A guide to financing your child education plans through various life stages
We never know the love of a parent till we become parents ourselves. – Henry Ward Beecher
As soon as a little bundle of joy arrives in your life, you get engrossed in taking its care to meet every small and big need of this tiny new family member. After all, children come with a stream of needs. Now, your life revolves around shaping their childhood and future. From diapers to your kid’s college education, there is so much to think about. Suddenly, all your financial goals revolve around this new life.
Right from early childhood to the phase your child becomes a responsible adult, there are several key milestones in a kid’s life you will have to nurture. However, the biggest concern of today’s parent is undoubtedly the cost of education that is inflating every year by leaps and bounds. Only a fool-proof child education plan can meet the rising cost of your child.
A poor monetary planning can raid the lion's share of your income, so it is better to start early and begin with strategic child investment plan. First of all, let us go through the monetary hurdles that will come through various life stages of your child.
BELOW 5 YEARS
At this stage, you have to bear only food, clothing, and health and play school expenses. If both parents are working, day-care cost follows right after the infancy phase. Pre-primary education trails as soon as your toddler grows up. According to a recent report by TOI, you will need around Rs 6.2 lakh (including food, healthcare, clothing, education) at this life stage of your kid. However, this amount is small if we take into account the schooling and college education expenses which will be incurred in the next stage. Therefore, the best time to start investing in the right child plan is NOW!
Your child’s school education will be the major part of this stage. It will start right from your child’s admission to school to tuitions, extra classes, coaching – everything which is required to foster his/her interests. It is also a crucial time when your child may develop an inclination towards special interests, like singing, dancing, acting, sports, etc. To nurture these dreams of your kid, special coaching may be required. It is advisable to assess your child’s interest in this phase and calculate the money you will need to meet the cost.
AFTER 14 YEARS
This is the phase where your child has decided his/her career path and has embarked on it. As you are a parent, you will help them in the best way to follow their dreams. This phase of your child’s education will incur the largest expenses on you as it includes college admissions and fees, coaching for specific courses or educational institutions and so on. Your investment plan should ideally be such that you could reap the benefit of maturity amount.
It is necessary to assess the higher education cost including inflated expenses before you start a child education plan.
Now let’s discuss the golden rules of planning a strong investment and saving plan for your child’s education:
Plan in advance: The sooner you start stocking for your child’s education, the better. Like any other investment goal, it needs time to build a valuable asset. For instance-
The class of 2018 class of IIM-Ahmedabad will pay Rs 19.5 lakh for the two-year course which is 400% higher than what the same Bschool charged in 2007. - TOI
This amount will undoubtedly increase with time, and you should be ready to meet these expenses for the time when your child would enter the college. If your child wishes to opt for a foreign institution, this may incur additional burden. So, take into account all these factors when deciding the best child education plan. In addition, a wake-up call in the future can adversely impact your existing financial plans (retirement plans, emergency funds). Therefore, better start early.
Choose the instruments: Once you have decided the estimated cost for your child’s education, choose the right instruments to achieve this financial goal:
Mutual funds: Diversified equity mutual fund schemes are ideal to start with. Start SIPs in 2-4 equity-oriented mutual fund schemes including large-cap and mid-cap funds. Bear the short-term needs from your current income. Opt for investment through equity-linked saving schemes that come with tax benefits also.
Ulips: Child Ulips are another great way to stock for your child’s education. With a waiver of premium feature, it ensures to save the required money at the desired age of your child. For example, you can opt for a plan that doubles the total amount of premiums paid and give you a return as a lump sum at maturity. Moreover, do not touch the child investment portfolio once except for the cause it has been created for.
In addition, don’t forget to cover any unfortunate incident through adequate life insurance coverage, preferably a pure term insurance plan. Your child and his/her needs should not suffer if any of the parents meet an ill-fated incident.
PPF for child: You may also consider investing for your child’s needs by opening a PPF (public provident fund) account in his/her name. PPF is a 15-year scheme that would enable you to create a tax-free corpus for your kid. When you need fund for your child’s needs, you can withdraw partially any time after the sixth year. Once your child becomes an adult, s/he can also contribute to the same account.
To create a sound and risk-free financial plan, it is advisable to diversify your funds and invest in different plans. Thus, you can include the right ULIP plan as well as SIPs in diversified equity funds to meet the education cost of your child.
Money should not come in between your child and their dreams. There must be a unique dream that you may have cherished for your child the moment s/he was born. Save sufficiently so that nothing stops your child from achieving his/her dreams.
The fact is that child rearing is a long, hard job, the rewards are not always immediately obvious, the work is undervalued, and parents are just as human and almost as vulnerable as their children. – Benjamin Spock
AN AUG 40/18