Saving for a child

[Optimus]

I’ve written about this before. I believe that if you’re investing for yourself and have a little extra money, it’s also worth investing a bit in your child’s name. Here are my reasons:

1. Managing a child’s portfolio teaches you how to invest. When you invest someone else’s money, you take risks more seriously. The investment horizon is long, but it also has a clear end point (18 years). You have to accumulate returns systematically while protecting the capital. It’s no easy task. Once you complete this 18-year exercise, you’ll definitely be a better investor.
2. When a young person receives their own money at 18, it teaches responsibility. You don’t pay for the young person’s day-to-day expenses; they pay for them out of their own capital. They might think more carefully about their spending when they have to pay for it themselves.
3. You might take the young person’s financial education more seriously between ages 10 and 17 because you’re concerned about whether they’ll know how to manage their money at 18. The young person learns more about financial thinking.

I had the equivalent of a middle-income annual salary saved for me by the time I was 18, and I know others who had their own money when they were young. For the most part, everyone used their money responsibly. I have invested for my own children, but we haven’t reached the 18-year mark yet. My oldest child is almost 15, and I’m not worried.

[Leopold_G]

I recommend the OP-World (OP-Maailma) index fund for a child’s own book-entry account. I didn’t manage to save for my own children. I only started more goal-oriented investing in stocks and funds myself at the age of 50. Before that, it was just my home, a farm, and forest. For six years now, I have been saving €100 / month / head for my grandchildren. For the first two, the money goes into Seligson’s Phoebus, Global Top Brands, Global Pharma, and the America Index. For the most recently born, I’m starting with OP index funds. I think I’ll put it into all six funds, so that World and America dominate. It’s easy as pie; you can program the payments years in advance in the OP payment service. This latest one already received a €100 nest egg from OP for the world index.

[Leroy]

I personally don’t understand at all why anyone would choose individual stocks for a child’s portfolio. It’s so much simpler to pick one or a few basic index funds and add to them gradually. You avoid costs and tax consequences if (or rather when) the individual companies chosen for the portfolio go bust/get acquired, etc. This reasoning applies at least when it comes to basic monthly saving. Asset management for large sums of money is a different story.

Another thing I don’t understand is the idea that the child “shouldn’t be allowed” to do exactly what they want with their money once they come of age. Of course, they will do whatever they want with their own money. An adult child’s decision might be to continue investing, withdraw some of the money to fund education/a home/a car, or blow it all in Ibiza. If you want to retain control over the money, then don’t give it to the child.

I personally save for my child monthly in Nasdaq 100 and world ETFs. Naturally, I hope the child does something sensible with the money once they reach adulthood, but my role is likely to try and provide guidance through upbringing so that the child makes sensible decisions on average.

[Poimija]

I have also been saving for my school-aged children since they were born, in the children’s own book-entry accounts. (In a book-entry account (AOT) to take advantage of the tax-free profit rule for annual sales under €1,000)

The money is still in individual stocks, partly because the donations have mainly consisted of multi-baggers from my own portfolio, which I donate €5,000 at a time every three years, and then diversify.

There is a major tax benefit there: when you donate shares directly to a child, the value at the time of donation becomes the acquisition cost in the child’s portfolio after a one-year holding period, which provides significant tax advantages for the “family”.

I can donate approximately €5,000 worth of shares tax-free to the child, compared to a situation where I would first pay €1,200 in taxes on a €5,000 stock sale and then donate the remaining €3,800 to the child.

(Calculation: sale €5,000, deemed acquisition cost 20%, taxable income €4,000, of which 30% tax is €1,200)

And my hope is that my children will also learn to save; we have discussed the matter occasionally even before they reached school age.
But at the same time, I hope my children will also be able to travel and see the world while they are young; I don’t mind if the money is used for that as well.

[Kesintti]

Same here.

We save every month for the children in a world index, specifically the OP World Index (OP Maailma indeksi). This has been excellent, and my own opinion is that other indices, especially America, are a bit of a scam.

In addition, the children have received money from their grandparents, and these funds have been invested in direct stocks—both in a few growth companies and a few dividend-paying companies. It would probably be more sensible to invest in some fund, but we also want direct stocks.

The children have book-entry accounts (AOT), and every year we perform a €1,000 tax-free sale for the best-performing stocks, often buying the same stocks back.

These methods are certainly intended to grow the children’s wealth, but once the child receives the portfolio, my plan is to explain the choices made over the 18-year period and thereby teach them about investing methods and taxation.

As a matter of principle, we keep the child benefits ourselves and use that money concretely for the children’s expenses. Otherwise, we save €100/month for the children.

[Smirkelimies]

An equity savings account and a book-entry account have now been opened for the child at Nordnet.

