Investing for children can start practically from birth. In a family with larger wealth, though, the main question is not whether to send money into a fund or an ETF every month. What matters far more is deciding who the wealth is being created for, who will own it, how much control you want over it and when you hand that control to your child.
Money for studies abroad has a different horizon from capital meant to help one day with housing, with a business, or to become part of the family wealth passed on to the next generation. A good solution therefore does not start with choosing a product. It starts with the goal.
From what age does investing for children make sense?
From an investment point of view there is no need to wait for a particular age. A long horizon can be an advantage. The Czech National Bank points out that it is the length of the investment horizon that shapes how much fluctuation in value an investor can accept. The further away the moment the money will be needed, the more room there is for a longer-term strategy.
A different portfolio may therefore make sense for a newborn whose parents are building capital for the next twenty years, and a different one for a sixteen-year-old whose university abroad the family will be funding in two years.
Reaching the age of 18 does not have to be the investment goal in itself. For many families, 25 or 30 may be more relevant, or finishing studies, buying a first property or starting a business.
The horizon should follow the moment when the child will actually need the capital, not automatically the date of their eighteenth birthday.
An account in the child’s name, or investments in the parent’s name?
This is one of the most important decisions in the whole plan.
If you invest in your own account and simply decide that part of the portfolio will one day go to your child, the wealth stays in your ownership. You control when and under what circumstances you hand it over. At the same time it remains part of your estate and has to be taken into account in inheritance planning and other life situations.
The second option is wealth held directly in the child’s name. The child is then the owner and the parents administer it. Czech civil law requires them to act with due care. For legal acts going beyond ordinary administration, court approval may also be needed.
So the difference is not merely technical. It is about ownership and future control of the wealth.
With an amount in the tens or hundreds of thousands, a family may have different priorities from one with a portfolio worth several million. That is why it makes little sense to decide who owns the account based only on which provider offers something labelled children’s investing.
Which instruments are worth considering?
The choice should follow the horizon, the purpose of the money and the risk the family can accept.
For money that will be needed soon, savings accounts, term deposits or other conservative instruments may have their place. Over a long horizon, mutual funds, ETFs or other instruments that allow a broadly diversified portfolio come into play.
The Czech National Bank recommends spreading investments across different asset classes while watching their costs, risk and liquidity. Fees in particular can have a significant effect on the final value of a portfolio over ten or twenty years.
In a family with larger wealth there is little sense in treating a children’s portfolio in isolation. Investments intended for children should fit the structure of the rest of the family wealth: financial investments, property, business assets and reserves.
What about taxes?
The tax treatment depends, among other things, on who owns the investment.
For income tax purposes a minor child is a taxpayer in their own right. If taxable income arises, essentially the same rules apply as for an adult. Any tax return for a minor is filed by their legal representative.
For securities, Czech law works with a value test and a time test. Under the current rules, income from the sale of securities may be exempt if the annual total of such income does not exceed CZK 100,000, or if the three-year time test is met. Every situation needs to be assessed against thelegislation in forceand the structure of the portfolio.
Handing the wealth over is a separate question. Gifts between parents and children, that is relatives in the direct line, are exempt from income tax. With large amounts, however, a reporting duty may arise: exempt income above CZK 5 million must be reported to the tax authority under the conditions set by law.
For families passing on wealth in the millions or tens of millions of crowns, it therefore makes sense to handle the investment, legal and tax side together.
When should the wealth be handed over?
The eighteenth birthday is a legal milestone. It need not be the right moment to hand over significant capital.
An eighteen-year-old student has a different experience of money from someone ten years older. A family can therefore decide in advance what the capital is meant for and whether to hand it over at once or gradually.
One part may fund studies, another may come with buying a home and another may stay invested for the long term. With larger family wealth it is worth handling the handover together with succession and inheritance planning, and with any transfer of stakes in companies or other assets.
The goal is not to keep children away from the family wealth as long as possible. The point is to prepare them for the moment when they take responsibility for it themselves.
Involve your children before you hand them the money
Investing for children can also be a practical school of handling wealth.
With younger children it is enough to show the difference between money for everyday spending and money set aside for the future. Older ones can follow how their portfolio develops, learn why its value fluctuates and gradually understand what the family invests in.
With teenagers you can already talk about specific goals: what studying abroad costs, what housing costs, what starting a business costs, and how much of that the family capital is meant to cover.
With larger wealth, creating the money is not the hardest part. It matters just as much to prepare the next generation to handle it.
Investments for children as part of the family wealth
If you want to build a few hundred thousand crowns for a child’s start in life, the investment plan can be set up fairly simply. As family wealth grows, more questions appear.
What should the child actually own? What should stay in the parents’ ownership for now? How do you divide wealth between siblings? When should it be handed over? How do property, business assets or an inheritance fit into the plan? And how do you set up investments so that a decision made today still makes sense in ten or twenty years?
At Melior Invest we therefore do not see investing for children as a separate product. We see it as part of the long-term management and handover of family wealth.
If you are working out how to prepare part of your wealth for your children while keeping a sensible structure across the whole family portfolio, we can go through your current situation, your goals and the way you want to hand things over, and propose a solution that fits.
