As India celebrates Children's Day on Thursday, a financially secure future for the little champs is presumably a thought on many parents' minds. It is important to find healthy methods to fund big and new chapters of children's lives—from college admissions to even marriage.
With income, cost of living and inflation growing at different paces, many parents may find a mismatch between their children's big goals and their savings.
"Start at T-1. Parents can start planning one year ahead at least. There's loads to think about like schooling. Schooling is ultra expensive in cities like Mumbai," said Mohit Gang, co-founder of Moneyfront.
There are definitely big expenses that parents account for while other simpler expenses that come along. These may include big asks like lavish birthday parties to smaller ones like a toy from the mall.
"I keep my pocket in perspective when he (his son) demands for things. Based on that, I'll ask to delay it or drop the idea," said Dilip Chaturvedi, the parent of a 13-year-old. Even though parents instinctively take calls on the smaller expenses, it is important to plan for the bigger spends in advance.
Financing The Big Fees
A good place to start if the child is below 10 years of age, is to understand how much college could cost. As the next big spend after school fees, the change in expense is steep when the child goes from school to college.
"One can save up an estimate for education. We need to check the current cost for colleges. Inflation might go up to an extent of 10% inflation," said Gang. Taking the current pace of education inflation into consideration, it would not be surprising for college fees to double within the next 10 years.
A Rs 10 lakh fee could be Rs 20 lakh in 10 years. This can be a difficult goal to strive towards and returns may be uncertain, Gang said. With the need for large funding needed at junctures like this, its important to plan where these funds can be pulled from.
In the cultural context, there may be cases where parents are ready to take money out of their retirement corpus to pay for their children's college fees. Though some may be comfortable doing this, it is not a healthy way as all the corpus is compromised despite other options being available.
"I wouldn't touch my retirement corpus but would take a loan," said Chaturvedi.
Taking this route rather than dipping into the savings is better, according to Gang. "There are benefits to education loans and it is not ideal to cut oneself out."
Gang recommends that parents start an SIP under their child's name itself. He also suggests that maintaining a diversified portfolio is better than buying solution-oriented funds.
Watch the full conversation here:
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