It took a little while to figure out the operating logic. The accounts appear at the bottom of my Nordnet page. The money has to be routed to the child’s equity savings account through my own accounts since we didn’t open a Nordnet savings account, but the deposit then shows up in the child’s equity savings account balance, from which I already tried buying a small test batch of Terveystalo.

I’ve understood that the equity savings account is good because it doesn’t affect future student benefits.

When the child reaches adulthood, the account will likely be separated from mine (maybe Nordnet handles it automatically??)

I got a flashback to the early days of my own investing career. It looks harsh when you buy a batch of shares for a child and it immediately drops into the red. Even if it’s just a hundred-euro investment -0.2%. Let’s see what the young lady thinks when she sees the minuses In any case, I thought we’d celebrate this in some bourgeois way. We’ll drive the car into a heated parking garage and then head to a Jungle Juice Bar to have drinks with our pinkies up.

Edit: And we’ll take a shower before leaving because THE BOURGEOISIE SMELL GOOD (I should get a T-shirt made)

[Smirkelimies]

…Experienced my child’s first day as an investor. We bought a total of a thousand euros’ worth of Kesko and Terveystalo. The first day’s gain was about 0.55%, or 6 euros. During the day, we went for hot chocolate in town, which cost 4.4 euros. In the evening, we checked the daily gain and could see that the day’s net increase roughly covered the cost of the Arnolds hot chocolate. Then we compared the daily gain of my portfolio, which was 0.38%, or just under €4k.

In terms of percentages, the girl beat my daily gain by a mile! I was very pleased that it demonstrated to her how the stock market works, what kind of returns you can get from a small versus a larger portfolio, and what those returns can actually buy. The young lady was more than happy to come and check the daily balance and listened thoughtfully. Luckily, my daughter doesn’t immediately start listing all the useless junk the money should be blown on. She realizes there’s a good pot of money growing there to be used in her adult years.

We always look at the buys together—the technical execution and the choices. Over hot chocolate in town, it felt a bit special to discuss investment matters with a 15-year-old girl. She wondered aloud if this is what rich people do: drink overpriced hot chocolate and talk about investments Yeah, I guess so.

[Peelo]

I started investing in stocks for both of my children right after they were born. The majority of their birthday and other gifts have been invested directly into stocks using a diversified and moderate-risk strategy. Of course, some has been used as “their own money” for small purchases for financial education purposes.

The goal was roughly €50k by age 18, and for the older child, this goal has already been met a year ahead of schedule. It should be achievable for the younger one as well, provided the CAGR (13.3%) remains roughly the same.

However, I consider financial education more important than the size of the portfolio, and I feel I could have done even better in that regard. Fortunately, there is still time left for that; knowing my kids, neither of them seems to be in a rush to spend their money.

[Smirkelimies]

Update on the situation. Currently, the pot has small slices of Posti, Nebius, Kesko, Pfizer, and Terveystalo. The large share of brokerage fees when buying foreign stocks is a bit off-putting.

I caught the idea from the Femme portfolio to buy a Europe index in the future. Huhtamäki is also a good candidate.

This youth theme is something I wish some investment firm would take notice of. One would hope Nordnet would also show mercy to small customers regarding brokerage fees.

When I was a child, Postipankki had the Golden Piggy Club (Kultapossu-kerho) with its magazines and piggy banks. Now there isn’t really anything engaging offered to youth by banks either. Inderes’s Femme thing seems to be more for adult women…

I asked the girl if she had told her friend about the stock stuff. Yeah, she had, of course. The friend had thought that minors couldn’t start investing. I suspect this might spread a bit in the girl’s circle of friends, and maybe in some other families, they are also thinking about these things.

This could have a quite significant economic impact if youth investing could become a real trend. One would wish schools would wake up to the matter, but the school world is sooo conservative that it’s probably a vain hope. But a youth investment night would be a pretty fun idea. Maybe with a Cosplay-anime theme. The lecturer could dress up as a wizard, for example. I have a Mountain-Man outfit that I made myself, and the girl has a Hatsune Miku outfit.

[Mututuntuma]

@Ezzano

What is currently the most sensible form of investment for a child in general (arriving this spring)? Specs: Two working average Joes. Since we aren’t internet rocket scientists, the plan is to invest a total of approx. €50/month for the child, and otherwise, the money is needed for living, hobbies, our own investments, and well, life. Does an insurance wrapper make any sense? If I’ve understood correctly, there are some ongoing costs in addition to the fund fees. Would you invest in your own names or the child’s name? OP is offering €100 in initial capital for those born this year, and we thought about taking advantage of that as customers. Does this mean the investments have to be in the child’s name at OP? Currently, the idea is to invest that money into a world index with a buy-and-forget strategy. Based on a quick calculation, over 18 years, the child would have a pot of approx. €22,000.

