A 4-point Child Education Planning Checklist For Indian Parents
Here's a 4-point checklist to get you started on the right track
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As a parent, providing your children with a world-class education is bound to be one of your highest-priority Financial Goals. And why not? In today's hypercompetitive professional environment, a quality degree can provide your kids with a vital edge to get ahead. The problem - a good education typically doesn't come cheap and saving up enough will require you to steer clear of a few common pitfalls that most Indian parents fall prey to. Here's a 4-point checklist to get you started on the right track.
Prepared a Roadmap?
A recent survey conducted by Aviva Life Insurance titled 'Aviva Plan India Plan survey 2017' unsurprisingly proved that big dreams notwithstanding - Indian parents fail to plan ahead. The survey consisted of two indices - the "Dream Index", which reflected our degree of awareness about our life goals, and the "Plan Index", which measured just how well financially planned Indians are towards achieving these goals. While the Dream Index for the topmost tier of those surveyed stood at 61, the Plan Index stood at a rickety 24! The first - and obvious step, therefore, would be to prepare a roadmap by charting out the amount required, the goal date, and other important parameters.
Factored in Inflation?
While setting the target amount for your goal, make sure you don't ignore the impact of inflation on the future value of the goal amount, as most people do. An amount that seems sufficient in today's terms may prove to be woefully inadequate when your goal date arrives. Failing to plan properly may lead to your having to unwisely dip into your retirement fund, or to take out expensive education loans. Don't be daunted by a seemingly high number - if you've got time on your side, compounding will work it's magic if you begin early and maintain savings discipline.
Started Mutual Fund SIP's?
When it comes to creating wealth for your long-term goals, few savings tools have the potential to outperform Mutual Fund SIP's. Although they do not provide linear growth like Fixed Deposits or other fixed income instruments, they have the potential to help you benefit from the ups and downs of the market in a big way. If you've got time on your side (for instance, if your child still has five years or more to go before her higher studies), go for SIP's in aggressive small- cap or and mid-cap oriented funds, regardless of your risk tolerance. Don't let risk aversion come in the way of your benefiting from the long-term compounding that could accrue from more aggressive funds, as volatility actually works in your favour over the long term.
Protected your Goal - correctly?
Protecting your Child's education planning goal simply involves upping your term life coverage by an amount that is equal to the present value of your target amount, discounted by a reasonable rate of return - say, 10%. A Financial Planner can help you arrive at this number. For the term plan that you're earmarking for this purpose, make sure you appoint a trusted person as an appointee, who will receive, invest and deploy the sum assured in case of your unfortunate death. Furthermore, make sure you close loop your goal protection strategy by drafting a will, clearly mentioning the sole purpose that the policy proceeds must be used for. Make sure you steer clear of "Child Plans" that aim to combine protection and savings, though.
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