You must be thinking about a gift for your child this Children’s Day then why not assure their bright future. Only right Educational Planning can ensure the availability of Funds at the time when they are ready for higher studies. There are many instances where the child is forced to drop out from college or even unwillingly given up their dream of studying abroad in their dream colleges or universities. Let us discuss the topics to keep in mind for proper Education Planning.
Education Inflation:
Whether your child chooses to study in India or abroad, educational or university inflation is the real thing – an indicator that will make or break your dreams. This inflation is an indicator of the rocketing educational expenses calculated over a period of time. Over 30 years ago, the school fees would range from Rs 400-500 per month. Fast-forward to 2021, the average expense per month for one student living in the metro cities would be Rs 12,000 – Rs 18,000 per month including transportation, tuition fees, extracurricular activities, etc. In India, education inflation stands at 11-12 per cent.
A report by the National Sample Survey Office (NSSO), the cost of education burgeoned by 2.75 times in 2014 when compared to 2008, whereas our incomes (indicated by per capita income) increased only by 2.49 times. In a context of university education abroad, the tuition fees have increased by 16 per cent over a period of 2011-21.
Hence, if your child wants to pursue his/her higher education in a reputed Ivy league college whose fees would be around Rs 1 core today, would multiply to a much higher amount of over Rs 4-5 core in the next 15 years. Even in the post-Covid era, where the majority of the learning modules are online where the universities are incurring minimal operating expenditure, there is no sign of relief in terms of the fee structure.
Alternatives of arranging fund for your child’s education:
You must be thinking about Educational Loan but do you want your child to start his career with the burden of EMI on their head?? Banks also ask for a Guarantor in Educational loan and if in economic downturn where there is a scarcity of employment you could have sleepless nights. Also arranging funds from Retirement Corpus can severely affect your post retirement lifestyles.
Steps towards your child educational planning:
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Decide the time Horizon: Calculate the number of years left in Graduation and Post Graduation. With the approximate number of years in mind, you can decide the time horizon and start investing at the earliest.
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Estimate future cost of education:Consider the current cost of education and calculate the future cost taking inflation and number of years left into factor. Suppose if the present cost is Rs25lakh, Inflation is 12% and time left is 15 years for Graduation then the approximate cost will be Rs 1.37 Core after 15 years.
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Assess your Existing Assets and Liabilities:List down all your assets and liabilities to know where you stand today to plan accordingly. So if you have already invested any amount in any asset class, you must reassess its current value and rate of return. If you have invested in a debt asset you may reconsider or equity investment if you more than 5 years horizon.An important thing to bear in mind is that you must avoid dipping into the investments made for other financial goals, especially your retirement corpus, while planning for your child's education.
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Know the amount to be saved: Once you know the approximate cost of education, decide how much you need to save now or a monthly contribution required to achieve this goal on or before time. The easier way is to put aside some money towards each goal in a systematic manner. You can either opt for the Systematic Investment Plan in mutual funds or plan for lumpsum. The idea is to put aside some money regularly to meet these goals. Save and invest regularly so that you don't have to take loans, which can prove to be a costly proposition in the long run. Try to save a larger proportion of your monthly income if your current savings are insufficient. If it's posing to be a challenge, the first thing you should do is reduce your household and personal expenses by snapping the unnecessary ones altogether or find an additional source of income.
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Plan Your Investments Smartly: You need to invest your hard-earned money in suitable investment avenues depending upon your asset allocation pattern and risk appetite to counter inflation and increase the value of your portfolio. Make sure your asset allocation is just right to accomplish your child's education goal. For an investment time horizon of greater than 5 years, clearly park the money in equity mutual funds as they have the potential to provide higher returns over the long run. But as you near your goal, rebalance your investment portfolio gradually towards fixed income or debt. A well-planned asset allocation scales up your portfolio returns exponentially. It can also act as a shield to protect its value during uncertain economic conditions and market volatility.
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Get Yourself adequately insured: Have you considered what will happen to your dream of giving your child the best possible education, in case you have an untimely death or meet with an accident that impedes your physical ability to earn? One of the biggest potential setbacks to a child's education is the demise of the breadwinner in the family and the lack of insurance. Ensure that you have enough life and health insurance to at least cover the tuition fees of the school and college your child will possibly attend.
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Prepare yourself for unexpected: Always prepare yourself for additional costs such as accommodation, pocket money, tuition fees, and so on. Whenever your child enters high school, there might be many other expenses apart from school and tuition fees. These other expenses may seem small, but when put together, they will add up to a huge figure. This is even more relevant in the case where you want your child to undertake any graduate or post-graduate courses overseas. This is because when your child finally gets admission, you will probably find that there are a number of additional costs unaccounted for. Even after forecasting and planning for all of these expenses, it would be prudent to have some buffer for unforeseen expenses.
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Get started Right Away:Last, but not the least, start now. If you save and invest early, you will have a longer time horizon to meet your goals and build a bigger corpus enabled by the power of compounding
Conclusion:
Educating your child well, as a parent is one of your most important duties. Don't forget that education is imperative to secure your child's future.Follow a sensible approach to fulfill your responsibilities towards your child's education. Don't follow the herd, because each one's financial health, circumstances, goals are different. Also avoid pre-packaged insurance or mutual fund plans. Many of these "childcare" investment plans turn out to be nothing but costly Unit Linked Insurance Plans (ULIPs). Often ULIPs and endowment plans don't offer adequate insurance, and nor do they generate adequate returns which can counter inflation. Always maintain an adequate insurance cover to cater to the expenses of your children (such as marriage or pursuing higher education). Remember, it is prudent to always keep your investments and insurance separate.
" It's better to look ahead and prepare than to look back and regret.”
Contact us for your child Personalized Educational planning or your comprehensive Financial Planning.
Prepared By,
Somen Mazumder
CFPCM, CII Award Uk, MBA(Fin)
Chief Planner - Fundvestment
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