A world index sounds like a very sensible form of investment. Good move by OP to throw in the initial capital, as it can secure a customer for basically the rest of their life, and it’s by no means a bad choice.

The ongoing charge for OP World seems to be 0.39%. On Nordnet, Storebrand Global is 0.31% and Nordnet World is 0.30%. Of course, 0.08%–0.09% isn’t much even over 18 years, but it’s something. I would leave the €100 at OP and put everything else in Nordnet. In my opinion, it also makes a big difference that tracking investments is in a completely different league with the Nordnet app, and when you combine this with the lower costs of the world fund and a huge selection of other funds, the choice was easy for us at least.

Our child has an account at OP where a certain amount goes automatically from both parents per month, which then automatically transfers to Nordnet, where an automatic monthly saving plan runs into that Storebrand fund.

So, regarding the monthly savings, you don’t have to do anything once you set it up. For extra gifts, we just do the same thing manually, which is also a quick and easy task.

Definitely in the child’s name, because otherwise they aren’t the child’s money, but your own, intended to be gifted to the child sometime in the future. Anything can happen on life’s journey. For example, the donor could be a total d#ck in 18 years, even if they are a decent and fair fellow now. There is a significant difference in that you can do whatever you want with your own money at any point, but the child’s property is the child’s property. Additionally, there would be unnecessary hassle with gift tax and a large donation. With the moderate donation pace you mentioned, you don’t need to worry about taxes. On the other hand, if you donate a €22,000 pot all at once, you’ll have to pay taxes on it, or the whole donation process turns into multi-year maneuvering.

[aviator]

Speaking of high trading costs;

I have my own and my child’s portfolio at Nordea, which has a monthly stock savings day with rotating exchanges, allowing you to access foreign stocks with low, one-euro trading fees.

In my case, at least, since the amounts being invested are in the hundreds, this is a great way to reduce costs.

[_rologi]

I’ve been contemplating this topic for a few years, and it’s finally becoming relevant next summer. I’ve concluded that I’ll open a book-entry account (AOT) in my own name, where I’ll save a fixed monthly sum into index funds until the child turns 18. I don’t really view this as “the child’s property” but rather as my own earmarked “child fund” that I can use to help and support them. There are a few reasons for this:

I estimate that saving €100/month over 18 years with a standard 7% return would amount to approximately €43,000. At that point, I can start using the money as follows: giving €7,500 every 3 years (note the gift tax change), which allows me to support my child for potentially decades through various life stages. I could also, for instance, pay their rent tax-free for years. I believe this gradual support also teaches saving and financial management.

Of course, if my child wanted to, say, buy a home and needed a larger down payment, I could “lend” them money at zero interest from their own “fund.” Or they could pay the gift tax if they chose (though I wouldn’t recommend it, of course).

If the funds last until my child has children of their own, I could then donate a nest egg to each grandchild for their own “funds.”

I didn’t receive anything from my parents when I turned eighteen. Nor do I think it’s a prerequisite for a successful life. Occasionally, my parents paid for my groceries—something I could also use this so-called “child fund” for.

Additionally, a slightly pessimistic view: In my day job, I see so-called troubled youth every week. Minors who are estranged from their parents, use substances, or live in institutions. While the goal is obviously not to raise such a child, it isn’t always down to upbringing. Things often aren’t that black and white. Could that hard-earned money even cause more problems for the child in such a case? If things did go that way, I could keep the money for myself or give it to other children, for example. Or even use it to help my child.

Naturally, I would speak openly with the child about investing, and if they wanted to start their own equity savings account (OST) for saving allowance and gift money, we would of course set that up in their own name immediately.

This is just my way of thinking, but to each their own, of course. It’s a blessing to even be able to consider these things

[Dromedary]

Life, however, is full of all kinds of uncertainty. For instance, I could end up trapped in debt and insolvent as the result of some unfortunate chain of events. These days, simply owning an apartment in the wrong housing cooperative can lead to major financial difficulties. One’s health is unlikely to improve with age. There is a significant personal financial risk there as well.

It is good that, given the uncertainty coming from many directions, children (and one’s spouse) have their own money and the risks are limited. Life must go on, after all, and as humanely as possible.

But these are not black-and-white issues – I like your idea that the transfer of wealth is more of a process than a single event.

[Fundamies]

@jjige

I’m leaning towards the idea that accumulating wealth in a child’s name isn’t the most sensible way to build intergenerational wealth, unless there is wealth “to the point of it being a problem” (a few million might not be a problem yet). Instead, it’s better to accumulate as much wealth as possible in one’s own name and support the child sensibly without skimping on expenses.

Same plans here. Of course, intergenerational wealth isn’t even a goal for me, but even if it were, I think the approach would be the same. I see it as a good thing that the assets are in my name, so that I can, if necessary, act as a financial educator for a few more years after they reach adulthood. The idea is that the child basically gets to decide how the money is used, but because I’m involved in the process, they’re unlikely to pour it down the drain (or down their throat).

