How to build up a financial cushion for your child
Most parents are aware that it pays to save money for children. Many mums and dads, as well as grandparents, godparents, uncles and aunts, open a savings account when a child is born. Unfortunately, there is currently hardly any interest on these accounts. If you want to build up a financial cushion for your child that they can later use to finance their studies, for example, you need a more lucrative, riskier form of investment.
In recent years, digital brokerage services have made it cheaper to invest money in the stock market, even for children. But how do you get started in the world of finance? How much money should you invest for your children each month? And which is better, shares or ETFs? We asked three financial bloggers.
Why is it worth investing money for children in the stock market?
Most parents go to their favourite bank to open a savings account for their children. There's nothing wrong with that, says financial expert Angela Mygind. But: «There isn't much interest on them.» Many Swiss banks do offer slightly higher interest rates on children's accounts than for adults. As a rule, they are just over one per cent. However, this is not enough to build up assets or protect money against inflation, says Mygind. In addition to a savings account, there are better ways to save money for your children.
One of these is shares. If you invest wisely, you can increase your money. Much more than with a savings account. However, investing in shares requires basic financial knowledge. Alternatively, you can hire an asset manager, although this involves fees. There is also the personal risk appetite. A study conducted by the media company Moneyland in 2024 shows that women are more cautious than men when it comes to investing money. Across all forms of investment, more men than women stated that they had invested at least some money.
What are ETFs?
Exchange-traded funds, or ETFs for short, are a good alternative to individual shares because they are less risky. You can think of them as pots full of securities into which many investors pay their money and thus acquire shares.
ETFs typically replicate the performance of an index. The best known is the MSCI World. It contains shares of around 1500 companies from 23 industrialised countries. If the index rises, the ETF also increases in value and the money you have invested increases.
What are the advantages of ETFs?
«ETFs are generally less risky than shares,» says financial blogger Eric Marschall. It is important to invest your money as broadly as possible, in a variety of companies and sectors. If a company loses value on the stock market, the growth of other companies in the portfolio compensates for the losses more easily than if you only buy shares in individual companies. Nevertheless, there is still a residual risk: «Even when investing in ETFs, you should make well-considered and informed decisions,» says Marschall. Fortunately, there are many books, podcasts and blogs available today that can be used by non-experts to acquire financial knowledge.
Children benefit from learning how to handle money well from their parents at a young age.
Simone Hoffmann, financial blogger
ETFs offer a more effective way of building up assets than a savings account. Their advantage lies in the potentially higher returns that can be achieved through broad diversification into different securities. Children's custody accounts in particular benefit from a long investment horizon, as the money can work for many years. If you open a custody account for your child at an early stage and pay in regularly, you can sit out price fluctuations with ease - and your assets will grow in the long term.
What do children learn?
Children benefit when their parents teach them how to manage money at a young age, says financial blogger Simone Hoffmann, referring to smart investing in the stock market. Her seven-year-old son pays his pocket money into three pots and a wallet. In the first savings pouch, the boy saves for a specific wish, usually a toy. The second is for donations, says Hoffmann. «This teaches him that you can do something good with money.» The money from the third box earns interest for his mother. Later, they want to invest it in shares. The rest will go into a wallet, which the boy can use to fulfil small short-term wishes such as jelly babies.
When parents set up a securities account for their children, they also teach them about money, says the financial blogger. Financial education is often neglected in schools. Yet poverty in old age is an issue for the younger generations in particular.
What should parents look out for?
As a layman, it is important to know: ETFs are also subject to fluctuations. Economically relevant events such as the US election can influence prices and cause them to rise or fall. There are always temporary phases in which the value of the invested sum of money falls. However, if investors hold their nerve and ride out the crisis without selling their ETFs, new events will even out the downturn over time, says Angela Mygind: «In the long run, the stock market has always grown.»
The main thing is to start investing. Better today than tomorrow.
Eric Marschall, Investment Advisor
The longer you leave your money invested, the more likely it is that it will increase. That's why it doesn't really matter when you start as long as you work with a savings plan and invest regularly, says financial expert Eric Marschall. It doesn't matter whether the share price is rising or falling - «The main thing is to start investing. Better today than tomorrow.»
Where can I purchase an ETF custody account?
Many banks also offer investment packages for their customers, including for children. But parents should take a close look at which bank they invest in ETFs with, says financial blogger Angela Mygind, as the packages often cost high fees. The situation is different with investment apps, so-called robo-advisors such as Findependent, True Wealth or Inyova. These digital programmes, which do without human bank advisors and provide investment tips based on algorithms, make it possible to invest in ETFs or shares at a low price.
