Education Planning: Cleverly Set Financial Course for Your Child's Future
19 Jun 2025
11
Minutes
Katrin Straub
CEO at nextsure
A good education is often associated with high costs that can exceed many families' budgets. With a well-planned education provision, you can secure your child's professional future financially. Discover how you can already set the course for tomorrow today.
The topic in brief and concise terms
Early educational planning, ideally from the birth of the child, optimally leverages compound interest and reduces the monthly burden.
Realistically calculate the expected training costs and compare various savings options such as education insurance, ETF savings plans, and bank savings plans in terms of return, costs, flexibility, and security.
Integrate risk coverage in the event of death or incapacity to work of the provider, to ensure the savings goal is reached even in serious circumstances.
Overview of Education Provision: Key Facts
Educational provision aims to create the financial foundation for your child’s education or studies. The costs can be significant; according to the Deutsches Studentenwerk, studying often costs more than 800 euros per month. Early planning is therefore crucial. Many parents underestimate the total costs of a multi-year education. There are various ways to save capital for this purpose, from traditional savings products to specialised insurance solutions. The choice of the right strategy depends on your risk tolerance and financial capabilities. Early educational planning is the key.
State support can complement private provision. This includes, for example, child benefit, which can be paid until the age of 25 if the child is in education. Also, vocational training allowance (BAB) or BAföG are possible supports, although eligibility depends on various factors. These state aids often cover only part of the costs. Therefore, private educational provision is essential for many families to avoid financial bottlenecks. Planning should ideally begin when the child is still young, to benefit from compound interest over many years.
Practical Guide: Realistically Calculate Training Costs and Define Savings Goals
To find the right education savings plan, a realistic calculation of future costs is the first step. A university education can quickly consume 40,000 to 50,000 euros over a five-year period, including living expenses. Consider tuition fees, rent, study materials, and general living costs. Define a clear savings goal and time horizon. The earlier you start—ideally from the birth of the child—the lower the monthly savings contributions can be to reach the goal. For example, monthly savings of 50 euros over 18 years can already accumulate a considerable amount.
An example calculation illustrates this: Suppose you want to save 20,000 euros for your child's education in 18 years. Without interest earnings, you would need to set aside about 92 euros monthly. With an average annual return of three percent, the monthly savings amount decreases. There are various savings options for children that you should consider. Here is an example list of potential costs:
Tuition fees or semester contributions: 100 to 500 euros per semester.
Rent for a shared flat room: 300 to 600 euros monthly, depending on the city.
Study materials (books, software): 50 to 100 euros per semester.
Living expenses (food, clothing, leisure): 300 to 500 euros monthly.
Travel costs: 50 to 150 euros monthly.
These figures highlight the necessity for long-term financial planning for education savings. The exact amount needed depends significantly on the choice of study and the study location.
Compare options: Which type of education insurance suits you?
There are various products for educational provision, ranging from bank savings plans to fund savings plans and special education insurance. Traditional education insurances are often a form of endowment insurance. They guarantee a certain sum at the start of education and often include risk protection in case the contributor passes away. However, returns on traditional policies are often low and costs are comparatively high. Fund-linked versions offer higher return potential, but also involve market risks.
An alternative is ETF savings plans, which often offer attractive returns over the long term at comparatively low costs. With these, regular investments are made in exchange-traded index funds. This form of family security is flexible, as deposits and withdrawals are often easily possible. However, keep in mind that the capital could also be used for other purposes if needed, which requires discipline in saving. Comparing different products is essential. Consider the following criteria:
Return potential: What is the expected performance?
Costs: What initial and administration costs are incurred?
Flexibility: Are special payments or withdrawals possible?
Security: Are there guarantees or risk protection?
Tax aspects: How are earnings taxed?
Choosing the right educational provision is very individual. Careful consideration of the pros and cons of each option is crucial for long-term success.
Expertise: Legal and tax aspects of educational provision
In education planning, legal and tax conditions also play a role. Funds deposited in the child's name legally belong to the child. Upon reaching adulthood, the child can freely dispose of them. This can be advantageous, but it also carries the risk that the money may not be used for its intended purpose. Our expert tip: Clarify ownership and rights of disposal early. In certain investment types, such as education insurance, the child is often the beneficiary, while the parents or grandparents are the policyholders.
