Your baby’s savings – in what currency?

Today – Your baby’s savings – in what currency?

The world you grew up in no longer exists. We’re not just talking about pop culture – how we learn, work, and play has changed as well. But, most of all, the cost of things we take for granted – food, housing, education – have all risen significantly.

Just think about how much a four-year degree costs these days. Compared to the 1980s, when your parents were in uni, it costs 213% MORE. And before critics interject, we’ve already accounted for inflation.

In many urban centres, housing is moving out of the reach of everyday people. According to the World Economic Forum, the median price of a home has doubled since the 1980s.

And food? Finally, some good news – it’s cheaper than in the 1980s. However, prices are markedly HIGHER than those in the early 2000s. In the not-so-distant future, the effects of unmitigated climate change could send grocery bills skyward.

Your baby’s savings – in what currency?

Your baby’s savings – in what currency? Let’s look at the options

As a parent, ever-escalating costs are a constant source of stress. It’s tough enough to save money for retirement as prices have risen. Imagine the world your kids will inherit. For this reason, you must create separate funds for your children.

But, given the ongoing effects of Brexit, denominating it in GBP might not be the smartest move. In this blog, we won’t just make the case for baby savings funds – we’ll talk about how to arrange it.

Creating a savings fund for your children is of the utmost importance


The world is on the precipice of significant change. The UK can’t decide whether it wants Brexit, no-deal, or to remain. People are marching in the streets, demanding climate action. The body politic keeps electing authoritarians. Technological change is speeding along at an exponential pace.

Amidst it all, inflation keeps rising steadily.

Trying times can test the mettle of even well-sorted adults. Consider your kids, though: once they leave secondary school, they’ll mostly be on their own. With next-to-no life experience, a severe recession could put them in serious peril.

You say you’ll help them out. But, what if you pass away? Or, what if an unanticipated life event wipes out your assets?

A significant financial cushion can help them weather the storm. Begin building it now, whilst your babes are still in their nappies. When they come of age, they’ll have financial security straight out of the gate.

There’s more to the process than sticking some quid in a fund, though. The world is full of economic and geopolitical risks – you need to be investing with that in mind.


Holding GBP could expose you to needless risk


23 June 2016: it’s a day stuck like a splinter in our collective minds. Against the expectation of markets, 52% of Britons chose to leave the European Union.

We all felt the fallout of that decision immediately. In seconds, the GBP plunged against every currency pairing. In particular, GBP/EUR fell 7%, and GBP/USD plunged 10%.

Ever since, GBP currency pairings have been shuffling along like a zombie. In 2019, the EU has extended the Brexit deadline twice. And now, an election is on the way. All of this is holding the GBP back, and exposing it to massive downside risk.

Will Donald Tusk finally run out of patience in 2020, and kick the UK to the curb with no deal? If so, having a baby savings fund solely in GBP could handicap its future gains.


Consider the purchasing power of any currency you choose to hold


These days, you can have a savings account denominated in any currency you desire. When deciding which currency (or currencies – more on that later) to hold, consider their long-term prospects.

Some currencies, like the GBP, have seen their global purchasing power erode over the past decade. Others have held steady against a basket of currencies, whilst others have risen.

Let’s consider the world’s three reserve currencies, the EUR, USD, and JPY:


The Euro (EUR)


Historically, the EUR has done well against a basket containing the other two reserve currencies, plus the CHF. From 1971 to the present day, it gained more than 80%.

However, the EUR has languished in recent years due to Brexit fears. It hasn’t decreased in value, but uncertainty has kept it locked in stagnation. Why? If the EU loses the UK, it will hurt them not just financially, but existentially. Going forward, the probability of other countries exiting the Union increases.

In the short-term, losses against the USD and JPY will hurt the EUR. However, gains against the GBP will balance things out somewhat. Your child may choose life in Europe. As such, it may make sense to denominate your baby savings account in EUR.


The United States Dollar (USD)


The USD has an excellent short to medium-term prognosis. The American economy is currently growing at an annualised rate of 3% – a great number for a developed nation. Against a basket of currencies, it has strengthened considerably since 2011.

On the other hand, economic headwinds are blowing, likely due to Trump’s trade war. According to analysts, weak earnings reports could send its economy into recession shortly. That said, the USD remains unchallenged as the world’s top reserve currency. In global downturns, global investors turn to it for safety and security.

For this reason, holding savings in USD is a good default strategy.


The Japanese Yen (JPY)


Japan was the economic juggernaut of the late 20th century. After rebuilding from the devastation of WWII, they became the world’s workshop. Not only did they build many things cheaply, but they also innovated. The investment that flooded into their economy made the JPY one of the world’s greatest currencies.

Well, things have changed. Decades of economic stagnation combined with a rapidly ageing population have handcuffed economic growth. Nevertheless, the capitalisation of the JPY means it is still considered a reserve currency. Despite its present troubles, its existing industrial base remains stable and its population wealthy compared to the rest of Asia.

We don’t recommend holding JPY over the long-term, though. Apart from the reasons cited above, Japan has an eye-watering debt-to-GDP ratio of 236%. Looking forward to the future, JPY can only go down.


Hedge risk by holding multiple currencies


As you can see, each of the currencies mentioned above has its strengths and weaknesses. This fact can make it hard to pick one for your baby savings fund.

We’ve got good news – you don’t have to choose one currency over another. In fact, many finance experts recommend holding multiple currencies to spread out risk. Many online services offer savings accounts that allow for this – TorFX is a well known one.


Should a “no-deal” Brexit negatively impact the EUR, your holdings in USD will rise. Gains in one currency can offset losses in others – that’s the power of hedging!


Ensure your children’s future in an unstable world


The world can be a scary place. However, having a reservoir of capital gives you options others might not have. By setting up a baby savings fund, you’ll give your kids the tools they’ll need to navigate safely through their adult lives.

Your baby’s savings – in what currency? Definitely something to think about.


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