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This Children’s Day, be a responsible parent

Children’s Day is that day of the year when your house ebbs with joyous laughter. For this is when your children wait with bated breath to be laden with gifts. And when the gifts find themselves on their laps, you see their eyes glint with excitement.

But, that joy can be short-lived. All the love you bestowed on them during their growing years may come to nought if you don’t start investing for your children’s future. They might even blame you for being unable to chase your dream. So, this year, instead of looking for the best deals on the internet for PlayStations and X-boxes, how about you start financial planning for their future.

Importance of financial planning

As a parent, it is only natural that you want to provide a good future for your child. But, if you don’t have the finances, your child’s future may get endangered.

You may think that the major expenses come later on in their lives and that you can start planning for them at a later stage. But, such a mindset can be fraught with risks. Last-minute planning like anything in life can be chaotic and difficult. So, why take chances with your child’s future?  

Increasing cost of education

“Education is the key to open the golden door of freedom,” said the great American scientist George Washington Carver. But, that key has become very costly in the modern world. Today, one of the biggest expenses for a parent is the rising cost of education.

Each year, parents have to spend anywhere between Rs 50,000 to even a lakh for their child to get the best education possible. It is estimated that Indian parents spend an average of Rs 12.22 lakh for a child’s education from the primary school level to the undergraduate level[1].

The story takes a sharper turn when it comes to funding your child’s postgraduation studies.

Higher studies, higher costs

The batch of 2017-19 in IIM Ahmedabad has to pay an amount of Rs 21 lakh for the two-year post graduate program[2]. The fees have increased by as much as 7.7% since the previous year. At this rate, the same program would cost at least Rs 30 lakh by 2030. So, if your child is planning to crack the CAT exam, you need to start investing now to avoid a rude shock ten years down the line.

This is not a problem for MBA aspirants alone. Analysts believe that higher education in India has the highest rate of inflation. The costs of engineering and medical seats are also expected to rise astronomically in the coming years. Studies have suggested that a four-year engineering course, which costs Rs 8 lakh today, would easily cost around Rs 17 lakh in eight years’ time[3].  

Here’s how investing will help reach your goals

These numbers might seem huge at the moment but don’t throw in the towel yet. Achieving such long term investment goals is not all that difficult.

For instance, imagine that the required financial goal is Rs 20 lakh. That gives you 14 years to achieve the target if your child hasn’t started his/her primary schooling.

You could kick off your investment journey by investing in mutual funds through systematic investment plans (SIPs). So, if you invest Rs 5,000 in a mutual fund every month, you could earn Rs 21.82 lakh at the end of 14 years (interest rate = 12%).

The best part about SIPs is that you can increase your investment amount every year as your income rises. This can help you reach your goal much faster.

On the other hand, if you start investing later in life, you have put in greater amounts of money to reach your goal. For instance, if you have only 10 years to reach the target, you have to invest Rs 9,400 each month to reach the Rs 20 lakh target. This can put a considerable pressure on your other expenses.

This is why you should start investing as early as possible to ensure that your child has a good education. That way, you can wear the proudest smile on your child’s postgraduation ceremony.

 

[1] http://www.business-standard.com/article/current-affairs/indian-parents-spend-around-rs-12-lakh-on-child-s-education-117070200148_1.html

[2] https://economictimes.indiatimes.com/industry/services/education/iim-ahmedabad-hikes-fees-of-two-year-programmes-to-rs-21-lakh/articleshow/57840706.cms

[3] https://economictimes.indiatimes.com/wealth/invest/how-to-save-and-invest-for-your-childs-education/articleshow/51952339.cms

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