However, I do intend to take advantage of that OP seed capital, so the child will have that much wealth in their own name immediately. If at some point they want to start investing their own allowance or other earnings (as I wanted to do at age 12–13), then those will of course be in their own name too. If they drink away money they invested themselves at 18, I don’t see any problem with that.

[Sulavajuusto]

There’s also the aspect that grandparents sometimes want to give gifts or, unfortunately, leave inheritances.
In these cases, I’ve suggested they rather put the money directly into Nordnet, and then I buy gifts in their name using my own money (often paying for things like hobby fees, etc.).

Personally, I’ve been thinking that while direct support—meaning paying for living expenses—might even be more tax-efficient, could it be a barrier to independence? It’s hard to build an independent life if it’s based on the assumption that bills are simply forwarded to the parents. You miss out on those classic “Wait, how much does cheese actually cost?” lessons.

[Fundamies]

@Sulavajuusto

I’ve personally thought that although direct support might even be more tax-efficient—meaning paying for living expenses—it could be a hindrance to independence. It’s difficult to build an independent life on the premise that bills are delivered to the parents. You miss those classic “Huh, how much does cheese actually cost?” lessons.

This is of course an important thing to consider, i.e., in what way direct support should be provided. If all the bills go to the parents, one doesn’t learn money management at all. But if the parents pay, for example, half the rent and the furniture for the first apartment, I don’t see a major problem. In an ideal situation, the upbringing is successful enough that the child themselves wants this kind of system, where they get to practice managing their own finances (and becoming independent) with a little extra support. The intention is to talk about those savings and their intended use gradually as the child grows up.

[kilpikonna]

Saving for a child has become topical, and I have been weighing two options:

A) Saving in the child’s name (funds / monthly saving)

Pros:
– The money is legally the child’s own, no room for interpretation later
– An easy and carefree model, does not require constant management

Cons:
– Potential political risk: in the future, wealth may affect, e.g., student and housing benefits
– High taxes must be paid when realizing gains.
– Assets transfer automatically to the child at age 18, even if they are not yet mature enough

B) Having my own book-entry account (AOY), with money earmarked for the child

Pros:
– Full control: you can decide when and for what purpose the money is given
– No impact on the child’s benefits during their studies
– Possible to support the child by, for example, paying bills.
– No regulation on holdings. Enables investing outside of Finland.

Cons:
– Capital gains are taxed as part of your own taxation
– The money is not legally the child’s own before the transfer

I would be interested to hear forum members’ experiences and views on these different options.

[SentinVenyttaja1]

Supporting your child by paying their bills is, of course, always an option, regardless of investment solutions.

[Dromedary]

@kilpikonna

-When taking profits, you have to pay a lot of taxes.

I already wrote about this before. So if you’re willing to put in a little effort, sales under 1,000 EUR are tax-free (of course, total sales for the whole year must be under 1,000 EUR). This is a good motivator for saving a little for a child, as the sums are very small at the beginning anyway. For example, if you invest 500 EUR in an asset that rises to 900 EUR in a couple of years, you won’t pay taxes when selling it. Of course, you need to be active here and take home even small profits (if any are available). Or you can spread the sales over a couple of years. A very good benefit at the start.

This 1,000 EUR sales limit also applies to losses. That is, you cannot deduct losses if sales are under 1,000 EUR. It’s therefore worth waiting a while with those and then cleaning them up all at once, or alternatively, selling winning and losing positions at the same time (to exceed that 1,000 EUR threshold).

@kilpikonna

Possible political risk: in the future, wealth could affect e.g. student and housing benefits

Currently, the official unemployment rate is nearly 11% and the state deficits are massive. Additionally, we seem to have foreign trade issues with two superpowers. So, based on this, the coming years are unlikely to offer economic growth. I predict more disappointments and cuts to standard social benefits, with more money directed towards defense. We probably need to look after ourselves (and our families) more and take care of ourselves.

[MST-82]

@kilpikonna

Cons:
– Possible political risk: in the future, wealth may affect e.g. student and housing benefits

• You have to pay a lot of taxes when withdrawing profits.
  – Assets are automatically transferred to the child at age 18, even if they aren’t mature enough yet

Both of our kids have their own Equity Savings Account (OST), and we contribute a small amount there annually.

As I understand it, the impact of an OST on student benefits is currently non-existent, provided you don’t make withdrawals from it.

You always have to pay taxes on profits or larger gifts; I can’t immediately think of a significant optimization solution for this.

There’s no use worrying about political risk. There are such clouds surrounding all the alternatives that you can’t say anything for certain about any of them.

The investment horizon is, however, fundamentally long.