Grab upto 50% discount on courses & webinars only on Elearnmarkets App. DOWNLOAD & ENROLL NOW

Financial Planning

Planning For Our Children’s Future

One of the important steps in preparing a robust financial plan is to properly plan for your child's future. Here, we refer to the cost of children's education. Let us understand the need and importance of it. 

 

Why Should We Plan for Our Children’s Education?

 

What’s the biggest financial commitment of a parent today? At least two out of three say, “It’s to meet the rising costs of their child’s education.” 

 

In fact, we Indians so strongly believe in the adage ‘education is insurance’, that we are willing to cut down expenses on shopping and outings to save for our child’s education. However, given the low level of financial awareness in our country, it wouldn't be surprising if many of us fall short of funds. If we dig into our retirement savings (as many of us do), we will be forced to reduce our retirement corpus, and reduce our standards of living post-retirement, and we will possibly end up becoming a financial burden on our children.

 

In the old days, people could earn a sound interest by investing in-

  • Public Provident Fund (PPF);
  • Kisan Vikas Patra (KVP); or
  • National Savings Certificate (NSC).

Even with minimal planning, these instruments could help parents make ends meet and save enough for their children at the same time. Today, the rate of return on these traditional products has gradually come down over the years, and not to mention, with inflation fast catching up. In fact, most financial planners might tell you that as inflation rises, the first thing to get impacted is the education sector. This is why planning for the child’s future is an important step. 

 

In the last one decade, the cost of education - especially quality education and foreign education has moved up substantially. The cost of primary education in quality international schools is anywhere between ₹1 lakh to ₹2 lakhs p.a., not to mention, the skyrocketing costs at the graduate and PG levels. Adding to that the fact is that the child may pursue arts or medicine or commerce or engineering, which is not clear during their schooling years. 

 

So, how much amount has to be set aside for their education needs becomes a very tricky question. Therefore, planning early for your kid’s future has become all the more relevant today if you want to give wings to their dreams. 

 

Let’s understand how inflation increases the price of education through an example. 

 

Let’s say an engineering degree from a leading college would cost around ₹10 lakhs (in today’s value) and an MBA degree would cost around ₹15 lakhs (in today’s value). 

 

Let us assume an inflation rate of 6% p.a.. If your child is aged 5 years today, then, by the time she is 18 years (i.e. in 13 years’ time), the same engineering degree would cost you ₹21.3 lakhs and an MBA degree would cost around ₹32 lakhs - over 2-fold increase in 13 years! 

 

 

Quite an eye-opener isn't it?

 

For parents who don't have time on their side, achieving an adequate education corpus can become a daunting task. In such circumstances, they may be forced to take a higher degree of risk (not attuned with their risk appetite) and in most cases, compromise on quality of education itself. If you don’t ‘inflation-adjust’ your child’s education savings, it can make a real dent to your future plans. So it is imperative that we make elaborate plans to meet it head on.

Did you like this unit?

Units 27/35