Know how to financially secure the future of your children


Indian parents always make every effort to provide quality education to their children. However, quality education is becoming more and more costly. This article discusses the ways to financially secure the future of the children. Guardians must read the article to find the solution to cope up with the rising cost of education for their children.

Every Indian parent aspires to give a better future to the children. In fact, a significant amount of their earnings go for providing quality education to their children. And quality education comes at a cost. The cost of quality education has been increasing by leaps and bounds in India. A couple of years ago, Associated Chambers of Commerce (ASSOCHAM) carried out a survey of Indian parents regarding the increasing cost of parents. As per the findings of the survey, Indian parents used to spend an amount of Rs. 35,000/- per year in 2005. This has gone up to Rs. 94,000/- per annum in 2011. The amount includes school fees, transport, books and stationery, educational tours, tuition fees and extra-curricular activities. Another study points out that an average middle-class parent spends around Rs.fifteen lakh on academic expenses up to XIIth standard. The amount touches almost fifty lakh per single child if we consider higher education costs.

So, the question which automatically comes to our mind is: How to manage the ever-increasing education cost for the child/children? How to ensure the continuation of education of children if any untoward incident happens in future? This article attempts to find an answer to the question.



Take an adequate term insurance

Nobody can have previous information about emergency. An untoward incident can happen anytime. So, we must be prepared for such emergency. We must also plan in advance to financially secure our near and dear ones in case of the death of earning members. So, what is the solution? The answer is term insurance. Term insurance provides a protective cover to our near and dear ones in case of our death. Every earning person must take a term insurance policy of adequate amount. Further, term insurance policy must be taken at the earliest so that the premium is less. The early the term insurance is taken, the less would be the amount of premium. An earning person must calculate the amount estimated to be required in next 20-25 years and take a term insurance policy with adequate cover. Absence of parent is no doubt an irreparable loss to the children, but the parent can at least financially secure the future of the children which includes the cost of education of the children. Additionally, term insurance is also tax-friendly and helps an investor to save tax under Section 80C of the Income Tax Act.

Coping up with increasing cost of education

Next comes the question: How to cope up with increasing cost of education? The answer is to choose a suitable mutual fund and start a Systematic Investment Plan (SIP) to accumulate adequate amount for managing the rising education cost. Now, which fund is to be chosen? If the target is the higher education of child/children after more than ten years or so, an equity-based hybrid mutual fund is to be chosen. An equity-based hybrid mutual fund keeps 65% or more in equity instruments and the remaining amount in debt instruments. In these funds, the volatility is comparatively less. If the parent starts a SIP for ten years, then he can expect a return @10% or more per annum. If the SIP amount is adequate, then an equity-based hybrid fund can accumulate a reasonably high corpus which would be sufficient for higher education of children. Equity-based mutual funds are also known as balanced funds, and investment for more than a year does not attract any tax on the return.

The parents may also take into consideration various children's funds. These funds are basically debt-oriented hybrid mutual funds, which are relatively safer than equity-oriented hybrid (balanced) funds, but the return is marginally less. Moreover, these children's funds are not very tax-efficient. Investment in Children's funds is recommended when the time-horizon is less than ten years.



Summing up

In order to secure the future of the children and to provide quality education, responsible parents must take term insurance policy and start SIP in a suitable mutual fund immediately after the birth of their children.


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Comments

Author: DR.N.V. Srinivasa Rao08 Mar 2018 Member Level: Diamond   Points : 3

Insurance is the necessity these days. A term policy is to be taken by an individual to cover maximum amount possible so that his family will be able to maintain the same standard of living in which they are living during the father's care. This should be planned in such a way their children's education will not suffer due to the unforeseen calamities.
Another point is to see that the children will have a good financial discipline during their studies itself. The parents should educate the children about the importance finances in the life and how they have to maintain their finances so that in case of any problems like unexpected ill health can be managed without any problem. They should also tell them how important to know what is the necessity and what is a luxury? From their school days itself, children should be taught the process of spending on necessity.

Author: Natarajan10 Mar 2018 Member Level: Diamond   Points : 5

A good suggestion about term insurance policy for parents. One can choose a term policy that can help the children in the event of the untimely demise of one of the parent/earning member. It should be taken at an early age and also when he/she is drawing a good salary, because as age advances and if the annual earnings have dropped, then it would be difficult to get a term policy (we need to have income proof that we can pay the premiums).

Complex calculation software programs are available with the financial planners who can actually give you an estimate of how to save based on the age of the parents and the children, the family's savings, income and expenditure related figures. Once we have a rough idea of how much is needed then we can plan or modify our children's education chart.

Mutual funds and government schemes (especially for the girl child) are worth considering. Once can always avail an education loan for children to bridge the time gap when the investment maturity and health do not correlate well with the time funds are needed. Lastly, it is useful that the spouse and a responsible family member knows about the plans we have made for the children.



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