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Planning is essential as we
all want to have a quality lifestyle and a quality lifestyle
comes with a price. Planning helps set clear goals, develop
plans for such goals and maintain the discipline to achieve
them. As parents, we will always desire that our children
lead better lives than us and hence planning for a child’s
future is critical.
Ideally, parents should start
planning for their child soon after the child’s
birth. There are several reasons for the same:
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When the child is born, there are several festivities
in the household and invariably, the child is showered
with gifts, monetary or otherwise. Hence, there
is a critical mass of wealth already gathered post
the child’s birth to start the process |
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As the child grows older, the needs of the child
grow and unless proper planning has gone into the
financials, often parents find their finances in
a mess |
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It is always better and easier to put aside a small
amount of money every month for the child. With
compound interest working, the small amounts will
grow themselves to a lucrative financial plan for
the child |
Parents usually
believe in the concept of saving for the child; however
often that intention does not translate into real action.
What that means is: parents believe that all their finances
will anyway be inherited by the child hence there is no
need to separately plan for the child. This is an incorrect
belief since proper financial planning is crucial to ensure
there is enough money to finance the child’s future
education/ marriage, etc.
Formal financial
planning for the child can be done in the form of opening
a savings bank account in the child’s name. Several
public and private banks provide the option of opening
‘minor accounts’ in the name of the child.
Also, increasingly, banks are providing exclusive packages
for opening special bank accounts for children and investing
through those accounts.
Parents should
actively avail opening these accounts for their children
and regularly deposit money in the accounts. Furthermore,
parents should not only use these accounts to build savings
balances but also use the ‘systematic investment
plan (SIP)’ scheme to invest for their children.
What this means is: parents can decide and put Rs.1000
every month in SIP, which is a small amount on a regular
basis. Over a 20-year period, this monthly deposit of
Rs.1000 will result in a sum of Rs. 7.9 lacs!!!! Ain’t
that great and all that requires is putting aside a monthly
sum of Rs.1000 in the name of the child.
Mostly parents
are very skeptical in putting money in the stock market
since they believe that it is a high risk element and
they do not wish to risk the money being invested in the
name of the child. Hence, most savings done in the name
of the child lies either in PPF or savings account. The
SIP plan helps parents achieve two goals:
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Parents can set aside small amounts of money regularly
instead of lump sum amounts periodically |
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The SIP plan invests the money in selected market
funds, which typically yield higher return than
savings interest rate. Yet, the volatility of the
market is evened out due to long term nature of
the investment; hence there is no ‘stock market’
related risk to the investment |
As the child
grows older, financial planning done from an early age
becomes a parent’s asset. It allows the parents
flexibility to provide the child with better education;
send the child abroad or even ensure a lavish marriage
as the case may be. All the youth dreams and desires of
the child can be fulfilled using the finances gathered
rather than stressing at the time of immediate need.
The chart
below details the education expense for a child papa.
By 2025 and clearly gives only one message – START
SAVING NOW, IF YOU HAVENT STARTED ALREADY!
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