Investing

How the state promotes wealth accumulation

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When it comes to investments, an old rule of thumb applies: you have to be able to take it. However, this does not mean that everyone who has invested money in financial products for decades has to reckon with some setbacks on the financial markets. The fact that you shouldn’t let them get you down is true anyway. Rather, it is quite simply about the numerous small (and sometimes large) aids and allowances that the state grants to build private wealth.

Many German citizens do not even take advantage of a number of grants and concessions because they do not know the allowances, miss deadlines or fail to meet certain amounts. Such surcharges make it easier to build up capital at all, especially in the initial phase. Because especially young professionals and low-wage earners are encouraged. But normal and even high earners can still collect a few extra euros for later.

Now the state allowance system is a double-edged matter. On the one hand, there is the risk that savers will only invest in certain products because the state lures them with cash or tax gifts – although the contracts later turn out to be not profitable. On the other hand, it can dampen one’s own propensity to save, because the state is already giving something – you don’t have to do much yourself.

That is why you should see the supplements for what they are: small gifts that are sometimes given on top of that when you choose a savings product that you would have opted for without the supplement. They should help to have more money later, not less.

capital accumulation benefits

For almost 40 percent of all employees in this country, the following applies: Your boss voluntarily donates a few euros a year when they sign a savings contract or pay off a real estate loan. The code word for this is: capital-forming benefits (VL). Often the amounts are not large, but a lot comes together over the years.

The employer pays between 7 and 40 euros per month, depending on how much is stipulated in the employment or collective agreement. In the best case, that makes 480 euros a year, which he puts aside for the employee, either in a bank or fund savings plan, a building society loan agreement or to repay an ongoing home loan. If the boss is stingy, it is worthwhile for low-wage earners to increase the monthly fee to 40 euros. Because in this case they receive an allowance from the state, the employee savings allowance.

Such VL contracts are saved for six years, the seventh year is considered a year of rest, then only the allowances for low-income earners are paid. You can either withdraw the accumulated money after the seven years have elapsed or simply continue to save. And as soon as the savings phase expires, you can also conclude a new VL contract right away. In the best case, this brings in 2880 euros every seven years, without any interest. With two percent interest, it will turn out to be more than 3000 euros, and with a fund savings plan even more.

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