Saving or Investing for Children: Which is the Right Choice? A Guide to Choosing You Might Not Know

By the time my child enters university,
how much money will I actually need?

Admission fees and tuition.
If they end up living on their own,
I might need to send them an allowance, too.

“I’m saving a little bit at a time now, but will it be enough?”

“Prices are rising, and by the time they go to university,
won’t it cost even more?”

“What if they say they want to go to a private school?
What if they want to study abroad?”

Once you start thinking about it, one worry after another comes to mind.

If possible, I don’t want to limit my child’s choices
because of money.

That is why I want to prepare now, but I am torn between
whether saving alone is enough,
or if I should also consider growing it through investment.

How can I ensure I have the necessary funds
when my child needs them?

Actually, there is something you should think about
before deciding between saving and investing.

Is it safe to just keep money in the bank?

For the sake of my child’s future,
I am saving a little bit every month.

I think many families are doing the same.

If you keep it in the bank,
the balance in your passbook will increase little by little,
and you can withdraw it when you need it.

However, there is one thing I would like you to consider here.

What you can buy with 1 million yen today
is not necessarily what you can buy with 1 million yen 10 years from now
.

For example,
if university tuition and living expenses are higher than they are now,
even if you have saved the same 1 million yen,
it might not be enough.

This is because if prices rise,
even if the amount of your savings remains the same,
you may be able to buy less.

Last time, I talked about how, due to a stronger or weaker yen,
the amount of foreign currency you can exchange for the same 10,000 yen
changes.

The value of money
is not as constant
as we think it is.

Of course, savings have an important role in that
they are easy to withdraw when needed,
and the principal is easy to protect.

However, if prices rise over many years,
the interest from savings alone
may not be enough to keep up with that increase.

So, should you try to grow your money through investment?

If you are worried about relying only on savings,
should you invest to grow your money?

Recently, the term NISA has become more common,
and investing has become more accessible than before.

However, investing has different considerations than savings.

That is,
your money may increase, but
it may also decrease.

For example, imagine you planned to use your
invested money for your child’s university entrance,
but stock prices dropped significantly right before that time.

Such things can happen.

You started investing to have the necessary funds ready,
so it would be a problem if you came up short when the time came.

Therefore, if you are going to invest,
you need to consider not only the possibility of growth,
but also the possibility of loss.

Three concepts to reduce investment risk

If your child is still young,
you have 10 or 20 years
to prepare for their future.

When thinking about investing by utilizing that time,
it is important to know
the three concepts of “long-term, diversification, and accumulation.”

Long-term means managing investments over a long period without being swayed by short-term price fluctuations.

Diversification means not concentrating your investments in a single company or country.

Accumulation means investing a fixed amount little by little instead of buying everything at once.

There is an old saying about investing:
“Don’t put all your eggs in one basket.”

If you put all your eggs in one basket,
when you drop that basket,
they will all break.

But if you divide them into several baskets,
even if you drop one, you won’t lose everything.

Investing is the same.

It is impossible to accurately predict now which companies will grow
or which country’s economy will be strong in the future.

That is why there are ways to approach this by diversifying your investments,
spreading out the timing of your purchases,
and working on it over a long period of time.

However, long-term, diversified, and systematic investing
does not guarantee growth.
Since there is a possibility of loss,
it is important not to invest money that you will need in the near future.

How should you prepare for your child’s future finances?

We do not yet know
what path your child will choose in the future.

They might go to university,
or they might decide they want to study abroad.

Even so,
you cannot predict everything from now
and prepare perfectly.

However, within the scope of what you know now,
you can think about when
and for what purpose you will need the money.

The money you are saving for your child right now,
when will it be needed?

Do you plan to use it within a few years?
Or is it money for 10 or 20 years from now?

For example, if the money is needed for enrollment next year,
securing the necessary amount is a higher priority
than trying to grow it.

On the other hand, if your child is still small
and there are about 15 years until university,
you can consider investing
a portion of the money that you will not use immediately.

The important thing
is not to decide between savings or investment first.

Think about when the money will be needed.
That is the first step in preparing for your child’s future finances.

Next Time Preview

Next time, we will talk about the
new “Child NISA” starting in 2027.

I want to start for my child’s future.
But I don’t really know much about investing,
and I’m not confident I could explain it if my child asked…

There might be many people who feel that way.

Actually, even if parents aren’t experts in investing,
there are things you can learn about money together with your child.

Next time, using the Child NISA as a starting point,
we will discuss how parents and children can think about
and learn about money together.

When thinking about your child’s future,
you want to do everything you can.

But it’s easy to be unsure about what is best.
Surely, there are many other parents
who feel the same way.

If you’d like, please support this article with a “Like”
so that it can reach those people as well.