Planning for your child’s education

Planning for your child’s education

Good quality education is a priority for every parent but for anyone overseas education can be a deal-breaker. Even if you have sufficient funds to meet your retirement needs, it is extremely important to separately allocate the funds for your child’s education especially graduate level studies.

Here are few mistakes that parents commit while planning for Child’s education: 

Buying ULIPs

Protect your child’s future

As parents, these wordings in an advertisement may be hard to ignore. Emotions are used by Insurance companies to lure people. These policies often have an opaque way of sharing the charges and lock-in period. Additionally, the policy maturity amount may not be sufficient to meet your child’s future needs. Therefore, securing your child’s future with these policies is not recommended. 

Underestimating the education cost

The costs today are bound to increase in the future. Often parents think of the cost in today’s value. However, the cost of education actually increases more than even the general inflation in the economy. Considering this rise in cost of education due to inflation is critical when parents plan for their child’s future.

Inappropriate investment vehicles

Allocating funds in safe assets usually give a sense of security to parents. However, the real worth of the money does not increase after considering inflation. Therefore, investment allocation towards growth assets such as equity and real estate is very important.

Insufficient life cover

Your child’s future can never be secure until you are adequately insured. You must buy a term plan that insures you for the value of your child’s future goal requirement. If something were to happen to you, your child’s future goals will still be met.

Ignoring your own retirement

Putting your own future at stake is not recommended. Children’s future planning is one of the important goals, but it should not be looked upon in isolation. Let your child’s future goal be part of your holistic planning.

Procrastinating

Parents who start late will have less time to save their money and may not be able to save enough for their child’s future goal requirement.

What you need to do

So what are the costs involved? It will depend upon where your child will go for his/her higher education. If your child chooses India over abroad education, costs could be drastically different. However, we suggest that you should plan with the assumption that you will send your child abroad for education. Later, if your child does not plan to go abroad, you can very well use those funds to meet any other financial requirement.

In today’s time, planning for $200,000 inflation adjusted for 5% p.a. is a reasonable amount of savings. You should not invest these funds in a high-risk category such as start-up funding, private equity etc.

Investments held should be viewed as a medium to long-term investment. More the time, better it is. 

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