A secure future for the child is what every parent desire throughout their life. Getting a good education from school system, protecting child from all kinds of threats and how to provide for education for the child are the common concern which remains at the center stage as the child is growing. An “Education Insight” survey done by Aviva Life Insurance with IMRB revealed that 72% of the parents prefer saving for child over protection and retirement and education ranks as the foremost concern for 81 percent of parents’ savings for child’s future. The survey also pointed out that around 47 percent parents remain concerned about the cost of higher education which is slated to grow at a far higher rate owing to rise in inflation, and feel that it requires planning at their end.
This concern highlighted in the survey comes from the fact that the occurrence of the goals for the child – apart from buying great toys – are fixed i.e. the college education for the child has to start at a specific age. If you are not able to accumulate funds from your resources it may force you to borrow. However, many parents are unaware on the exact cost of their child education arising in future and end up under saving for the child. It sometimes leads to wrong investment decisions jeopardizing the family finances. Hence, it’s very important that planning for the child starts early in life to ensure the funds required at various stages gets accumulated without hurting other life goals.
Here are steps you should take while planning for your child future:
Identify The Requirement
The first step should be to identify the needs of your child. There is more cost associated with child education then only the school fee. Extra classes, transportation, extra curricular activities etc. are the cost which parents have to incur for upbringing their child. When these associated costs rises, the cost of the child education may take more than 50% of the housing budget. Moreover, the rise in the cost of education with a rate more than inflation, along with resulting decrease in value of money makes planning more difficult. Identifying the exact requirement will help in knowing the savings required for reaching the desired goal.
Have Adequate Protection
The biggest worry for the parents is the future of child when they are not there. Although child insurance plans provide financial protection in case of any unexpected happening, the product requires a very high contribution for availing higher insurance coverage. The wiser approach is to assess your insurance needs and then buy the adequate life protection. A pure term insurance is a very cost effective means for getting a high insurance cover. Also, ensure that you have a good health insurance to protect yourself from medical emergencies which may arise in the future. The child too should be added in your health plans as he/she is born.
The planning should start with the birth of a child. Long term avenues like Equities & PPF, which generate good returns, demands a longer horizon for investments. By early stage planning the savings requirement gets reduced giving room for planning for other life goals and you are able to accumulate sufficient funds for your child requirement. The other benefit of starting early is that it gives you enough time to restructure your investments if they are not meeting your objectives. Since emotions play a bigger role in planning for child future, any delay can strain your finances forcing you to overlook other financial goals which are equally important such as your retirement.
- Follow Asset Allocation
There are many investment avenues and each one has its risk-return characteristic. Your risk tolerance towards a volatile asset class may be much different from any other parent and your financial obligations and liabilities play a key role in determining how much risk you can take. With so many avenues to invest it sometimes creates more confusion leading to investment mistakes. Equities, Debt MF, PPF, Gold & even FDs have a role to play at various stages of your child growth. Asset allocation is an appropriate strategy which not only helps you in choosing the right mix of these asset classes, but also let you manage your investments more efficiently.
Write a Will
You nominate your child in all the investments believing that he will get the desired money when you are not there without any hassles. However, a nominee is only a custodian of your money (Except Shares and EPF). To ensure that after you the child receives the benefits as you have planned, write a Will giving details of your wishes. The Will should be simple, comprehensive & clear to avoid any disputes in future. It should also describe who manages your child affairs in case he/she is a minor at you death. By making a clear, precise and written wishes you ensure your child future is taken care and what you leave for your child is utilized for his/her future.
Teach Your Kids About Money
Our personal finance decision evolves from the learning’s we have gone through during our upbringing. Remember the Piggy Bank. It is the first step which inculcates a behavior of savings for the goals from your limited earnings (Pocket Money). Make your child aware on the various aspects of personal finance so that when he/she takes up the first job to become independent, there is eagerness to plan for the future.
There can be many other factors which will be equally important in your child planning. A financial planning approach starts with identifying your requirements and planning for contingencies. If required, take the services of a financial planner so that you have the right road map drawn for your child future.
What financial decisions you took when your child was born? What was the most difficult part while planning your child future?
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