Written by consultant Elsa Meulenveld
You may already be planning your own financial future through Elfin. But have you thought about investing for the future of your little one(s)? Investing in your children’s future: Why investing now for your child is a good idea I explain to you in this article.
For example, if my parents had deposited €1,000 in an investment account every year from birth until now, I would now, at age 38, have a pot of about €185,000*. Spoiler alert, they didn’t 😉 But for your kids, today is the perfect time to start!
Long horizon
You’ve probably heard of the interest-on-interest effect of investing. The longer you have the time, the more your wealth can grow. And the more you can absorb the risk of the price movements of investing. So start as early as possible!
Major impact
That small monthly or annual investment now can have a big impact later. Think about an (expensive) study, taking a trip around the world, or start-up capital for a first home or your own business. It is like giving a financial gift for the future.
Prefer to save?
Of course, if you still find investing a bit exciting, you can also open a savings account for your children. Currently, savings rates on children’s savings accounts are quite attractive at around 1.5% to 2.4%. Over the past 17 years, the savings rate has averaged about 1.25%**.
Tax benefit
You can, of course, build yourself a pot for later. That way you can decide what you want to use the money for and what portion goes to the children.
It may also be interesting to open a savings or investment account in your child’s name. As a parent, you may donate an amount tax-free each year. In 2024, this is €6,633. If you have saved or invested heavily and want to give your child a larger amount, you must pay gift tax on the amount above €6,633. This is at least 10% and can reach 20% for higher amounts. And that, of course, is a real shame if your investment account has grown well over all these years.
Define Deposit
See what is an appropriate amount for you that you can spare. This is different for every family and every situation. For example, you can choose to automatically save or invest a fixed amount each month. But you can also see what you can spare annually or make flexible deposits and transfer money when it’s convenient. Some parents choose to set aside child support for the children. For larger amounts, always Google the maximum donation. These change every year.
By the way, grandparents (or sugar aunts and other generous donors) can also help out if they like: they can donate up to €2,658 tax-free in 2024.
The Ferrari syndrome
Until your child’s 18th birthday, you as a parent are the custodian of the account and pay taxes on it as well. On the 18th birthday, the investment account officially passes into your child’s hands. This is, of course, a great birthday present. This can also be a disadvantage if, for example, you are afraid that they will spend the amount on a shiny sports car or a nice drinking vacation in LLoret de Mar without thinking or consultation. Therefore, involve your children early on in saving and investing. Make clear agreements together and discuss together what the jar is for. You can also possibly arrange a guardianship through the notary for a number of years.
After your child’s 18th birthday, you may also make a one-time gift of €31,813 between the ages of 18 and 40 in 2024.
Getting started!
Are you completely convinced and eager to get started? Then start looking for the savings or investment account that’s right for you. You usually need a checking account in your child’s name for an investment account for your children. You must also provide a copy of their passport or identity card.
Oh, and don’t forget to take a moment to share this article with grandparents. Especially if they are investing themselves.
*based on an average return of 7% in an offensive profile
**Source: DNB/spaarrente.nl
