10 euros per month for shares

In order for children to learn about the advantages of the stock market earlier, the “economic wise men” are proposing a new government subsidy.

10 euros per child every month: The Council of Five “Economic Wise Men”, which advises the federal government on economic issues, is in favor of introducing a new state-funded “child start-up allowance”. It should be invested in low-risk equity funds. With their 18th birthday, the idea is that young people should have access to the money they have saved and increased.

In this way, children should learn from a young age how they can benefit from long-term rising stock prices on the capital markets without much risk. All girls and boys from the age of six should receive the monthly child start allowance.

According to the Council of Experts, this would initially cost the state 91 million euros per year at the start of the program. In the long term – with a growing number of children benefiting from it – the costs would rise to 1.5 billion euros per year.

The child start-up allowance is intended to “anchor participation in the capital market early in life and thereby enable long-term experience with corresponding investments and their potential returns for broad sections of the population,” argue the “Economists” in a short report published on Monday. Over the course of twelve years, the children and their parents could “experience different financial cycles and benefit from the advantages of a broadly diversified investment”.

The “indispensable core element” is a broadly diversified fund with a high share of stocks. This enables a “solid return with low risk” over a long investment horizon. Parents should be able to choose a fund for their child or children based on certain criteria. If parents do not make an active decision, the government payments should flow into a 100% equity fund.

The economist Ulrike Malmendier explained: “The previous financial education programs, not only in Germany, have contributed less to strengthening financial literacy among the population than hoped.” Unlike previous measures, the proposed child start-up allowance aims to strengthen financial behavior through learning from experience – and not through theoretical knowledge. If younger children were included in the program, the child start-up allowance would also have an impact on the parents’ financial competence, as they initially take on the capital investment for their underage children.

The “economic wise men” suggest linking the child start-up allowance to the receipt of child benefit. A small monthly contribution is enough, she emphasizes – the program should “not primarily serve to build wealth”. Rather, it’s about giving children an early feeling for the returns that a broadly diversified investment in the stock market can bring.

The following calculation example shows how much a monthly contribution of 10 euros can bring over an investment horizon from the sixth to the 18th birthday: Anyone who creates a savings plan with a low-cost passive fund (ETF) without additional start-up capital, which corresponds to the broadly diversified (and therefore low-risk) The MSCI World stock index shows total assets of 2,119 euros after twelve years with an average annual return of 6.3 percent. Deducting the amounts deposited totaling 1,440 euros results in a pure profit of 679 euros. Money – in fact for doing nothing.

The extent to which the proposal will be taken up and implemented by politicians remains to be seen. However, given the strained budget situation, it is unlikely that the federal government will do this in the short term.