Raising a child: Future financial planning, saving and investments

Dec 04, 2018 | 1 week ago | Read Time: 4 minutes | By iKnowledge Team

Here are some financial strategies to ensure that you meet the goals that you child dreams of.

Educating a child is quite simply a financial feat spanning to nearly a crore’s worth funds generated from investment and saving (if you consider educating your child abroad). This goal is achievable with the right financial planning. The biggest reason this child investment feels so out of reach is the alarming rate at which education costs are rising.

Our research has revealed that fees for some of the most reputed educational institutes like IIT, for the field of engineering, have increased by five times in the last 10 years. Back in 2008, the fees for admission at IIT (B.Tech) was 2.28 Lakh. This figure has now spiked to a staggering 10 Lakh this year. Similarly, fees for admission into the Indian Institute of Management for the course PGP has nearly doubled. The PGP course in IIM Ahmedabad was already 11.5 Lakh in 2008 and today, it is nothing less than 19.5 Lakh.

While reputed educational institutes the likes of IIM and IIT charge a bomb to secure a seat, decent institutes that offer engineering courses also charge an approximate of 6 Lakh today. Given the current rise in educational costs, five years down the line, this figure would be close to double, meaning Rs 12 Lakh. In 10 years’ time, it’s likely to cost around Rs 20 Lakh.

As staggering as these numbers are, charting the right course of financial action, will ensure that your child plans are easily met. This requires planning at the right time, and strictly adhering to it to meet your child investment goals. Remember, education loans are only meant to bridge the gap between your corpus and the requirement at the time, and must be considered as a last resort.

We will be discussing a step-by-step strategy to help you with your child plans and ensure that by the time you finish reading this article, you are well informed about your next course of action to achieve your child investment goals.

Identify financial target

This starts with identifying your child’s dream. Some children want to be superheroes, some want to be princes, and then there’s a kid who wants to be the dinosaur man – translation: Paleontologist. Encouraging your child’s dream through positive reinforcement (Dinosaur toys and Fossil Dig kits, in this case), early on, helps solidify their career goals. This simply makes your job easier.

Still, as a safe measure, it is better to consider 3-4 different career options. Considering a modest inflation rate of 12% per annum on education, in an engineering or management field, you need to save a rough estimate of Rs. 3,500 a month. For a more accurate estimate on your child plans, you can use Aegon Life’s online calculator for the same or avail assistance from our financial planners.

Chart down a solid plan

Fund management is a skillset built on brains, sweat and tears. Keeping your child investment plan in mind, the thumb rule is to create a separate portfolio for your child plans. If you have more than one child, make separate portfolios for both kids and allot fixed fund creation for both.

Next, identify short-term, mid-term, and long-term milestones, and create separate investment buckets for the educational costs that arise in each. Assign a regular savings plan for each, and monitor the corpus closely, and keep them untouched until absolutely necessary or to accomplish the goal in sight.

Finally, consider which investment option is most suitable for the milestones on your child investment plan. Mutual Funds have been considered as one of the best investment options to generate funds for the short and mid-term goals. Equities, however, steal the limelight with a track record of delivering higher inflation-adjusted return than any other asset class such as debt, gold or real estate. These options must be considered depending on your risk appetite, and insured against the same.

You can also invest in Aegon Life’s iMaximise plan which is a ULIP plan that provides market linked returns as well as protection. The plan offers a good deal of flexibility and also ensures the financial security of your child through the Triple Benefit pay-out option.

Portfolio bifurcation

The investment portfolio for child plans depends on the amount of time left to achieve them. For a child investment plan that is at least ten years away, the portfolio must lean on equities. Therefore, equity-oriented instruments such as equity mutual funds, ULIPs with equity fund options can be the mainstay of one’s portfolio. In addition, a Public Provident Fund (PPF) account may also be used to fund your child’s education needs.

Bonus

Hidden costs to a child’s future education expenses include social interactions that cost more than you think they would. Letting your child explore these reactions mean sending them out into the world with a back-up that you control. Setting up a small provision aside, for times when your child may need them to enjoy unhindered social interactions, is a smart move. Parents often underestimate the need for social interactions as a means to develop the street-smart aptitude in their children, and a small corpus that helps them join school camping trips or college industrial visits, make a huge difference.

II/Oct 2018/4468


Calculate premium for your Term Plan

  • Y N
    • Annual Income
    • Sum Assured
    • Select Cover Upto Age
    • Name
    • Mobile
    • Email ID
Your Annual Premium for Aegon Life iTerm Insurance Plan
Prev
AI Driven Personalized Life Insurance AI Driven Personalized Life Insurance Premiums; Aye or Nay?
Next
What are the tax benefits on ULIP pension plan for NRIs?

RELATED ARTICLES