Giving your child money as a gift when they start school: what you need to know!

Starting school is a milestone in your child’s life and, in Germany, is often celebrated by showering them with gifts. Parents, grandparents, aunts and uncles will be asking themselves what they should give them as a gift. We suggest giving them an investment that grows with the child and, if invested wisely, will be a major benefit in the future.

Before you invest money, you need to be sure of your aims: Is your aim to pay for the child to get their driving licence or for further education when they are older? Or even to lay the foundations for their retirement provision? The clearer the aim, the easier it is to choose the most suitable investment strategy.

How much money should you invest?

Deciding on the goal of the investment will help you make other decisions, such as considering how much money you’d like to invest. Are you planning to give the child a one-off amount or set up a regular savings scheme?

Our tip: You don’t have to pay for a larger gift all at once. Given them small amounts to gradually ‘top up’ their investment on occasions such as birthdays, communion, confirmation or the coming-of-age celebration in parts of Germany known as Jugendweihe.

Account or portfolio: in the child’s name

Important to note: You can invest the money directly into an account or portfolio in the child’s name. If you do, the money will belong to the child right from the start. Until the age of 18, parents generally have power of attorney over their child’s bank account and portfolio and can make decisions on their child’s behalf. The child’s exemption declaration will apply to tax due on any returns. Once the child has turned 18, they will be able to manage their account or portfolio themselves.

Small instalments, large growth potential

If the money is for a driving licence or further education: they will be able to access the money from their 18th birthday and decide for themselves how they want to use the amount saved. What you plan to use the money for can also provide clues as to the appropriate form of investment.

Do you want to make sure your child has access to a fixed amount at a particular point in time? In that case, choose a secure investment option, such as a fixed term deposit, a savings portfolio or an insurance policy with a guaranteed payout.

You’re more flexible with a savings scheme: You can save just 10 or 20 euros per month. The best thing about savings schemes is that you can adjust or pause the monthly instalments if your financial situation suddenly changes.

Higher returns? More risk!

The more money you want to make, the greater the risk you’ll have to be prepared to take. If you’re not reliant on earning a fixed target amount by a specific date, it’s worth taking a look at shares, equity and mixed funds or exchange-traded index funds (ETFs). These forms of investment give you the opportunity to earn attractive returns over the long term. With an investment horizon of over fifteen years, past performance shows you’re very likely to generate a tidy profit. But remember to reduce the risk of your investment in good time so you’re not caught off guard by falling prices at the end of your savings period.

You can build up a considerable amount of money, for example, with a fund savings scheme and small instalments, while remaining flexible. You can change the term, adjust the instalments or pause payments at any time. By purchasing additional securities, you can also slowly but surely get greater returns.