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Planning Your Child's Future

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Every child deserves to receive the best education and grooming in the growing years. It is not only a child’s right but also the dream of parents to give their children best of everything. In every phase of their lives, they set a different goal for children to help them fulfill their dreams which includes pursuing higher education from the universities they aspire for, arrange a beautiful marriage for them to remember forever and give them the life they deserve. But all these aspirations and dreams can be realized only when you are financially secure.

Today education is very expensive as compared to how it used to be a generation back and is still growing in figure at an enormous rate. If you look closely, a graduation degree in engineering costs around 1 lakh a year roughly. This course amounts to Rs 4 lakh at the end of four year. At an average of 10% annual hike in education sector, after 20 years, the amount would bloat up to Rs.25 lakh roughly. Thus, to be able to afford this education, especially a middle class household need to chalk out an investment plan for their child’s future very carefully.

Facts mentioned in the previous paragraph accounts for education received in India. Aspirations have grown over the years and people aim for pursuing education abroad from universities around the globe. Now to take up admission in any graduation school outside India, especially US, Canada and Australia where Indians prefer, parents need to accumulate surplus amount of money. As getting education in these countries is very expensive, you can easily say, parents have to shed at least a crore (10million) of rupees from their pocket for the child’s education and accommodation away from home. Producing such a huge amount at one stroke can only be made possible if parents invest regularly in their child’s favor from an early age.

Another very important aspect in an Indian household is “marriage”. It is the time when parents are ready to spend money as much as they could afford to make their children’s weddings as lavish as possible. An expensive marriage, for rich, is a symbol of status now. But middle class families are bound to maintain this status to keep up with the high profile society and lifestyle. They try to arrange destination weddings in the vast palaces of India to five star luxury hotels and pay lakhs of rupees as venue rent to make weddings of their children memorable forever. In fact, it is not just about the wedding ceremony but also some pre and post wedding celebrations that have secured enough attention now. Ceremonies like haldi, mehendi, sangeet and post wedding parties hold equal focus and giant celebrations making wedding a week long fiesta. And all of these celebrations are totally justifiable as that’s what Indian ceremonies are all about, fun, family, colors, get together, lavish dinners etc. To fulfill all these highly expensive finance demanding parties, parents often have to borrow huge amount of loans from banks. These loans advance them in the pit of debts, where many times poor families are not able to come out of.

The question here is why this situation should arise. All parents have some dreams for their child right when they are born, like watching them getting education from best of schools and colleges one day, getting them married off in the most beautiful way etc. Yet when they know of these expenses in future, they depend themselves on loans and money pooling in times of need. If only they could foresee these future expenses in their early parenthood and start making relevant regular investment during the formative years of their child around the age of, 1-5 years, these issues of debt or deprivation shall never come into picture. Financial security is built over the years with careful planning and execution.

Financial Planning

Financial planning is the process of meeting your life goals through proper management of your finances. Life goals could be anything from buying a new house, car, getting married, educating your children, their marriage, etc. Life, to most of us, is not about having a singular goal. Rather we have multiple goals which are important at different point of times. For example, in twenties or early thirties when you are married and live in a rented house, buying your own house becomes the prime financial goal. Thoughts of retirement planning, at this point of time would not bother much. When you are newly married couple, you would not worry about saving for your not-yet-born child’s future education. This will be your criteria much later when you have a baby. This is the time when you may be looking for a nice car. But at any point of time, all these goals have their own importance and impact on other financial goals. Thus efficient financial planning can help you to assess where you are now, what you may need in future and what you must do to reach your financial goals. The process involves collecting relevant financial data, listing your life goals, examining the current financial status and coming up with the strategy on how you can achieve those goals on time with present situations. Financial planning can help you achieve your short term and long term financial objectives without compromising with those objectives.

Benefits of Financial Planning for Child’s Future

Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make have an impact on other areas of your finances. As we have already discussed, the cost of education has skyrocketed in the recent years and is expected to grow further at an inflation rate of 10%. Yet recent trends have shown increased interest in pursuing education from abroad resulting in far more educational expenses. Thus, the importance of financial planning for your child’s future comes into picture to meet your financial goals of sending your child abroad etc.

Let’s say your annual income is around 8-10 lakh rupees per annum. Now the cost of engineering college fee would be around 25 lakh after 20 years (given current average fee is around 4-5 lakh and annual inflation of 10%). Now if you are a young parent, you need to be prepared with this amount which is approximately 2-2.5 years of your annual income. Similarly, if your child aspires to pursue master’s degree in business administration from abroad, the educational expenses would rise exponentially. It will require you many more years of saving to meet the targeted goal.

The expenses of wedding goals can easily amount to 10 years of annual savings. Thus, in order to be able to meet your financial goals without compromising (reads as debts, loans or simply dropping your plan), you must have robust financial planning to secure your child’s future. And the best advantage of early financial planning is you will have ample of time and scope to do surplus amount of savings.

Financial Challenges for Parents could be Intimidating but…

The objective of this article is not to scare parents but to simply make them aware of the obstacles they have to prepare for in due course of time. With careful financial planning, it is possible to meet the aspirations and dreams you have for your children and meet all your financial goals.

Before you invest your hard-earned money, it is better you give yourself some time to plan out an effective strategy to take care of your finances. Following tips will help you to make an appropriate investment planning for ensuring a stable future for your child:

  • Begin early to completely leverage the power of compounding.

  • Define your goals – It is equally important to set realistic goals before you.

  • Understanding the difference between saving and investing.

  • Have full understanding of your plan.

  • Know the importance of risk management.

  • Invest regularly

While you stick to these golden rules, your financial goals are no more a far-fetched dream.

Mr. Ajay Kumar Jain, M.Sc, Chairman And Managing Director
Being the Chairman And Managing Director, he focuses on holistic investment planning and wealth management and tries to make investment planning simpler for retail and HNI investors. Investor education is one of the prime things that Mr. Ajay Jain focuses on as he believes financial education is the foundation of successful investing. With over two decades of experience, Mr. Jain has made a mark in the Indian mutual fund industry due to his compassion and sheer hard work.

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