With the help of a questionnaire, the programme first determines which principles are important to you when it comes to ETFs. Should they be sustainable or socially responsible? Should the index value only reflect the most important industrialised countries or also include emerging markets? At the end, the programme suggests a suitable portfolio. Only when you decide to buy ETFs or shares do you have to pay a fee.
What name should the securities account be in?
«Some robo-advisors have a disadvantage compared to banks,» says Angela Mygind. «Currently, you can only open a custody account in your parents' name, not in your child's name.» If you want to transfer the assets to your child later, in the worst-case scenario you have to sell all the ETFs. However, some providers offer the option of opening a new portfolio for your child on their 18th birthday and transferring the assets there.
ETFs - basic terms, simply explained
With actively managed funds, experts take care of the selection of securities. This incurs high fees. There is a risk of losing money if the fund managers make a wrong decision.
Passive ETFs automatically replicate a stock market value, for example the Swiss Market Index (SMI). The aim is for the ETF to rise and fall in line with the market. The fees are lower than for actively managed funds and the risk of losing money is lower compared to buying individual shares. Especially if you hold your ETFs in your portfolio for many years.
Ausschüttend versus thesaurierend
Distributing ETFs pay out the dividend income to the investors - you get money paid out regularly. This can be an incentive, but the assets grow more slowly as a result. However, you can reinvest the income yourself.
Accumulating ETFs automatically reinvest the dividend income in the ETF custody account. Due to the compound interest effect, the assets grow faster. This is also the case if the dividends are reinvested.
Diversification is when you invest your money not just in the securities of a single company, but in many assets. The broader the diversification, the safer the investment.
However, a custody account in the child's name also has disadvantages, says Eric Marschall: «When the child comes of age, he or she automatically receives power of disposal over his or her assets. This can also go wrong if the child spends their money unwisely.» If, on the other hand, you keep the custody account in your own name, you as the mother, father or aunt retain control over the money for as long as you wish.
Parents must also declare the children's custody account in their tax return, says Marschall. If tax is payable on the income or assets from the child account, parents must pay this as the account holder.
How much money should you invest?
«There is no fixed minimum amount that parents have to invest in an ETF,» says Eric Marschall. Even regular small amounts can make a big difference in the long term. If you pay in 100 francs a month, for example, with a return of six per cent a year, you could grow your assets to around 38,000 francs over a period of 18 years thanks to the compound interest effect. This does not mean that this will actually be the case, but the example is intended to illustrate in a simple way what is possible with ETFs in the best case scenario.
Would you prefer to invest small amounts on a regular basis or large one-off sums?
Large sums, invested once, would yield more interest and are therefore more worthwhile than many small amounts, says Angela Mygind. However, many people would hesitate to pay several thousand francs into a custody account in one go: «Because you're always afraid that you've bought at the most expensive time.» After all, prices could be cheaper tomorrow.
It may therefore be better for your feelings and your wallet to invest a fixed monthly amount, for example 50 francs, in the children's custody account. This reduces the costs to an average value and still earns more interest than a savings account.
What are green and social ETFs?
For ethical reasons, many parents do not want to invest their money in the climate-damaging oil industry or support the arms and gambling industries and therefore opt for so-called green ETFs. «Sustainable ETFs focus on environmentally friendly, social or ethical companies,» says Eric Marschall. «However, there is also a lot of greenwashing, i.e. investments that are only supposedly sustainable.» It is important to look closely at the criteria according to which the ETF selects the companies in order to find truly green investments.
«Everyone defines the term sustainability differently,» says Angela Mygind. Some ETFs already declare Nestlé as sustainable. In addition, sustainable ETFs often have a lower fund volume. This refers to the total amount of money that all investors have invested in the ETF. The higher the fund volume, the lower the fixed costs for the ETF provider and therefore also for the investor. It is therefore always worth taking a close look before making a selection.
- Angela Mygind alias Miss Finance. As a financial expert, podcaster and blogger, she specifically targets women and mothers. In her channels, she gives advice on retirement planning and explains how to set up a portfolio for children.
- Eric Marschall is a certified investment advisor and founder of the financial blog «Schwiizerfranke». He bought his first shares at the age of 18. He has been passionate about financial education ever since.
- Simone Hoffmann gives children and parents tips on how to manage money well on her blog «Simosackgeld». Her seven-year-old son has three piggy banks and his own share portfolio.
How can you lose your fear of financial topics?
Financial knowledge is quite easy to acquire these days, says Angela Mygind. «You no longer have to read thick books, but can listen to a podcast, watch a YouTube video or an Instagram reel while driving, jogging or cleaning.» The financial blogger is convinced: «Once you've started learning about finance, it quickly becomes more and more exciting.» For your own retirement provision - and for the future of your children.
Sources: forbes.com; moneyland.ch; selma.com; finanzfluss.de
