In a similar situation, I would personally recommend putting the sum into a global ETF and forgetting about it there.
Of course, if you want to learn something at the same time and follow more actively, take a small slice, e.g., 10-20% of the portfolio, for stock picking and buy 3-5 company shares with it to hold.
(This is what I would do; there are, of course, many other equally “correct” answers.)
Indeed, one would think so. Please let me know if your own experience yields a better reception.
I’m looking at this thread for the first time now, so I apologize in advance if there’s any repetition?
In my opinion, your educational responsibility has been settled by the comment above, which shows that the child has understood the phenomenon of compound interest. In my opinion, awareness of the eighth wonder of the world is the most important inheritance one can give to a child. After this, the rest is fine-tuning and in her own good hands.
It’s difficult to make recommendations for someone else other than sure ones that can be justified by Burton Malkiel’s Random Walk down Wall Street and Jeremy Siegel’s Stocks for the Long Run. If something must be recommended, then “cost-effective equity funds with good diversification” can be interpreted as MSCI World + S&P500.
Of course, nothing prevents discussing stock picking without recommendations, just by telling why you bought a certain stock yourself. If the reasoning suits someone else, they can follow suit, but it’s not mandatory.
Individual investment recommendations could be foundational works in the field, if not already read:
Burton Malkiel
Jeremy Siegel
Robert Shiller
Marko Erola
Jukka Oksaharju
Preferably in this order, that the broad market view of the three American masters is covered first, and only after that, refine to funds through Erola and/or Osinkoharju’s stock picking.
What happens then when they turn 18?
IMHO, 18 years should be used to grow understanding, because without it all gifts are volatile.
Yes, of course I’m aware of the risks of investing; I’ve gained some experience investing in various asset classes over the decades. The child’s assets have already been diversified into various asset classes, and I’m just pondering the possibility of investing in an apartment as well, because that will likely happen at some point in their life, so why not do it now? Of course, perhaps an alternative could be to buy an investment apartment jointly with the child; perhaps then the bank would view the matter differently?
When savings are in an equity savings account and you sell something, it will affect benefits. Just like received dividends (unless you close an equity savings account that is at a loss). Speaking from experience. It’s no use explaining that it doesn’t normally work this way!
Regards, a student who has fought with KELA
Does even closing an account or generally incurring a loss help? In my case, at one point, my benefits were taken away based on gross sales profits, even though the whole year was barely in the black. Kela refused to take capital losses into account when calculating income 
Indeed, I wrote that if one doesn’t sell anything.
Kela includes, for example, capital gains and dividend income in income. Loss-making sales, of course, do not generate income, but they cannot be deducted from income here.
Sales and dividends within an OST are not income. At least this is assured on Nordnet’s website. However, it is then income if one withdraws money from a profitable investment savings account:
Miten osakesäästötilini sijoitukset vaikuttavat Kelan etuuksiin? | Nordnet Miten osakesäästötilini sijoitukset vaikuttavat Kelan etuuksiin? | Nordnet
I recommend primarily using Kela’s website as a source, because Kela does take into account dividends and capital gains in housing benefit and also in study grant, as well as in the student housing supplement coming in the autumn. In the housing supplement, income is considered in the same way as in the current study grant.
Closing the account helps if the account is at a loss at the time of closure. As does incurring a loss, although withdrawals at a loss do not reduce the annual income amount.
“If the account is at a loss, the withdrawal does not generate income considered for student financial aid. Capital losses can therefore also be deducted from the income considered for student financial aid when securities trading is done on an equity savings account. However, withdrawals at a loss do not affect the amount of annual income considered for student financial aid.”
Dividends received within an OST (and profitable sales) are income and affect benefits. This is how it went for me. This applies to student financial aid and housing benefit. It will also apply to the housing supplement in addition to the general housing benefit, which is tied to student financial aid months.
This probably means that a student cannot trade in the aforementioned account. But there are now two pieces of information above regarding profitable sales made within the OST (Osakesäästötili - Share Savings Account). It is not income for the tax authorities, but is it for Kela (Social Insurance Institution of Finland)? It would be a peculiar interpretation from Kela (Social Insurance Institution of Finland) that without a withdrawal from the OST (Osakesäästötili), the student cannot access that money, and a profitable withdrawal is, of course, income for Kela (Social Insurance Institution of Finland), as it is for the tax authorities.
If a profitable sale within the OST (Osakesäästötili) reduces benefits, will it reduce them again when one withdraws from the OST (Osakesäästötili) later? The same profit cuts benefits twice?
