Investment & Wealth
Education Provision for Children
educational provision
Education Planning: Cleverly Set the Financial Course for Your Child’s Future
A good education is often associated with high costs that can exceed the budgets of many families. With a well-planned education savings plan, you can financially secure your child's professional future. Find out how you can set the course for tomorrow today.
The topic in brief and concise terms
Early educational provision, ideally from the birth of the child, optimally utilises the compound interest effect and reduces the monthly burden.
Calculate the anticipated education costs realistically and compare different saving options such as education insurance, ETF savings plans, and bank savings plans in terms of returns, costs, flexibility, and security.
Include risk coverage in case of the provider's death or inability to work, to ensure the savings goal is achieved even in serious situations.
Overview of Educational Provision: The Key Facts
The education provision is intended to create the financial foundation for your child’s education or studies. The costs can be considerable; according to the German Student Union, studying often costs over 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 accumulate capital for this purpose, ranging from traditional savings products to specialized insurance solutions. Choosing the right strategy depends on your risk tolerance and financial capabilities. An early education provision is the key.
State subsidies can complement private provisions. These include, for example, child benefits, which can be paid until the age of 25 if the child is in education. Vocational training allowance (BAB) or BAföG are also potential supports, with eligibility depending on various factors. These state aids often cover only part of the costs. Therefore, private educational provision is indispensable for many families to avoid financial shortfalls. Ideally, planning should 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, making a realistic calculation of future costs is the first step. A degree, including living expenses, can quickly consume 40,000 to 50,000 euros over a period of five years. Consider tuition fees, rent, learning materials, and general living costs. Define a clear savings goal and time horizon. The earlier you start – ideally from the birth of your child – the lower your monthly savings rates need to be to achieve the goal. For example, monthly savings of 50 euros over 18 years can already accumulate to a considerable sum.
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 approximately 92 euros monthly. With an average return of three percent per year, the monthly savings amount decreases. There are various savings options for children that you should consider. Here is an exemplary list of potential cost points:
Semester contributions or tuition fees: 100 to 500 euros per semester.
Rent for a shared flat room: 300 to 600 euros monthly, depending on the city.
Learning 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 of long-term financial planning for education savings. The exact amount needed depends greatly on the choice of study and location.
Compare options: Which form of education provision suits you?
There are various products for educational provision, ranging from bank savings plans and fund savings plans to specialised education insurances. Traditional education insurances are often a type of capital life insurance. They guarantee a specific sum at the start of education and often include risk protection in case the payer passes away. However, the returns on traditional policies are often low and the costs relatively high. Fund-linked options offer higher return potentials but also carry market risks.
An alternative is ETF savings plans, which often provide attractive long-term returns at comparatively low costs. These involve regular investments in exchange-traded index funds. This form of family coverage is flexible, as contributions and withdrawals are often straightforward. However, bear in mind that the capital could also be used for other purposes, requiring discipline in saving. Comparing various products is essential. Pay attention to the following criteria:
Return potentials: What is the expected performance?
Costs: What are the initial and management fees?
Flexibility: Are special payments or withdrawals possible?
Safety: Are there guarantees or risk protection?
Tax aspects: How are revenues taxed?
The decision for the right educational provision is highly individual. A careful assessment of the advantages and disadvantages of each option is crucial for long-term success.
Expert Knowledge: Legal and Tax Aspects of Education Provision
In planning for education funding, legal and tax conditions also play a role. Funds invested in the child's name legally belong to the child. Upon reaching adulthood, the child has free access to these funds. This can be an advantage but 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 on. In certain investment forms, such as education insurance, the child is often the beneficiary, while the parents or grandparents are the policyholders.
For tax purposes, parents can, under certain conditions, claim the education allowance 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 taxable, although the saver’s allowance and, where applicable, a non-assessment certificate can be used. Certain insurance product payouts may be eligible for tax advantages if the contract had a minimum term of twelve years and the payout occurs after the policyholder reaches the age of 62. A thorough review of the tax implications is advisable to best plan the financial security for children.
Long-term perspective: Start early and stay flexible
The key to successful education planning lies in starting early. The earlier you begin saving, the more powerful the effect of compound interest will be, and the smaller your regular savings can be. With just 25 euros per month, it's possible to build up considerable capital over a period of 18 to 20 years. Flexibility is another important factor. Life circumstances can change, so you should choose a savings plan that allows adjustments. This includes the possibility of making special payments, for example, with money gifts for school enrollment or communion, as well as the option 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 switch from high-yield investments to safer options to protect the accumulated capital from short-term market fluctuations. Remember that education planning is a long-term project. Patience and discipline are just as important here as making smart product choices. Comprehensive advice can help you develop the optimal strategy for your individual situation.
Request your individual risk analysis now: Have your insurance situation checked for free and receive concrete optimization suggestions.
More useful links
The KfW provides information on student loans and qualification programmes.
The Federal Employment Agency provides details about eligibility, amount, and duration of child benefits in Germany.
The Federal Ministry of Finance offers information on the child tax allowance.
FAQ
What is the difference between an education insurance and an ETF savings plan for children?
An education insurance is often a capital life or pension insurance policy that pays out a guaranteed sum at a specific point in 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 price fluctuations.
Can grandparents also set up education savings for their grandchildren?
Yes, grandparents can also set up education savings for their grandchildren, for example, by concluding an education insurance policy as the policyholder or by setting up a savings plan in the name of the grandchild or in their own name with the grandchild as the beneficiary.
What happens to the education savings if my child decides not to study?
This depends on the chosen form of savings. With flexible investment forms like ETF savings plans or bank savings plans, the accumulated capital can generally be used for other purposes, such as for a driving license, the first apartment, or as start-up capital for self-employment. Education insurance often offers less flexibility, but withdrawals of capital or cancellation (potentially with losses) are usually possible.
How does education savings impact BAföG entitlement?
The child's accumulated wealth, including from education savings, is considered in the calculation of BAföG entitlement and may reduce or exclude it if it exceeds certain allowances. It is advisable to seek current information on this, as allowances can change.
What tax advantages are there with education savings?
Parents may be able to claim the educational deduction (currently 1,200 Euros annually) if the adult child lives away from home and is undergoing training. Returns on capital investments are taxable, but the saver’s allowance and, if applicable, the non-assessment certificate can be utilized. Certain insurance payouts after a long term (at least twelve years) and from the age of 62 may be half tax-free.
How high should the monthly savings rates for education savings be?
The amount of the monthly savings rate depends on the desired savings goal, the investment horizon, and financial possibilities. Even small amounts starting from 25 or 50 Euros monthly can accumulate a significant amount over many years. An individual calculation is advisable.
