A STARTING CAPITAL FOR CHILDREN IN GERMANY

Executive Summary

Under the starting capital for children programme the government could make monthly contributions of, for example, 10 euros into an investment fund for each child in Germany. This could strengthen financial literacy in Germany through practical experience with capital market investments. In the long term, this programme can help strengthen capital market participation and reduce differences in asset returns along the wealth distribution.

All children who turn six should automatically receive monthly contributions for 12 years. This investment horizon enables significant returns with low risk on the stock market. The gradual introduction means that public funding needs will be low in the short term and only increase slowly over time.

Investment funds are suitable for this programme if they invest in a broadly diversified manner, charge low fees and have a high share of stocks. The eligibility of funds could be determined via a certification model. Alternatively, funds could be selected via a procurement system. Regardless of the selection mechanism, the programme should only consider authorised UCITS funds, which must meet regulatory requirements in terms of diversification, liquidity, risk management and eligible assets.

Children should generally not be permitted to withdraw from their starting-capital account before their 18th birthday. They should, however, be able to continue investing money and holding their accumulated savings beyond the age of 18, when the starting-capital programme has ended. An unbureaucratic link to a private pension scheme eligible for subsidies should be made possible from the outset.

Potential courses of action

• The starting capital for children strengthens their financial literacy and anchors participation in the capital market early in life.
• The programme should automatically include all children and allocate, e. g., 10 euros per month for 12 years for investment in a liquid fund with broad diversification and low costs.
• The starting-capital for children can complement the national financial education strategy.