As human beings, there are hardly any stronger aspirations than providing the best of everything for your children. But for every dream to be realised, we have to cross the bridge of multiple realities. As a parent, the most obvious of the dream would be to plan for your children in such a way that all their future requirements are properly taken care of and there is no running around at the time when the actual requirement arises.
The purpose of Children’s Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years.
1) Set up a bank account in your child’s name
Consider starting a special savings journey for your little one by establishing a bank account in their precious name. As parents, we invest heartfelt thought and dreams into selecting the perfect name that embodies our aspirations for our child. In a similar vein, taking the initial step of creating a dedicated bank account in their name ensures a secure financial future. This account can serve as a reservoir for accumulating funds exclusively for your child, as well as a place to gather any generous gifts and tokens of love they receive along their journey.
2) Term Insurance for earning members
The pandemic has reminded us of the importance of being prepared. To safeguard your family’s future, consider getting term insurance for the earning members. This insurance provides crucial financial stability in case of an unforeseen event, offering peace of mind and support during difficult times.
3) Start Planning for Short term goals like school education fund.
Plan and invest wisely for short-term goals as a parent, covering expenses like clothes, healthcare, and education. Consider options like debt mutual funds, FDs, RDs for less than 3 years, and equity-based investments for longer durations.
4) Start Planning for Higher education funds at a very early age
Starting early gives you ample time to grow your wealth and helps you achieve your financial goals by investing small amounts of money consistently. The pursuit of higher education comes with significant expenses, and it is imperative never to constrain it with financial compromises. You can consider factors like the current cost of education, inflation rate, child’s age, admission age, expected returns, etc. This will help you arrive at a goal amount and since this is a long-term goal, you can allocate the majority of your money to Equity funds, as the investment duration will be more than 7-10 years at least
5) Teach Money Lessons to your kids
Nurture your child’s financial future by instilling the habit of saving and wise money management. Lead by example and pass down valuable financial wisdom, empowering them to make informed decisions and build a prosperous future.
6) Financial discussion at the dining table
Normalize money talks at the dinner table to empower your children’s financial literacy and encourage women’s active participation in financial discussions.
Assumptions – Newly Born Child Planning for Higher Education (Age – 1 year)
Goal – UG = (Inflation rate – 7%, Duration of Goal – 18 years,)
Currently, the average cost of professional courses like Btech, MBBS, etc in India in a Private is around Rs 300000 per year (this figure may differ from college to college and from one state to another and the course/Program opted). Add to that other expenses like tuition fees and miscellaneous expenses and the cost per year could very easily be around Rs 50,000 minimum. It could be up to Rs 1.5 Lakhs a year if the child stays away in another city for this education.
So the total current cost would be for 3 years any program will be minimum of Rs 10.5 lakhs (Considering the lowest possible expenditure) then after 18 years the cost would be Rs 34 lakhs approx.
Starting early and consistency in savings are the two key factors in achieving your child’s successful future planning.
To cater the same amount an SIP of Rs 7500 approx. will be needed at 11-12% CAGR approx.
——————————————————————————————————————- Goal – PG (MBA) – [Inflation rate – 7%, Duration of Goal – 22 years,]
Currently, the average cost of any good B-School is approx. Rs 30,00,000 and the Future Value of the Current cost will be – Rs 1 Cr+
To cater the same amount an SIP of Rs 10,000 approx. will be needed at 12% CAGR approx.
Let’s consider a financial scenario for your children’s future. Suppose you aim to accumulate Rs 30 lakhs for your daughter’s education and Rs 10 lakhs for your son’s education. Assuming a growth rate of 8%, let’s calculate the future value of these amounts.
After a period of 10 years, the projected future value of Rs 30 lakhs with an 8% growth rate would be approximately Rs 52.6 lakhs. Similarly, the future value of Rs 10 lakhs after 10 years with the same growth rate would be around Rs 17.4 lakhs.
But don’t panic. The intention here is not to overwhelm you, but rather to emphasize the importance of early planning and investment in your children’s education. By considering the future value and potential growth, you can better understand the financial requirements and start taking the necessary steps to ensure a bright future for your children’s education.