An "Education Insight" survey done by Aviva Life Insurance with IMRB recently 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.
As the survey highlights, securing the child future is one of the primary goal for all parents. Getting the desired education from school system, protecting child from all kinds of threats, and how to provide for education for the child are common concern which takes the center stage once the child is born. However, most parents are unaware on the exact cost of the child education arising in future and end up under saving for the child. Sometimes it 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 few points which should be considered while planning for the child future:
1. 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 cost which parents have to incur for upbringing their child. When these associated costs rises, the cost of the child education takes more than 60% 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 make planning more difficult. Identifying the exact requirement will help in knowing the savings required for reaching the desired goal.
2. Have AdequateProtection: 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 coverage. A pure term policy 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.
3. Start Early: The planning should start with the birth of a child. Instruments like Equities & PPF, which generate good returns, demands a longer horizon for investment. By early stage planning the savings requirement gets reduced giving room for planning for other life goals. 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.
4. Follow Asset Allocation: There are many investment avenues and each one has its risk return characteristics. This 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; it also manages your investments more efficiently.
5. 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. To ensure, 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.
6. Teach Your Kid About Money: Our personal finance decisionevolves 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 self-dependent, there is eagerness to plan for the future.
There can be other factors which will be equally important in your child planning. But 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 roadmap drawn for your child future.