I don’t understand this logic at all. No practical benefit? That uncertain future of one’s own is exactly what encourages saving separately for a child. Time is an investor’s best friend, and starting a nest egg early makes a significant difference.
As a thought, in addition to the situations you mentioned, there are hundreds of thousands of people in debt recovery (ulosotto) in this country and countless different addiction disorders. Off the top of my head, I can think of many scenarios of what could happen to those funds “under your own control” before you hand them over to the child during their student years.
And saving from infancy doesn’t in any way prevent possible donations later on. You can certainly save for yourself with the intention of donating to your child someday, but until then, it’s nothing more than a good intention.
Of course, it’s not a bad thing to save for yourself for a rainy day, but this is a thread about saving for a child, and in that context, it’s a rather strange tactic to save for yourself and give it to the child someday if you don’t happen to get sick, become unemployed, or need a new washing machine or other nice electronics.
There are endless opportunities to pass on accumulated wealth at a later stage. Is it some kind of feather in your cap to funnel your own money into children’s accounts, only to deal with potential bureaucracy from the Digital and Population Data Services Agency (DVV), and then, if the children go to university, have Kela immediately shut them down because they made the mistake of accumulating wealth or other income? I guess they’ll learn how it works and the name of the game.
It’s a bit of “engineer thinking,” but I’ve been watching this recent discussion with some amazement—how active stock saving for children is suddenly a “must” and the only way to secure their financial situation in an uncertain world. It certainly is not.
You don’t accumulate anything in the child’s name, with the idea that once they are 18+, you will just pay for all their various bills.
But then you fall ill and have to spend all your wealth on experimental treatment at a German hospital just to stay alive, after which you are on a disability pension of €1,400/month minus taxes.
How will you pay subsidies to the child then?
If, on the other hand, you have accumulated wealth for the child during the good times, the child’s future is secured whether things go well or poorly for you.
Your entire point seemed to be that one never knows what will happen in life, and consequently, the money might be needed for entirely different things. And there’s nothing wrong with that. One can very well adopt that kind of conditional tactic, where gifts are given to the child later, provided the stars align in the future.
It’s not a feather-in-the-cap thing, but just traditional gifting, which keeps things neatly within the definitions of gift tax. After all, many Kela benefits are not meant for a wealthy child; that’s obvious and how it should be. It would be the last straw if someone were to draw, for example, social assistance (toimeentulotuki) while holding a 40k portfolio.
In addition to financial security, there is quite a lot of teaching about financial matters behind it. Based on the previous points, your tactic just doesn’t sound like a very secure “security,” since those future donations depend on your own employment and health status.
For us, for example, we currently have €45/month going into a global index fund, plus mostly birthday/holiday gifts from grandparents. I just don’t understand why any of this money should go into some common family pot, from which a child is given something later only if everything goes perfectly. It is clearest to keep the child’s money completely separate from one’s own and let it generate returns for the child themselves.
This is exactly what I do, but the money I invest for my child is still not in the child’s name, so that I can personally evaluate when the child is ready to manage it independently. So, I have an OST (Equity Savings Account) in my own name, which is named after the child. The child does have an OST in their own name as well, where any money gifted by others goes, but the regular monthly savings go into that account held in my name.
I personally believe that the benefits of saving for a child from birth include—in addition to the previously mentioned 1) financial education and 2) life’s uncertainties (e.g., a parent passes away/unemployment/etc.)—also 3) the compound interest phenomenon.
For low-to-middle-income earners, it might not be possible to constantly shell out hundreds for groceries, rental deposits, etc., once the child or children reach adulthood. However, surprisingly many people have the possibility to save, for example, €10–100/month, allowing time to do the work for you (assuming you have invested wisely).
