How to start future-proofing your child’s future
A barista or an astrophysicist? However you picture your child in the future, and however they see themselves, a little start-up capital will always come in handy to make their dreams come true. But how can you, as a parent, give them the leg-up they’ll need?
Start-up capital for your child: what are the options?
Saving for your child
Whether it's coins in a piggy bank or money in an account, you are no doubt familiar with the concept of saving - putting money aside to be used for a specific purpose later on. In this case, so that you can give your child some seed money for going to university, buying their first car or whatever else they choose.
The advantage is that saving carries little risk as your money is legally protected up to 100,000 euros per person and per bank.
The disadvantage is that your money is unlikely to earn any additional return. Due to inflation rates being higher than interest in recent years, your money is losing its value.
In a nutshell
- you decide the amount and the frequency
- low return
- limited risk
- deposit protection for up to 100,000 euros
Investing for your child
While your capital is not guaranteed, the potential returns on investment are higher than those of savings. So, while investing carries more risk than saving does, it can nevertheless potentially yield more.
The stock market does not move in a straight line: some days it rises, other days it falls. However, if you look back over the long term (10, 20 or more than 50 years), you’ll see the stock market trending in a clear upward pattern (1).
Investing is not short-term speculation or gambling —it is about long-term returns. Given the young age of your child, you can easily invest for five or ten years, or even longer than that. These time periods are usually long enough to absorb any interim dips in the stock market.
However, it is important to take a few basics into account when investing. For example, it is better not to invest with money you need in the short term, and it is also better to aim for a good spread of investments.
In a nutshell
- a potentially higher return
- for the long(er) term
- the amount and frequency are set by you
- no capital guarantee: it's important to spread risks