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You receive money for your child each month. By investing it wisely, you’ll generate a better return for your children’s education or to help them get their career off to a flying start.
If you’d like to build a nest egg for your children, then invest their child allowance – or at least some of it. However, that’s provided you have sufficient other funds to support your children.
After all, that’s what child allowance is for. It’s paid monthly for each child up to the age of 16. The allowance paid varies depending on the canton, but is at least CHF 200 per month.
Investing in equities gives you the opportunity to generate strong returns, providing a solid foundation for future expenses, such as education and training, study or embarking on a career.
Calculations by Migros Bank indicate you will achieve a greater return long term than by keeping the money in a savings account.
For example, let’s say your child was born in January 2008 and you’ve been investing CHF 50 every month since then in the Swiss Performance Index (SPI) – an index of over 200 Swiss equities.
The start of your investment came at a rather unfavourable time, as we were in the midst of a financial crisis. But from 2010 onwards, the financial markets recovered steadily and your investment grew. You benefit from the compound interest effect, which means the income generated by your investment is continuously reinvested.
As a result, your wealth grew by itself. By June 2024, you have built up assets worth CHF 19,091.
If you’d paid the same amount into a savings account every month, the return generated would have been much less: CHF 10,072. This means the balance on the savings account would only have increased by just under half as much as the return on the equity investment.
That’s because of the low interest paid on savings. Currently standing at 0.75% per annum, it is well below the average returns investors can achieve on equity investments over a period of more than 16 years.
The yield would have been even better if you’d invested the full child allowance amount of CHF 200: an equity investment would have produced a return of CHF 76,367. By contrast, you’d only have earned CHF 40,289 if you’d left the money in a savings account.
Whatever amount you invest: in the long term, you and your children will benefit from investing the child allowance in equities.
Sven Illi is a customer advisor at Migros Bank.
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