The arrival of a newborn is an occasion of great happiness and rejoice for any parents. They have many dreams for securing their child's future, providing good education and requirements. Planning for succeeding children has become very critical, and it has to be started earliest without delaying or ignoring.
Children’s future Goals:
Good educational requirement:
The need for quality education is a must with the increasing competition that determines the career options now and then in the future. However, quality education is becoming expensive, and Higher education costs increase by around 10% p.a. Costs of schooling and higher education in reputed institutions have gone up enormously. If an engineering degree costs Rs 10 lakhs in 2021 and if a child wants to go to higher education in 2039, it will cost Rs 47.96 lakhs at 9.1% annual inflation. Education at foreign institutions costs much more, and parents are not willing to compromise on the same. One has to plan and invest generously in advance to arrange for such massive amounts. Also, please read our article "Plan to achieve unlimited dreams.”
Planning for Child’s marriage:
In India money is spent more lavishly on marriages and especially for girl child’s wedding is a big responsibility. As per Economic Survey 2020-21, headline CPI inflation changed from 6.7% in 2019-20 to 9.1% during April-December, 2020. If a wedding costs Rs 25 lakhs in 2021 and if a child has to get married in 2046, it will cost Rs 220.58 lakhs at 9.1% annual inflation. If one wants to accumulate for the kid's college education, he has to invest around Rs 23,435 per month if fund returns are 8% CAGR. Returns will be more if investments are made in equity mutual fund SIPs.
Planning for business capital:
Along with education/ marriage, most of the parents from the business communities would also like to arrange business capital or seed money for their child's own business when they grow up.
Planning for a house:
A few parents think of planning for a separate house for the child due to rising real estate prices, increasing nuclear families, and smaller homes to accommodate larger families. Planning for education or marriage is more important than business capital or home for children, which needs to be done well in advance. The monthly household expenses quickly rise by up to 15-30% immediately after a child arrives in the family.
Different nature of child's future goals:
The child's future goals are different from the other goals, and the rising costs can’t be estimated with pure inflation figures like other goals as such expenses are subjective. One cannot precisely decide on the institution or nature of which is not driven by inflation but by the quality of facilities, institution, program, etc. In the same way for marriage planning, changes in the way marriages are being conducted now to past. Inflation is just indicative but has to consider the above factors too. So it will be better to assume a little higher rate than the inflation rate while planning for these goals.
Time to maturity:
The maturity of the goal for education can be estimated, but it can’t be decided in advance for marriage. It would be better to consider marriage age on the lower side for planning purposes so that the amount will be ready if needed sooner.
Assurance and security:
A child's future goals have to be planned so that they are secured with assurance against unfortunate events like of death/disability of the parent. These goals should be fulfilled irrespective of any mishap to the parent.
Children’s future planning tips are the same as for all other goals like below.
Start as early: start as early as possible to give time to reap the advantage of compounding power. Also, please read our article, "Compound Interest.”
Choosing the right asset classes: Choose the right asset classes based on the risk appetite and time horizon. Equities are the best for long-term planning. Also, please read our article, "Know your Asset Classes.”
Regular disciplined saving: The habit of regular savings is the best thing for financial prudence to create massive wealth over a longer time. Also, please read our article, "Mutual Fund SIPs for Wealth Creation.”
Financial security: The future of the child can be financially secured with insurance and other similar products.
The main objective of this article is to let you know the importance of planning for a child’s future goals that should be started earliest possible without delay, if possible, with the help of a financial planner.
By Team Wealth ATM
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