Investing for the future of your children

Careful planning for tomorrow becomes a priority as the family starts to grow. If the financial security of your family is uppermost in your thoughts, you are probably considering a savings plan for the little ones at home. In this article we will go through some of the products in Spain that might be of interest to you to give your family financial peace of mind.

Children's accounts: when to start

How many times have you been told that the birth of a child changes your life? And that is indeed the case, impossible to deny. Behind this cliché, however, lies a great truth: from the very first moment everything takes on a new meaning. Responsibilities increase, as do concerns about what you can concretely offer them.

It is not only about everyday expenses, education and recreation, but above all about future prospects. That is why it is never too early to start investing for your children: ideally, the earlier the better (or perhaps when you receive some unexpected money from an inheritance or insurance). In this way, you will be able to think long-term, reaping the benefits of the main financial solutions on the market, and form a sort of small (or hopefully large) piggy bank.

The most common solutions

As with many other things, such as diets, what works for some people doesn’t work so well for others. In the case of investing, for example, the financial products currently available have different characteristics and you have to choose the one that suits you best. If you want to know more about the world of investing, take a look at our knowledge hub section, where you will find different articles that could help you make an informed decision.

Not sure where to start? Let's see which are the most popular options in Spain.

Children's savings account

The best known solution for those who want to invest for their children, probably because it has existed for decades, is the classic children's savings account which is registered directly in their name. In some cases this account can be created in association with the adult account, being two independent accounts, and in other cases the child account can be opened without necessarily having an adult account linked to it. Such accounts generally have the same conditions: they include parental supervision, offer a debit card and keep a record of transactions.

Generally, these accounts are taxed in the same way as those for adults and the remuneration they offer is very low, so that in the long term the balance will hardly grow except for the contributions received. As in the case of adult savings accounts, the return obtained in exchange for depositing our capital remains below that of inflation, i.e. it does not compensate for it. That is why, in a context of rising prices, the piggy bank will not only not get bigger but will gradually lose value over time.

Children's investment plans

Taking out an investment plan for our children, with a focus on the long term, can be an alternative to help preserve the value of their savings. By accessing the stock market, we can earn returns that compensate for inflation and avoid a surprise the day they want to make a cash withdrawal to, for example, buy their first car or pay for college tuition.

It is important to investigate how the investment plan you select works before you sign up for it, taking into account variables such as the flexibility of regular contributions, liquidity and the fees charged for setting it up, modifying, pausing and cancelling it. Also, other characteristics such as the age of the child. In Spain, children under the age of 18 cannot invest in the capital markets, but their parents can set up a custodian account to manage their savings and take out an investment plan for minors designed for them.

A children's investment plan can also be a unique opportunity for youngsters to take their first steps in their financial education and integrate savings into their habits, learn about the market and its fluctuations, and in the future be able to take charge of the management of their wealth in a satisfactory and autonomous manner.

ETFs investment plans

An innovative idea along these lines are ETF (exchange-traded funds) investment plans, which offer several advantages over the traditional funds usually offered by banks. One of the best known perks of ETFs is their transparency and low management costs. Unlike mutual funds, ETFs replicate market indices, which reduces the performance risk associated with active management and offers broader diversification. They also tend to provide more liquidity and flexibility, allowing them to react quickly to market changes. Investing in ETFs through an investment plan can therefore be an effective way to build a diversified, low-cost portfolio, suitable for a long-term investment strategy for a minor.

Treasury bills for minors

Unusually popular in recent months following the rise in interest rates, the treasury bills have become a must in Spain. This is a short-term fixed rate product with which we buy government debt. Because of the low probability that the state will not repay the debt, the risk is low, but so is the return.

One of the curiosities of treasury bills is that they can be bought directly from the Spanish Bank. The minimum investment is €1000 and the terms vary from 3 to 12 months, at the end of which we would receive both our capital and the pre-agreed interest rate. Minors may purchase State Debt but must attend in person with their parents or legal guardian.

Investment plans on behalf of parents or legal guardian

In addition to the possibilities listed above, it is also possible to make investments in one's own name, to be allocated to one's children according to one's financial goals. This option provides more freedom of action, as it is not linked to a minor. A diversified child portfolio can be created to maximise the chances of increasing the invested capital over the long term.