Remember the old children’s fable about the ant and the grasshopper? The ant planned for the future and saved up food and resources. Meanwhile, the grasshopper decided to live in the moment and enjoy the spring. Then, when winter came, the ant was warm, well-fed and secure. The grasshopper, not so much.
As new parents, you may feel like you have years and years left to make education plans for your children’s future. But do you? Or are you setting yourself up for the grasshopper’s fate? Long term plans are the best way to produce high and reliable returns; the earlier you start, the better.
An investment in knowledge pays the best dividends.”Benjamin Franklin
Creating a solid education plan for your children is the best investment you can do for them. But what does education planning in India entail?
Savings Only Go So Far
‘Well’, you say, ‘we already have a savings account in our child’s name. Do we need to do more?’ The answer is yes because savings only go so far. While they are great as an emergency fund to cushion you in a sudden financial crisis, when creating an education fund for your child, they fall short.
The main reason for this is, savings do not generate wealth. A savings account helps you preserve and protect money you already have, but the interest on these accounts is not enough to generate wealth in the long run. Meanwhile, the costs of education in India and abroad continue to rise. If you have plans of sending your child to study abroad, simply saving will not help you.
Investing, on the other hand, is an instrument of wealth generation. By putting your money in assets that appreciate over time, you are compounding your wealth instead of simply holding it idle. Investments also offer higher returns, helping you reach your financial goals quicker and much more easily.
Always Plan for Inflation
Education costs are rising. Tuition fees for college abroad are rising even more. According to Forbes, the cost of an undergraduate degree in the United States has risen by almost 500% between 1985-86 and 2017-18. This is even higher than the rate of inflation in the US in the same time period.
Keeping these numbers in mind, your plans for your child’s future must keep this inflation in mind, especially if you want them to study abroad. This is another reason why savings are not a good option for child investment plans.
As the value of money depreciates due to inflation, your savings lose value. You may have Rs.5 Lakhs saved right now for your child’s future, but the value of Rs. 5 Lakhs will have changed in the next 10-15 years. Will your savings be as valuable or useful for you or your child then? Likely not.
A much better way of combating inflation is investing your money in assets that are likely to appreciate over time. This way instead of devaluing your money, inflation can help you generate more wealth. If you want to invest in stocks and bonds, mutual funds, ETFs, etc., are an easy way for beginners to ease into the market.
SIPs Can Be Your Friend
SIPs, also known as Systematic Investment Plans, enable you to invest in mutual funds on a regular and timely basis. SIPs help in creating a regular mode through which you can invest small sums, periodically, instead of a large lump sum, all at once. This is an invaluable advantage for small investors because it enables you to invest when you may not have a lot of capital on hand. You can start an SIP investment scheme for child education for as little as Rs. 100 a month.
SIPs are ideal for long term investment and goal based investment planning. After all, regular investments are key to long term financial planning. By keeping faith and investing regularly, even if the markets fall temporarily, your investments will rise in the long term when the markets correct. This was the experience of SIP mutual fund investors who continued to invest in their plans during the 2008 recession.
SIPs also offer automatic deductions which ensures you never miss an installment.
Consult a Professional
So how do you start investing for your child’s future? Beginners may find the stock market too complicated, too intimidating and too risky at first. But don’t go hiding into your comfortable cocoon of savings just yet. It is true that investing comes with market risks, but if you have the right people and the right advice by your side, you can create a foolproof investment strategy.
Think about it this way, when your child is thinking about applying for colleges but is unsure of which college or degree will be the best fit for them, what do you do? You may offer them your own input and advice, encourage them to talk to friends, seniors and teachers etc. You may also hire a professional education counsellor to offer counselling and advice with EduFund.
Similarly, when you are unsure of yourself and about how to start investing for your child’s education goals, consult a professional. If you are worried about the high fees a professional financial advisor may charge, you can look into consulting a financial advisory app like EduFund. An advisory service that specialises in education planning can be extremely helpful for you.
Always Put Your Child First
This is probably the most important part of any planning you do for your child. You must always put your child first. It is easy to superimpose your own dreams and expectations on your children, especially when they are young. Remember that you are planning for the sake of their hopes and dreams and not yours.
Be supportive and mindful of what your child wants. You should talk to them regularly about their future and what they have in mind. Tell them, especially when they are older, about the steps you have taken for their future and ask them if those steps align with their dreams. It doesn’t make sense to plan for medical school if your child has an artistic bent of mind.
Keep in mind that your children are the real stakeholders here.
Child investment takes many forms. Every parent wants to raise their child to his or her highest possible potential. Reaching that potential can take quite a bit of money and this is why education planning and fundraising is important.
Investing for your child’s education is a long term goal that will require patience, faith and reliable advisors. Research your options thoroughly, talk to the right people to get the right advice, and invest in the right places. With the right plans in place, no goal is too far.