurance where you pay €150 a month. By the time your child is 18, the insurance pays out a fixed amount to cover study expenses.

Step 4: Consider Important Issues

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

Savings:

• Interest and fees: Choose a savings account with a good interest rate and minimal fees.
• Terms: Note 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 provides convenience and oversight.

Investing:

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

Donate:

• Tax-free gift: Parents may make a tax-free gift of a certain amount each year.
• Conditions: Note specific conditions for tax-free gifts, such as age limits and the purpose of the gift.

Insurance:

• Premiums and terms: Compare premiums and read policy terms carefully.
• Term and benefit: Check how long the insurance will run and when it will pay out.

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