Child savings: German Bank(sparkasse) officer recommended private pension insurance. Is this a nice way to go?

[dixieheart]

Hello everyone,

I'm 32 married and live in Berlin. I have a 2-year-old boy and I'm planning to invest/save his kindergeld(~250EUR monthly). My Bank's(Sparkasse) wealth advisor recommended Private pension Insurance.

I can set when he can get it 18/25 years etc.,

He can continue to put monthly(until 67 years old) or withdraw a lump sum(has to pay 25% tax on profit) before 67 years old.

They will invest money in a list of ETFs provided below.

Name
ISIN
%

Lyxor MSCI World UCITS ETF-D-EUR
FRO010315770
70

Amundi MSCI Emerging Markets UCITS ETF EUR
LU1681045370
0

Nordea 1-GlobalClimate and Environm.Fund BP EUR
LU0348926287
10

Robeco MegaTrends D EUR
LU0974293671
0

Lyxor MSCI New Energy ESG Filtered (DR) UCITS ETF
FR0010524777
10

Xtrackers EURO STOXX 50 UCITS ETF-1C EUR ACC
LU0380865
0

Amundi MSCI Europe SRI Ucits ETF DR (EUR)
LU1861137484
0

JPM Emerging Markets Equity A (acc)-EUR
LU7576759
10

What do you guys think about this? Are there any better ways to save/invest money for my child?

 

[chinenyea]

@dixieheart Anything that combines insurance with investing : run!

Anything that a bank's sales person (it is not an advisor) recommends: run!

 

[redbone63]

@chinenyea It is the same to be honest. Advisor is also taking care of the bank and himself first. Just because you got yourself an advisor it doesn't mean nothing. Actually, looking for advice from a bank is like asking a candy man is sugar good for you and which one you should take.

 

[findingfaith25]

@dixieheart The consumer center (Verbraucherzentrale) analysed 128 private pension contracts and concluded they are worthwhile only if one lives long enough a turtle. One needs to live until 95 years - way below the average life expectancy of mid 78-83 years - to get any value. In fact, the more modern the contract - the worse it is.

Effectively, you are transferring your child's money to the advisor.

 

[dixieheart]

@findingfaith25 Thanks for the link. This is very helpful

 

[viclarita1234567]

@findingfaith25 What do you advise then? I am considering just make an account for my child with Mutual fund from Avanza Global and send like 50 euros a month there

 

[carlcockatoo]

@viclarita1234567 Worldwide ETF (Msci or similar), my kids have their accounts with ING for free, monthly automatic payment, done. Never withdraw. Especially not if its in the red.

If you want to add a little more upside, but also more risk, add 30% of emerging countries. (That's what I do both for us and the kids)

 

[endowedgodsbaby]

@carlcockatoo Thanks for the info. Is there any tax benefit (or some other benefit) in opening the account in the child’s name?

 

[carlcockatoo]

@endowedgodsbaby There are tax benefits especially if you yourself surpass the limit for free capital gains (801€ /year). Plus kid's accounts are usually free.

If the kids make a ton of money you'll need to check health insurance though.

Details here: https://www.finanzen.net/ratgeber/wertpapiere/sparen-fuer-kinder

 

[phriend]

@endowedgodsbaby You can realize up to 10k a year in gains tax-free as long as your child has no other income yet. If you file for a Nichtveranlagungsbescheinigung, the bank won’t withhold capital gains tax below this amount. You need to watch out tho, if the capital gains are too high (2022: 5.640 €), the child may fall out of the family health insurance and has to be insured separately.

Downside is, if you invest into an account owned by your child, it’s their money and as soon as they turn 18, they can spend it on whatever they want.

 

[britmark]

@phriend Do you have a link on this 10k a year tax free gain?

 

[phriend]

@britmark That’s the general amount of income per person exempt from income tax (Grundfreibetrag). 10.347 € in 2022

 

[britmark]

@phriend Ah ok, do you need to claim that back through the tax return? I have a commdirect account for my kid but could only find the details for 800 euro thing.

 

[phriend]

@britmark Yeah, you can file a tax return for your child, but then the tax withheld is gone until you receive your refund.

Alternatively you file for a Nichtveranlagungsbescheinigung for the child. You will receive a piece of paper from your Finanzamt that basically states the expected income will be below the Grundfreibetrag, which is valid for three years. If you hand this to your bank, they will not withhold capital gains tax, even above the 801 €.

 

[britmark]

@phriend Thanks for that, will get this sorted out.

 

[findingfaith25]

@viclarita1234567 Your thinking is in the right direction. Make sure that you choose the right mutual fund. Many people choose a broad market index fund.

Remember one thing - there will be implications on how your kid handles the money once they are legally adult. So, do factor that into your decision on savings.

 

[viclarita1234567]

@findingfaith25 I want to teach them Fire concept and make them money responsible.my parents always made me saving but never invested in some assets, only 3 percent bank account as they are risk averse. I am considering more aggressive approach on long term.

But then again I was hoping to get kind of sp500 or something similar for my kids. Not sure it exists except omx30?

 

[findingfaith25]

@viclarita1234567 You saving something for them may mean that the concept of FIRE is not something that they learn.

 

[zaint]

@dixieheart It's so easy these days to do yourself.. I'd invest in a world index ETF, and manage it myself. Inform yourself about cost and at what intervals to buy.

 

[goitsemang]

@dixieheart Don't take the insurance. Open a discount brokerage account in the child's name and make a savings with FTSE all world ETF A1JX52. Set it an forget it. No financial advice.