How to Save and Invest for Children's Future Education Cost
Written on Saturday, April 8, 2017
By Mitali Sharma
Parents always dream big for their children and they wish to provide their little ones with best of everything, especially education. But inflation in the education sector is a reality that every parent should be well aware of.
According to a report published in Economic Times, the course fee of two-year management course in Indian Institute of Management- Ahmedabad for the class of 2018 will be Rs. 19.5 Lakh. This is 400% higher than the course fee in the year 2007. This accounts to 20% raise on an annual basis. If the same pace continues, then in the year 2025, the fee of the same course will become 95 Lakhs. To quote the news article "At an average running inflation rate of 10%, a four-year engineering course that costs Rs 8 lakh today is likely to set you back by Rs 17 lakh in another eight years' time."
Education is one of those sectors that is witnessing highest inflation. Its average running inflation rate is around 10%. This is resulting in drastic hikes in education fees. So, parents need to be financially prepared.
What steps can parents take to ensure financial stability for the higher education needs of their children?
The answer is simple 'Save and Invest.' The Big question is HOW?
For this parents need to do goal-based investment. Children Education is a financial goal these days because the hike in education cost is much higher than the salary hike of people in general. Thereby, parents need to grow their money by many folds. This may sound like a huge responsibility but if parents do proper investment and most importantly start early investment, then achieving this financial goal gets much easier.
Analyze your need: You need to have a plan, for that you first need to know what are your requirements, how much you wish to accumulate or how much you should accumulate, and then what is your time frame for the investment.
Choose investment product with high potential: Once, you have done your need analysis, you must explore investment options and choose the suitable one. It is recommended to have a mixed portfolio, which should include products with guaranteed returns plus products with higher wealth creation potential. Here, talking about investment products with wealth creation potential, Systematic Investment Plan (SIP) route of Mutual Funds can be your good choice, especially when you are investing for long term.
Start early investment: If you wish not to get perturbed by the future education costs, then start early investing. When you start early, your money gets the power of compounding that can impressively grow your money. For example, if you take the SIP route and invest Rs.4000 for your daughter's future from her age of 1, then you may accumulate up to Rs. 52 Lakhs by the time she turns 23, assuming the rate of return to be 12% and the inflation rate to be 6%. But if you start late, suppose when your daughter is already 11 years old, then despite investing Rs. 7500 monthly, you will be able to accumulate only Rs. 23 Lakhs at her age of 23. So, that is the power of compounding! More time you give to your money, better it grows, even if investment amounts are small.
Invest regularly: Another important thing is to invest regularly, especial if you are investing in marketing linked products. Here, SIP is the best route because it makes you a systematic investor and gives you the benefit of Rupee Cost Averaging.
Regularly review your investment portfolio: Reviewing your investment portfolio is one of the most important steps in regard to investment. For example, if you are investing in Mutual Funds, then you must review the performance of the fund you have invested in. For other investment products in your portfolio, you must review their rate of returns time-to-time.
Give your children security through protection: Secure your child's future by insuring your life. Life insurance gives you the piece of mind that your child's future is secured even in the face any unfortunate circumstance. It is like a security cover that will keep your child's future stable, at least financially.
For any parent, Child Future is a sweet responsibility. Awareness about investment products and a good plan along with professional help, if required, can help you in ensuring financial stability for your children's future educational needs. '