During the days, the child allowance was increased by SEK 200 per month and child, which means that it ends up at SEK 1250 for a child. It was immediately talked about that you can take the opportunity to start saving money for the children now that you get this extra money in the cash register and it is not a stupid idea. With this as a basis, we will go through some tips and thoughts on saving for children.
The importance of saving
Savings are an important pillar of our private economy when it comes to building up capital slowly but surely. Saved money can be used for so many different things. You can save long-term for pension and children, you can save fairly long-term for large expenses such as new housing, you can save in a few years’ time to buy something semi-expensive like a car or you can save in the short term for what you want or needs the next year.
All these types of savings are really good because the very basic idea is to put aside real money that you have to be able to do something with them in the future. The alternative is not so good – if you do not save for children and pension then you have nothing to move with or give to the children in the future and if you do not save for new housing then you may not have the opportunity to acquire it at all (or have to choose a worse one).
And it is just as bad if you do not save for something you may need money for in the short term. For example, you can save money for Christmas or for a holiday trip. If you do not save, it is often either that you cannot afford as much as you would like or that you take out a loan to afford and then have to pay a lot of extra money in interest on it afterwards.
By having a sensible saving, you can put away money that can be used for lots of good things in the future. Whether you create yourself a better economy where you can do more when you are retired or if you save for the holiday trip next year, it gives something good.
Saving provides a safer economy, such as having a buffer against unexpected expenses or tough times. This means that you can afford more things that you would like to do. You can avoid loans and credits that cost unnecessary money. It means that you can help your children get off to a good start in life. The list is long with reasons to save.
How to think when saving for the children?
Saving for children is not so different compared to saving for anything else. The most important aspect is time. The longer you save the better it is. That means you can never start too early. The sooner you start putting away your child the more money you will be able to scrape together.
If you have not started then you should start immediately. The idea is that you should put aside a certain amount each month, year in and year out. Who knows when you will give your children the money, but if the child is newborn and you are thinking of a good 18-year present, you have 216 months to save. For every month you have not started, it will be a little less money to give away.
Another question is, of course, how much to save each month. The answer is that there is not a certain amount that is right but it depends entirely on what you can afford. Everything you can save is better than nothing, so if you can only spend SEK 50 a month, it is clearly better than not to save at all.
You simply get a look at your monthly budget and see what you can afford to save. Your personal finances should of course go around and not have too small margins. If you feel that you want to save for the children but cannot really get it into your budget then you can try to find ways to save some money each month and spend the saved money on child savings.
The increase in the child allowance is SEK 200 per month and children and some advocate that you can put away just this money in savings to the children. The idea is enough that if you managed without these SEK 200 before the raise, then you should be able to save them now too – and put them on savings instead. SEK 200 for 216 months is SEK 43,200. This is without any return on money.
However, you also want a return, ie a little profit on your savings. This is achieved in various ways, for example by having money in a savings account with savings interest, investing in funds or shares, etc. The interest rate makes a big difference and “interest on interest” means that you can increase your capital quite a lot. SEK 200 a month for 10 years (120 months) is SEK 24,000. If you have a return of 3 percent a year on your money, it is instead SEK 32 254 at the same time. If you instead save SEK 1,000 a month for the same time and with the same return, you have got a total of SEK 161 270 with interest on interest (which would give anyone a good start in adulthood).
Which saving form should you choose?
When you say save, you really just mean that you keep money instead of spending them. In principle, you can save money in the mattress or in a glass jar. It can be said to be quite safe, except against burglars. However, it is not a particularly good method because one misses the chance of return, to make some profit so that the money increases in value.
Alternatives for this are savings account, shares, funds, bonds and other types of investments such as currencies and commodities. All investments of this type involve a risk. The savings account poses no risk as it is not an investment, except if the bank goes bankrupt and then you can manage if you have a savings account with a so-called deposit guarantee.
When you save for the children, it is usually about long-term saving, eg 5, 10, 18, 25 years. Then you may also want a stable long-term savings. The savings account can do the job. This is basically no risk, but the disadvantage is that the interest rate you get is quite low. Especially now for the time when the repo rate is super low. The savings rate on many accounts today is zero or close to zero percent, ie non-existent.
It is often advantageous to save in funds or shares. Shares are riskier and require better control of what you do. The more you know about equities, stock trading, companies and the economy, the easier it is to choose the right and avoid big losses. However, there are some less uncertain stocks to choose which will probably go up in the long run.
I usually recommend mutual funds and especially equity funds. This is a bit like investing in shares just because you buy a fund that has already invested in a number of different shares. You do not have to worry about what strategy or shares to buy when a professional manager does the job for you. They charge a small fee for that job instead.
The great thing about funds is that you can own funds and take advantage of them without having any special knowledge. You can easily choose stable funds with low risk and longer savings horizon. By sticking to cheap index funds, you can avoid the expensive fees and still get a good return. It may not always be possible to make as much money as in real stock trading, but the risk and the severity are lowering a lot, which weighs heavily.
How to set up the savings?
Should I save in my own name or should I start an account for the child and save in his name directly? It is a choice that of course everyone can make to their own taste, but I would say that there are benefits to saving in their own name for the time being.
The first advantage is that you are in control of the money as the child gets older. If you save in the children’s name, then you as the guardian are responsible for them until the child turns 18 and has the right to manage his or her own assets. On the 18th birthday, the child will have access to all money saved in its name.
Maybe that’s exactly what you want to happen, but it is possible that there is some circumstance that makes you not want to let the child get the money right then. You may want to wait until the child is a bit more grown-up and spend the money on the right things (not just on trips and parties, which may be close at hand when young and “stupid”).
Maybe you want to be able to control so that you help the child with specific things such as their own home, car etc and not to be able to get rid of the money on just about anything. Maybe there are some circumstances that make you want to wait to give your child money. If you want a little more control over how your child uses the money you have saved, you can have them in your name and then distribute them if needed.
Another small advantage is that it is a little easier to simply use the saved money if something really does happen and you need to take money from savings that you really do not want to touch. Sometimes you still have to and sometimes the money is easily accessible.
Many young people need help with the first home
Something that has become extra obvious in recent times is that it is difficult for young people to enter the housing market. When the government makes tougher demands on those who take out mortgages with more amortization and stricter demands on income, certain groups are particularly affected. Those who do not have a large savings capital from the beginning and who buy their first home often have it tougher.
It is mainly young people who fit into this description. Since young people also may not have come that far in their careers and have been able to get their salary, they also have a slightly weaker position to turn away. In addition, when you hope to be able to get a job and live in a larger city, it will be even worse as housing prices are extra high there. Especially considering that prices have risen so much lately.
It is quite clear that many young people find it very difficult to get a decent home without the help of their parents. There are too few rental properties and those that are often have long queues, where you have to have been standing for 10 years to have a reasonable chance. So often you are forced to buy an apartment instead. In the big cities it is extra difficult to afford.
I do not think it is right that it should be so difficult for young people to enter the housing market but at present it is unfortunately and so many young people need help with money to be able to buy that first home. It is the parents who should normally be responsible for this help and then of course you need to have some money saved.
If you want to plan ahead and try to help your child with the first home, you need to start saving in time so that you have a reasonable capital. Whether you earmark the money as a child saving or not, it is necessary that you have accumulated quite a lot of money to be able to help while not risking your own finances.
From this perspective, it is obviously important to start saving for the children well in advance and to find a reasonable level of how much you put away. Most people probably think that the children are worth a lot and want to give them a lot, but it also requires that you think far ahead in time and plan the savings in a good way.