Raising a child is not a child's play!
Are You Saving For Your Child’s Education The Right Way?
In recent years, Education expenses in India have been inflating at a higher than average rate. The average 5-year annualized inflation for the tuition fees for an MBA course stands at 10%, Engineering courses at 9%, and MBBS at 12%. And what’s more, tuition fees are not the only expenses one needs to save for – there’s also rent for hostel or PG accommodation, books, study materials and what not!
To make matters worse, most of us are clueless about the right way to save for our children’s education. We continue to blindly put away money into “Child Plans” that are essentially Life Insurance policies. Many of these plans provide poor returns that do not even outpace inflation!
What’s the “right way” to save for your child’s education?
Do The Math
Set clear goals in terms of target dates and amounts. Don’t forget to consider inflation!
Start Early
When’s the best time to start saving? The day your child is born! The earlier you start, the more you’ll benefit from compounding
Go Aggressive
You’ve got time on your side. Go for high risk, high return investments such as SIP’s in equity oriented funds. No FD’s, please!
Avoid Insurance
A simple term plan is all you need to protect your loved ones. Don’t get trapped into one of those poor performing, opaque “Child Plans”!
Child education planning: points to consider
Quality Matters
A Georgetown University Report estimates that quality of education could impact lifetime earnings of an individual by 20-50%
Loans = A Bad Idea
Either you’ll be paying EMI’s when you should be saving for your retirement, or your child will get off to a debt-ridden start. Both are bad situations to be in.
Mutual Fund Sip’s Work Best
Mutual Funds can help your savings outpace inflation. Their flexibility will allow you to gradually de-risk as you approach your goal.
FACTS
The class of 2018 at IIM-Ahmedabad will pay Rs 19.5 lakhs for the two-year course. This is 400% higher than what the B school charged in 2007. If the fees for the management course continue to rise by 20% each year, it could cost Rs. 95 lakhs in 2025!
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 eight years’ time. By 2030, the same would cost more than Rs 30 lakh.
