You want to give your child the best possible start in life. So you open a savings account for them, dutifully adding money each month, just like your parents did for you.
But today's economic reality has changed dramatically. With inflation outpacing interest rates, that savings account is actually causing your child's money to lose value over time, the opposite of what you're trying to achieve.
Fortunately, there's a better way to secure your child's financial future. By investing in diversified ETFs instead of relying on traditional savings accounts, you can potentially double their nest egg by adulthood. In this article we explain how you, as a Belgian parent, can set up a smart investment plan for your child's future.
Savings account isn't enough
Many parents begin saving for their child's future by opening a traditional savings account. While this seems like a smart first step, savings accounts give low returns. In fact, the savings of your child may lose value because of inflation. Inflation causes life to get more expensive every year. Or in other words, it reduces the purchasing power of your savings. The average inflation is around 2%, with regular peaks, as in 2022 when it reached 10.3%.
Unfortunately, most savings accounts yield an interest rate well below 2% This means the savings of your child lose value over time instead of increasing. So keeping money in a savings account will hurt your child's future, as interest rates are typically lower than inflation. A €10,000 savings account in 2006 would be worth about €7,500 today, after inflation:
Investing money for your child's future can help it grow faster than inflation. This way, you prepare better for their adulthood and set them up for success. And as we'll see, we think ETFs are the best way to invest for the long-term.
The power of compounding
Compound interest is when you earn interest on your initial investment and on the interest that builds up over time. Simply put, compounding causes your money to grow faster because you earn interest on your interest.
And the impact of compounding is significant in the long term. Let's say you save €100 every month for your child. Let's compare putting it in a savings account that earns 1.5% per year to investing in an ETF that yields 7% per year. After 18 years, your child will be €18,000 richer if you had invested in ETFs rather than leaving the money on the savings account:
You might think that 7% is an unrealistic return for an ETF. But it's not. Over the last 46 years, an ETF that simply tracks the global MSCI World index yielded an average 10.5% per year.
In this real-world example, investing in an ETF almost doubles your savings in 18 years. Investing, especially in diverse options like ETFs, is better for long-term growth than a traditional savings account.
Ways to save money for your child in Belgium
As a Belgian, you have several ways to invest money for your child. Each option has its own strengths and weaknesses. Let’s break down the most common choices so you can understand which are right for your family:
Savings accounts: safe but limited growth
Many parents turn to savings accounts first because they feel safe and familiar. But savings account in Belgium usually have low returns with an interest rate that often doesn't keep up with inflation. That means your child's savings are gradually losing purchasing power over time. This means that savings accounts are good for short-term goals, but they aren't effective for long-term planning.
Individual stocks and bonds: potentially high returns, but risky
Investing in individual stocks or bonds can offer great growth. However, it is riskier and more complex. Picking stocks or bonds on your own needs strong financial knowledge. You must also do regular research and manage your investments carefully. Volatility can cause big changes in your investment’s value. This makes individual stocks or bonds less ideal for long-term stability for your child’s future.
Investing in ETFs is a sensible option
It's pretty clear that we believe ETFs (Exchange-Traded Funds) are the best way for most parents to invest for their family. A single ETF invests in hundreds, or even thousands, of stocks, bonds, or other types of investments. This diversification is an important benefit. But there are several reasons why ETFs are the best long-term investment for most people:
- Best for the long term: Investing in ETFs compounds to high returns. And it beats the active funds sold by your bank! The chart below compares the historical performance of a fund sold by KBC and the ETF that it's supposed to beat:
- Diversification: You’re exposed to thousands of companies in one go through a single fund. And diversification is key to good investing.
- Simplicity: After choosing the right funds, you can relax and watch your investments grow. There's no need to waste time analysing individual stocks.
- Cheap: ETFs are a cheap way to invest. They enjoy economies of scale and have no active management costs.
So if you want to help your child build a nice nest egg for the future, investing in ETFs is a great idea. It's a smart way to set them up financially for their adult life. And of course, the earlier you start saving for them, the better!