For tax purposes, parents can claim the child education allowance under certain conditions if the adult child is living away from home and is in their first vocational training. This allowance currently stands at 1,200 euros per calendar year. Income from capital investments for children is generally subject to tax, though the saver’s allowance and possibly a non-assessment certificate can be utilised. Tax advantages may apply on payouts from certain insurance products if the contract had a minimum term of twelve years and the payout is made after the 62nd birthday of the policyholder. A thorough examination of the tax implications is advisable to optimally coordinate provision for children.
Integrate risk coverage: What happens in an emergency?
An important aspect of education care is ensuring protection in case something happens to the main earner or contributor. Many education insurance policies include contributions being taken over in the event of the provider's death. This means the insurance continues to pay the contributions so that the savings goal is still achieved. This protection offers important security for the child's future. Alternatively, a separate term life insurance policy can be taken out to secure the family and thus also the education costs. The costs for this are often lower than for combined products.
A disability insurance for the provider can also indirectly protect the education provision. If the main earner's income is lost, savings plans are often unable to be continued. Some education insurance offers optional contribution exemptions in the case of the provider's disability. It is important to consider these risks when planning the protection in case of parental death and to find suitable solutions. The level of necessary protection should be calculated individually. Carefully weigh the costs and benefits of different insurance options.
Long-term perspective: Start early and stay flexible
The key to successful education planning is starting early. The earlier you begin saving, the more powerful the compound interest effect is and the smaller your regular savings can be. With as little as 25 Euros a month over a period of 18 to 20 years, you can build up a considerable amount of capital. Flexibility is another important factor. Life circumstances can change, so you should choose a savings method that allows for adjustments. This includes the option for special payments, for example, when receiving monetary gifts for starting school or communion, as well as the possibility to adjust or pause contributions.
Regularly review your investment strategy, about every three to five years, and adjust it if necessary. Shortly before the planned payout date, it may be wise to shift return-oriented investments to safer forms of investment to protect the accumulated capital from short-term market fluctuations. Remember, education planning is a long-term project. Patience and discipline are just as important as wise product selection. Comprehensive advice can help you develop the optimal strategy for your individual situation.
Request your individual risk analysis now: Get your insurance situation checked for free and receive specific optimization suggestions.
More useful links
The KfW provides information about student loans and qualification programmes.
The Federal Employment Agency informs about entitlement, amount, and duration of child benefit in Germany.
The Federal Ministry of Finance provides information about the child allowance.
FAQ
What is the difference between an education insurance policy and an ETF savings plan for children?
An education insurance policy often acts as a capital life or annuity insurance that pays out a guaranteed sum at a specific time and usually includes risk protection (e.g., in the event of the provider's death). An ETF savings plan regularly invests in exchange-traded index funds, offering higher return opportunities at usually lower costs, is more flexible, but generally does not include direct insurance protection and is subject to market fluctuations.
Can grandparents also take out education insurance for their grandchildren?
Yes, grandparents can also set up education savings for their grandchildren, for example, by taking out an education insurance policy as the policyholder or by setting up a savings plan in the grandchild's name or in their own name with the grandchild as the beneficiary.
What happens to the education savings plan if my child doesn't want to study after all?
That depends on the chosen savings plan. In the case of flexible investment forms like ETF savings plans or bank savings plans, the accumulated capital can usually be used for other purposes, such as a driver's licence, the first flat, or as start-up capital for self-employment. Educational insurance often offers less flexibility, but withdrawals or cancellation (possibly with losses) are usually possible.
How does training insurance affect eligibility for BAföG?
Savings accumulated by the child, including from an educational savings plan, are considered when calculating entitlement to BAföG and can reduce or exclude it if certain allowances are exceeded. It is advisable to stay informed on this matter, as allowances may change.
What tax benefits are there for education provision?
Parents may be eligible to claim the educational allowance (currently 1,200 euros annually) if their adult child lives away from home and is undergoing training. Income from capital investments is taxable, although the saver’s flat rate and, if applicable, the certificate of non-assessment can be used. For certain insurance payouts after a long term (at least twelve years) and after reaching the age of 62, income may be tax-free on a half basis.
What should the monthly savings rate for education provision be?
The amount of the monthly savings rate depends on the desired savings goal, the investment horizon, and financial capabilities. You can accumulate a significant amount over many years, even with small amounts starting from 25 or 50 euros per month. An individual calculation is recommended.
