Certified Financial planner, Child Education Planning

How to plan for your child’s education?

Introduction

Child education planning, With the steep rise in prices, the cost of living is rising day by day. This has not only impacted our lifestyle choices at present but also has made to think if this is the present scenario, what will be the case few years hence? What will happen when our kids will be ready for higher education and we won’t be having enough funds to finance their higher education?

Planning, hence, becomes a priority, not only for yourself and related to your life, but also for your dependents. Hence, not only you have to plan for your retirement or long-term goals, but also for your child’s education, marriage and other goals related to your ward. Further, things become difficult if your parents are also dependent on you.

Planning for your child’s education should be your priority, only after your retirement.

Child’s Education Planning- What it is?

As already discussed, the cost of living is increasing at a rapid rate. Hence, you have to start planning at the earliest for your child’s education, especially when the course fee for under graduation and post-graduation are skyrocketing.

You have to plan for the same at the earliest.

As per data, In the last Few years, Education costs in India have been blowing up at a higher than normal rate. Furthermore, additionally, educational cost charges are not by any means the only costs one needs to put something aside for – there’s likewise lease for an inn or PG convenience, books, contemplate materials and so forth!

You have to consult your advisor so that you make an informed decision and plan your expenses keeping in mind the time horizon and the amount you can afford to invest.

This investment should be made keeping in mind the overall expenses and not just tuition fees.

Why child education planning is necessary?

child education planning

As already discussed, education costs have been rising at an alarming rate.

If data is to be believed,  class of IIM A of 2018 has paid 2 yr fee that is 400% more than that of what premier B school charged in 2007. If it continues to grow at the same pace, it will cost approximately Rs. 90 lakh in 2025.

This is not just the case with post graduation courses. Consider the case of Indian Institute of Technology. The tuition fees was Rs. 90000 a few years back. It has been now hiked up to Rs. 2 Lakh per annum. And here, we are considering only the tuition fees. 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.

This is the scenario now. By 2031, this would cost more than 30 lakhs.

So if you have not planned well for your child’s higher education, then you’ll probably have no option left other than opt for a education loan.

The rising education costs are indeed a wakeup call for those who have not yet started planning.

How to plan your child’s education?

Deciding the time horizon is perhaps the first step in any financial planning process. Sooner you plan, the better it is.

For example, if your child is just 3 or 4 years old, he or she has good 13 years at least to go for graduation. Hence, you can invest accordingly, without letting it affect your pocket. However, if you start planning when your child is 13 or 14 years old, you have to invest huge amounts, keeping in mind your risk appetite and the kind of course, your child wishes to go for.

Next comes the kind of funds you want to invest in. Although it largely depends on time horizon, you can choose to alternate with the help of your advisor. You have to choose a perfect mix of equity and debt so that you can derive maximum returns at the lowest possible risk.

You can calculate the funds required through certain financial calculators. The funds required will be calculated on the basis of:

  • the age of your child
  • the age he/she will join college
  • duration of the college years
  • Cost that will be incurred per annum as on today
  • Existing corpus (if any)
  • Expected rate of return
  • Expected inflation rate

Conclusion

For your child to get a higher education, planning no doubt is a must. One must consider time horizon, i.e., how many years are there for your child to enroll himself in graduation. The sooner you start planning and investing, the better it is. Because in the case of SIP, you’ll reap the benefits of compounding. Further, with the help of Certified Financial Planner, you can choose the right mix of equity and debt, so that you can gain maximum benefits as per your risk appetite.

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