How to invest in ETFs for your child
There are two ways to invest in ETFs in Belgium:
- Through a broker, where you manage your own portfolio of ETFs
- Through an app like Curvo, which takes care of the difficulties of investing by yourself
1. Buying ETFs with a broker
Investors trade ETFs on stock exchanges. To access a stock exchange, you have to go through an intermediary called a broker. There are several brokers that Belgians can choose from, each with their pros and cons.
The most popular stock exchanges are the New York Stock Exchange (NYSE) and Nasdaq. But in Belgium, it's better to buy ETFs on European exchanges, for example Euronext Amsterdam or XETRA.
Investing through a broker gives you the most flexibility. You have access to any of the thousands of ETFs available in the market. But, it's also the hardest because you're fully responsible for the management of your portfolio. You have to learn how to build the best portfolio for your child, how taxes work, which broker to use, how to select the best ETFs, make the trades every month...
2. Curvo: invest for your child with peace of mind
We built Curvo to solve the difficulties of investing through a broker. And it's a great way to invest for your children. In fact, over 400 Curvo members are currently investing for their children through the app:
- The right portfolio for your child: Answer a short questionnaire. Then, you can invest in a portfolio that matches your and your child's time horizon. The best portfolio is selected for you.
- Invest on auto-pilot: Set up a monthly contribution where money is invested automatically. Adopt the best saving habits for your child without effort!
- Set up a portfolio for each of your children: Keep their investments organised and easy to track.
- Each euro you invest is put to use: With fractional shares, all the money is invested, unlike with a broker. No cash is left on the side.
- No transaction fees: There are no transaction fees every time you buy or sell. Also, the funds in the portfolios aren’t liable for the Belgian transaction tax. This saves you between 0.12% and 1.32% compared to a broker for every purchase or sale!
Account in your child's name or your name
You can open an investment account either in your child's name, or in your own name.
In your child's name
In this case, they own the account. But you must manage the investments in your child's best interests. When they turn 18, they will have full control over the funds.
If you want to invest with a broker, Keytrade is your only option. Only they offer the opening of an account in the child's name.
Else, products like Yongo by AG Insurance allow you to invest in life insurance products for your child. But the returns are low and the fees are high.
In your name
Another way to invest for your child is to open an account in your own name, and transfer the funds to them later. This allows you to keep full control and decide when and how to give your child the money you have saved.
A downside of an investment account in your name concerns inheritance. If you pass before your child gets the funds, they must pay inheritance tax on the investments.
Teach your child about investing
Investing early for your child has psychological and educational benefits that reach far beyond the money itself. By involving your child in discussions about investments and long-term financial goals, you provide them with essential financial literacy skills. They'll grow up understanding key financial concepts such as budgeting, saving, and investing, and develop healthy money-management habits from a young age.
Investing early sets a positive example and creates the opportunity to educate your child about money in a practical and meaningful way—skills that are often overlooked in traditional education yet crucial for their financial independence.
Our dream: €1,000 of ETFs for every Belgian newborn
At Curvo, we believe in good investing. It's a great tool to improve people's financial lives. And we have this crazy idea: what if the Belgian state would give €1,000 worth of ETFs to every Belgian newborn? The children aren't allowed to touch it. It simply sits in an account and compounds.
Under this scheme, every Belgian who turned 18 in 2023 would have €4,000 in their account at the start of adult life. And the state had to contribute only 25%. Beyond the financial boon, each Belgian child would experience first-hand the benefits of compounding. This is an important lesson that will be sure to help them for the rest of their lives!
Conclusion
Starting to invest for your child early is one of the most impactful financial decisions you can make as a parent. With the rising costs of education, housing, and daily expenses in Belgium, traditional savings accounts simply won't provide the growth your child needs for their future.
By choosing ETFs, you're not only giving your child a financial head start through the power of compound interest, but you're also teaching them valuable lessons about money management that will serve them throughout life. Whether you choose to invest through a broker or simplify the process with Curvo, the most important step is to start now.
Ready to secure your child's financial future? Consider setting up a Curvo portfolio specifically for your child, and watch their financial foundation grow alongside them.