This feels really strange because dividends and capital gains within an OST are not reported to the tax authorities. So, for Kela to get information about internal OST transactions, the benefit applicant would have to provide bank statements themselves. Somehow hard to believe.
Information about the share savings account was found on Kela’s website after all:
Quote from the aforementioned page:
A share savings account only becomes income considered for study grants if money is withdrawn from the account and the account is profitable. Only profits are considered income and they are calculated as income received on the day the profit is withdrawn. If there are a lot of profits, it may not be advisable to withdraw money from a share savings account during studies.
Kela even gives a tip on what to do.
Many thanks for digging this up! I was already considering liquidating my children’s share savings accounts and investing in funds, but at least half of the educational value would be lost if the child couldn’t participate in stock picking themselves.
The share savings accounts are not, “fortunately,” yet profitable.
Indeed, the most important education one can give a child is that they never get involved in stock picking, but instead invest specifically in low-cost index funds. For most investors, stock picking is an obstacle to wealth accumulation and, in the worst case, takes away their enthusiasm for investing. If a child learns and internalizes this at a young age, they are on a good path where inevitable wealth building awaits them sooner or later.
Esa has written about saving and investing for a child. The plan is 15€/month, which is certainly less than what is put in on average.
The initial capital is intended to provide financial security, a little freedom, and act as a good money skills teacher, but at the same time, it’s important to me that it’s not too much. One must put in effort and time to get rich – I want this to be internalized, no matter how privileged one’s starting point in life is.
The goal is not to raise an individual who becomes a billionaire, but a balanced individual who understands the value and meaning of money for themselves, others, and society – and who can, of course, also get rich and take care of their own finances.
Good reflection on the topic, and I myself am more Team Esa on this subject. I see a big risk, for example, in receiving a 100,000 euro portfolio at the age of 18. One’s head can get a bit messed up with that.
I reiterate that due to the popularity of index and ETF funds, even a small panic will cause a large number of quality stocks, completely independent of the crisis, to flood the markets, and these are worth buying.
If a child has been taught financial matters from the very beginning and has been aware of the value of their investments, and especially how much long-term effort it has taken to accumulate them, the situation is different from suddenly receiving a large sum of money “out of nowhere.” This is assuming that all savings/investments are originally the child’s property, not just a “child’s portfolio” in the parent’s name in the parent’s thoughts.
I have understood that nowadays, children are generally opened their own accounts, which are not the parent’s accounts.
Of course. Surely everyone hopes for this and wants to raise their children into sensible adults who understand the value of money. I still see it as a risk. And even if they didn’t waste money or do something an adult wouldn’t wish for/approve of, then the risk would be a general attitude and approach to money and other people. It is, of course, somewhat challenging for a child, youth, or teenager to try to explain what 30 years of grinding at work with a 60% savings rate means in practice. Does one still have to live that working life oneself to truly understand it? As Esa wrote about this:
For me, it’s above all a matter of principle. Of course, my spouse and I could save a lot more money for our children, but I don’t feel that it would be of any benefit to anyone – rather the opposite. The larger the amount of money a child receives upon reaching adulthood, the greater the risk I see, regardless of financial education, that they won’t know how to value money correctly, but instead take things for granted.
I saw a lot of this while studying at a business school, and even though my child will grow up in a completely different socioeconomic position than I did, I don’t want them to grow up with the same attitude as, in the worst case, people from a high socioeconomic class grow up – without understanding and empathy for people in different financial situations. Scarcity and the necessity of choice at different stages of life, in my experience, only raise wiser and more empathetic people.
There is no right or wrong answer to this, and everyone does what they see fit. Many adults surely regret why they didn’t get, say, a 30,000 euro portfolio upon reaching adulthood. Let alone a 50k€, 100k€, or 150k€ portfolio. From this perspective, I understand everyone who wants to offer their child what they might have wished for themselves.
Perspectives, perspectives.
By long-term perspective, I meant that if/when a child’s money, summer job wages, possible monetary gifts, etc., have been (mostly) put into savings and investments from the beginning, one has personally seen and experienced for over a decade how savings accumulate and investments develop (investments sometimes also negatively), the tax authorities demand their share of the returns, and so on. In that time, especially starting so young, one has time to learn, if one is at all inclined to learn. One will certainly have time to experience their career and middle age in due course.
I sold some of the ETFs and funds I bought for my child. How does taxation work in this case? So, some capital gains tax will accrue. Do I need to report this separately to the tax authority?
If I sell less than a thousand [euros] during the year, then I understand I don’t need to report it, at least?