How Families Can Smartly Secure Their Children’s Education

Many parents in Switzerland start thinking early about how to ensure their children receive a solid education later in life. Tuition fees, semesters abroad, or a first apartment during university — all these expenses can quickly add up to several tens of thousands of francs. According to the Swiss Federal Statistical Office, the average annual living expenses for a student in Switzerland are around CHF 27,600. For many households, covering these costs from regular income alone is difficult without cutting back on other important expenses.

This is where compound interest comes in — a financial principle Albert Einstein reportedly called “the eighth wonder of the world.” With its help, families can build wealth over time without needing large one-time payments. Compound interest allows money to grow exponentially as earnings are reinvested.

How Compound Interest Works

Compound interest is simple to understand: you invest money, it generates returns, and those returns are reinvested to earn additional returns. As a result, your capital grows faster the longer you save.

Simple Interest vs. Compound Interest

Einfachzins: Hier werden nur die Einzahlungen verzinst. Frühere Zinserträge bleiben unberücksichtigt.

Simple Interest: Only the deposited amount earns interest; previous interest is not reinvested.

• Annual interest: CHF 50
  
• After 5 years: CHF 1,000 + (5 × CHF 50) = CHF 1,250
  

Compound Interest: Interest is added to the principal, and future interest is calculated on the new total.

Example (Compound Interest):

• Year 1: CHF 1,000 × 5% = CHF 50 → Capital end of Year 1: CHF 1,050
  
• Year 2: CHF 1,050 × 5% = CHF 52.50 → Capital: CHF 1,102.50
• Year 3: CHF 1,102.50 × 5% = CHF 55.13 → Capital: CHF 1,157.63
• After 5 years, the final capital is approximately CHF 1,276, CHF 26 more than with simple interest.
  

Practical example: saving early versus saving late

Two Swiss families illustrate the difference:

• Family A starts investing CHF 150 per month in a diversified fund with an average annual return of 5% right after their child’s birth.
  
• Family B waits until the child is 10 years old and invests the same monthly amount.

After 18 years:

• Familie A: Einzahlungen CHF 32’400.-, Zinserträge ca. CHF 16’900.-, Gesamt ca. CHF 49’300.-
• Family B: Deposits CHF 14,400, returns approx. CHF 4,400 → Total: CHF 18,800

Family B: Deposits CHF 14,400, returns approx. CHF 4,400 → Total: CHF 18,800

Why Time Matters More Than Amount

Many families mistakenly believe that only large one-time investments make a difference. In reality, compound interest shows that the timing of when you start saving is often more important than how much you save. Every extra month that your money works increases the effect dramatically.

For example, Family A starts saving CHF 150 per month immediately after their child’s birth, while Family B waits ten years to begin. After 18 years, Family A has over CHF 30,000 more, without having invested a single franc more.

This clearly demonstrates that consistency and an early start are key. Short-term increases in savings later on can’t match the effect of disciplined, early investing. Even small regular amounts add up to significant wealth over time — especially when invested properly. For families, this means that starting early provides financial security for children’s education while avoiding the pressure of large one-time payments later.

The Impact of Inflation on Your Savings

A frequently underestimated factor is inflation — the general rise in prices that reduces your money’s purchasing power. Even if you save regularly, inflation can significantly erode the real value of your savings over time.

Example:
If you place CHF 50,000 in a savings account today and inflation averages 2% per year, in 18 years that money will only have the purchasing power of about CHF 34,000, even though the nominal amount remains the same.

For Swiss families, this means that choosing the right type of investment is crucial. Diversified ETFs, investment funds, or tax-advantaged retirement products such as pillar 3a can deliver long-term returns above inflation. This helps preserve not only the nominal value of your savings but also its real purchasing power for your children’s education.

Starting early also means that even moderate returns can offset inflation over time. Compound interest amplifies this effect — the longer your money works, the greater your wealth grows relative to inflation.

Step-by-Step Guide to Smart Family Saving

• Start early: Time is your greatest advantage.
• Invest regularly: Even small amounts grow significantly over time.
• Diversify: Spread your investments across multiple asset classes.
  
• Protect against inflation: Choose investments that deliver returns above inflation.
• Automate: Standing orders or automated savings plans help maintain consistency.

The Psychological Advantage: Staying Calm During Market Fluctuations

When saving for long-term goals like education, short-term market fluctuations are inevitable. Those who understand compound interest remain calm — market dips can even be beneficial, as you can buy more shares for the same amount, boosting returns in the long run.

Summary

Compound interest is a powerful tool for long-term wealth building. Even small, regular savings can accumulate into a substantial amount over time. Starting early, contributing consistently, choosing inflation-protected investments, and staying invested long-term — this is how Swiss families can secure their children’s education while easing their own financial burden.
The difference between simple and compound interest highlights the importance of time and discipline in saving. An early start combined with a long-term plan not only prevents financial stress but also protects against the loss of purchasing power due to inflation.