We are no longer in the so-called ‘good old days,’ The choices were limited and preparing for those choices was so much simpler. However, globalisation and the internet era have opened up a vast sea of opportunities for everyone, including your children. Their aspirations have widened, and the pre-requisite education has become an expensive affair.
Rough estimates suggest education inflation in India is about 10 – 12 per cent on an annual basis.
Even if we are to consider a conservative estimate of about 6-8 per cent inflation, it would create a significant financial impact. Simply put, planning for your child’s future is no longer a decision you can procrastinate. It needs your urgent attention, especially if you are a new couple or new parents.
Here are some quick tips I employed when planning for my children’s future:
Starting early:
Whatever the life goal, it is always prudent to start early to better prepare for future possibilities. While the child will have their own aspirations, you as a parent also foresee a certain life for them. Make a rough estimate of what his or her education is likely to cost, account for inflation and start working towards that financial goal.
In several cases, parents tend to wait until children start education and begin solidifying their own aspirations. This, in my opinion, is a cardinal mistake. Starting your investments and savings early gives you the benefit of compounding which can prove advantageous in the long run. One can always course-correct along the way.
Sukanya Samriddhi Yojana:
If you have a girl child within 10 years of age, the government’s Sukanya Samriddhi Yojana is among the best and affordable investment options currently available. You can open a Sukanya Samriddhi Account with just Rs. 250 and in multiples of Rs. 50 thereafter. To keep the account active, you need to deposit a minimum of Rs. 250 every year.
The most compelling reasons for investing in this scheme is the fact that the funds deposited have a lock-in until your child turns 18 years of age. The total tenure of the scheme is 21 years but allows for partial withdrawal once the child turns 18 only for education-related expenses. The scheme also allows withdrawal of funds after 5 years in case of medical emergencies. This ensures that any intermittent monetary urgencies in the family do not hamper the financial goals of your child.
This scheme offers a rate of interest that is usually higher than PPF and is tax-free.
Insure yourself:
The biggest threat to your child’s aspirations is the absence of their parents. Considering they are financially dependent on you, the death or disability of a parent can derail their future aspirations. So, it is absolutely mandatory that you buy term and health insurance. In fact, every time you add a family member, or your income grows significantly, it is pertinent that you review your protection needs.
Plan for educational aspirations:
Learning abroad is increasingly becoming a common aspiration among the younger generation. To meet this goal, any parent must start financially planning for it at least 10-15 years in advance. To start with, you must arrive at the future cost of learning abroad. To explain simply, if education abroad costs Rs. 20,00,000 today, then assuming a 6per cent average inflation rate over the next 15 years, it will cost you almost Rs. 50,00,000.
You can meet this goal with a meticulously planned and diversified investment plan between risky and safe instruments. For instance, instruments like Nifty 50 index funds or guaranteed insurance plans offer you the benefit of compounding over a long period of time and can help you effectively meet your goal without resorting to borrowings in the future.
Inculcate good money habits in your kids:
Inculcating good financial habits is important so that your kids are well-equipped in managing their own money after a certain age. Setting monthly pocket money, teaching them budgeting and taxation are some vital lessons they must learn at a younger age. Considering their goals are interlinked with seeking independence, these habits will pave the way for judicious financial habits when they are living away from their family or have started earning.
To summarise, the key to planning for your child’s future is investing early and letting your money earn for you over a longer period of time.
