Girl Child Putting a Coin in a Piggy Bank.
Natalia Lebedinskaia | Moment | Getty Images
Most people begin saving for retirement when they start full-time jobs — but primary school kids in Germany could get an early start.
The country’s new government has made plans to introduce a so-called early start pension, setting up kids as young as six years of age with a retirement pot. Under the new plan, 6-18-year-olds who visit educational institutions could receive 10 euros ($11) each month from the government — coming to a total of 1,440 euros per kid across 12 years of eligibility, plus any profits that could accrue from the cash being invested.
From the age of 18, people can add personal funds to the account within annual limits. Any profit is set to be tax-free until the age of retirement, when the cash becomes accessible to accountholders.
Germany’s current retirement age is 67 — and could always rise — meaning that the savings would accrue over a period of more than 60 years.
Policymakers have also argued that beyond just setting young people up for the future, the initiative would also help them become more aware and knowledgeable about money, saving and investing.
A realistic plan?
Many details are still uncertain. There has so far been no guidance on how the savings will be invested and who will manage them.
Some experts say the total of these investments might not actually amount to a lot of money for each individual person, with Johannes Geyer, deputy head of the public economics department at research institute DIW Berlin, telling CNBC that the sum is ultimately mostly symbolic.
Ideally, he says, the policy could motivate people to think about long-term financial security earlier in life and introduce them to capital markets, including in households where the topic might otherwise not come up in conversation.
But Geyer points out that this scenario isn’t necessarily realistic.
“It is unclear if it increases the motivation to save for old age or improves financial knowledge,” he said, according to a CNBC translation.
“When people receive money passively and basically don’t have to make any investment decisions themselves, it isn’t obvious how their financial knowledge is meant to be improved. Simply being in ‘contact’ with investment decisions does not necessarily lead to good choices,” Geyer explained.
Christoph Schmidt, president of the RWI Leibniz Institute for Economic Research, struck a similar tone.
“A fundamental error of the plan is that the actual lesson of saving — doing without now to have more tomorrow — gets totally lost,” he told CNBC in translated comments. The funds would be better off used in the German education system, he added.
“The basic idea of the early start pension, so giving young people starting capital when they enter adult life, is well-intentioned, but when looking more closely there are hardly any convincing benefits of the concept,” he concluded.