We contribute €120 to our child’s portfolio every month, which is equivalent to the child benefit amount. We chose to do this because child benefits were also saved into separate accounts for me and my sister until we reached adulthood. When I turned 18, I gained control of the funds. I had accumulated over €18k. When it was time to move out a couple of years later, there wasn’t much left. The money had mostly been spent on car maintenance and eating out. Military service is also a drain on finances. The goal is to teach financial management so that the assets remain largely intact as a nest egg within the portfolio.
It should be added that military service is not exactly a wealth-building endeavor.
From a risk management perspective, this can also be viewed from the opposite angle. What if a parent, in one way or another, loses their ability to manage their own life while the funds intended for the child are still in the parent’s name? Of course, it is also possible to squander funds held in the child’s name, but there are several orders of magnitude more external protective mechanisms and unambiguous boundaries of responsibility involved. A lot can happen, and quickly, even through a minor mental health setback. This risk is also worth acknowledging, although the magnitude and significance of the risk naturally depend on many other factors.
In this thread, the experience occasionally pops up where a pot of money carefully nurtured by an investor-dad/mom is sold and withdrawn for entertainment once the 18-year mark of freedom is reached. People then feel frustrated and wonder what went wrong when the “risk materialized.”
In my opinion, nothing went wrong there. You have still gifted the funds used for the investments, meaning they belong to that individual. Despite the fact that you are interested in investing, thrifty, and know how to play the game with money, your youngster is not the same. Furthermore, there is no obligation to internalize or even listen to an investor-dad/mom’s advice or lecturing about the markets. The money is still theirs, so they are entitled to do exactly what they like with it. “Wisening up” may happen at some point or it may not, and there is absolutely fck-all you can do about that either.
As for the recent discussion regarding the loss of funds and the position of public guardianship (edunvalvonta) on this, it likely depends on what kind of instruments the money is tied to and what kind of moves the investor-dad has made in the portfolio. If it’s a consistently grown mutual fund pot that has simply decreased in value, my understanding is that no one has grounds to accuse the investor-dad of anything. But if such a fund has been sold and all the money dumped into a single stock, let alone some kind of exotic product like a future or other speculative asset, the situation is undoubtedly different.
Other people’s money must be managed even more cautiously than one’s own, regards, a user who has acted as a guardian for several people in recent years.
Pretty much the same setup here, i.e., gift money and an amount equivalent to the child benefit once a month into the child’s equity savings account (AOT). I am motivated by the fact that I received very little financial assistance from my parents back in the day. Advice like “Everyone is the architect of their own fortune; you go to work alongside your studies and take out a student loan” didn’t exactly fill the fridge. The job market for university students back then was almost as weak as it is now, and student loans were priced almost like consumer credit. Let the next generation have things better.
If the child were to blow through their startup capital quickly one day, that would be a learning experience for later life. This risk could perhaps be mitigated by investing part of the funds into, for example, a long-term fixed-term deposit just on the eve of their 18th birthday. Or alternatively, incentivizing the use of the money—for instance, if you want a student apartment, use your savings for it and the parent will pay the rest.
I’m more concerned about political risk. It’s possible that over the next 10-15 years, the student support system will move toward a need-based/discretionary direction. Meaning, student housing/grants would only be granted in a manner similar to social assistance once your own money has been spent. On the other hand, I consider it even more likely that by the time my child reaches adulthood, Finnish higher education may well involve tuition fees and/or the student financial aid system could be abolished entirely. In that case, the savings could be a massive help.
That is true. However, I personally assess this risk as significantly smaller than the risk of a young person not being ready to use the money “wisely” at the age of 18.
Exactly. And since I know myself relatively well, I know it would annoy me to no end if the nest egg I painstakingly saved went down the drain. By saving for the child primarily in my own name, I avoid this frustration. On the other hand, the child’s own book-entry account (AOT) receives gift money, which is much easier for me to view neutrally, and I wouldn’t mind at all if that is blown on partying right away.
I might have a different approach to saving for a child than some of the other participants (and there is no right or wrong way). I don’t save for the child because I believe the child will particularly need the money someday (I believe my child will manage on their own if necessary). I save because I use it as an educational tool.