How To Save And Invest For Your Child’s Higher Education
Higher education costs are increasing every year. Begin planning now to create the required corpus to fund your child's college education.
By Dr A V Senthil
Why you should plan for your child’s future
As parents, we want to give our children the best of everything, especially quality education. By providing good education, we equip our children for the future, so that they can take care of their material, social and other needs.
However, this is easier said than done. With education costs going up, only if we plan and execute it well would we be able to create the corpus required for our child's college education.
This article highlights some important aspects of planning for your child's educational needs.
Rising cost of education
The January 2019 issue of ParentCircle had a comprehensive article titled, ‘How to Get A ‘NEET’ Entry’. This article addressed students interested in MBBS and their parents. First, let us look at how much it costs to study for a MBBS degree in a private college. Last year, the fees for MBBS in Karnataka was capped at Rs. 6.8 lakhs per annum; it was Rs. 4.8 lakhs for BDS. The fee regulator committee has allowed a maximum of 8% increase over previous year's fees. So, considering other costs as well, the cost of a 5-year MBBS degree would be upwards of Rs. 40 lakhs. In Tamil Nadu, the fees for MBBS in a private college may exceed Rs. 1 crore.
As parents, are we prepared for this financially?
All it takes is a one-time investment of Rs. 5 lakh. I’m sure you are puzzled. Keep reading.
In this three-part article, I will cover the following:
- Do I need support to save and invest for my child's education?
- How do I go about it? What should I know? Is it risky?
- Real life case studies
Do I need support to save and invest for my child’s education?
We have already discussed the likely costs of pursuing MBBS. Now, let us see how much it costs to pursue other courses.
(Courtesy: L&T Mutual Fund)
Note: Except for the top 5% of wealthy parents, I think all of us need to save for our child's education. This is also because, every year, inflation increases the cost of education by ~8% in India and ~3% abroad.
Our goals in life
As parents, we have many goals for ourselves, and our spouse, children, family and friends. Goals for ourselves could include starting a business, retiring from active employment by age 50 (yes, many people working in the IT sector want to retire that young), travel around the world and so on.
We also need to support our spouse emotionally and financially for goals like wedding anniversary, world tour, jewels, ornaments, special dates and so on. But, the two major (and most important) goals that we envisage for our children are education (primary, secondary, under-graduation, graduation, post-graduation, doctoral and post-doctoral degrees) and marriage.
Goals for family and friends could include celebrating parents' 30th wedding anniversary, dad’s 60th birthday and so on.
However, amongst all the goals, the most important goal for any parent is to provide quality education to their wards.
To meet the education costs of our children, we can focus on the following two financial strategies:
- Spend less than we earn, and thus create ‘savings’
- Deploy the ‘savings’ as investments
How do I spend less than I earn if I have erratic income? (for example, professionals, consultants and actors)
Pretty simple. Create a budget and stick to it. We should learn the art of saying no (yes, we have to say no to discretionary expenses like throwing parties and making unplanned trips). Even if we get regular salaries, the first cash outflow should be towards savings, and only the remaining should be spent. However, today, most parents spend first and say that they don’t have any money left for savings. So, when savings are zero, investments are also zero.
The deductions made by employers for provident fund should be for our post-retirement life. We should never mix it up with education expenses of our child.
So, how do I secure my child's education? What are the factors I need to consider while making investments?
We will cover this in the next article, which will be published around March 1st 2019. Keep watching this space! Register your e-mail id and we will alert you when the next article is published.
In the interim, we have created a questionnaire for you which will tell you whether you are prepared fully to meet your number one goal: your child's education.
Key takeaways from this article
- Children's education should be one of the key priorities of parents.
- For newborns, it’s too early to decide their career. This should not prevent parents from investing for their education. The first cash flow every month should be towards investment.
- We should not use provident fund savings to meet education goals
- Cost of education goes up between 3% and 8% every year. Investing in government schemes (for example, PF) or bank deposits, will not generate alpha.
Happy parenting and happy investing!
Disclaimer: The views expressed in this article are those of the author. You can reach him at firstname.lastname@example.org and through Whatsapp at +91-98416-71678 for a free 30-minute consultation with a prior appointment.
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