Children’s Educational Planning is one of the key elements in financial planning, which helps many people to give better education to their Childs in the right time. Unfortunately, in India most of us have not realized the importance and benefits of proper and timely educational planning. This is all because of lack of awareness, huge debts, low income, improper financial planning and lack of need based investment solutions. Till today, most of us have the misconception that educational planning can be done only through insurance plans. But, in this modern era there are hundreds of investment tools which match an individual’s need of educational planning.
I am writing this article with the sole purpose of creating awareness in people by giving certain examples and calculations, which proves the importance and need of educational planning. Through this article, I am trying to give you the clear picture of educational planning, the reasons to plan your child’s educational needs, the different investment tools which facilitate your child’s educational planning and the steps to be fallowed to make your educational plan effective.
Like every parent, you too must be overjoyed to watch your child grow. All parents want to give the best possible upbringing to their children. This includes good education and security, in case of any eventuality. Soon, your little bundle of joy will grow up, and it will be time to provide for his or her higher education and wedding.
The purpose of Children's Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years.
Children's Future Planning acquires added importance because children's education and wedding are high priority life goals, which can neither be postponed nor can there be a compromise on the amount.
Good education has always been the passport to a secure future. Today, career opportunities have grown manifold, and there are many professional courses that your child can aspire for. However, costs of higher education have also increased exponentially.
Like most parents, you might be saving regularly to ensure a safe tomorrow for your child. However, savings alone is no longer enough. For ensuring adequate funding of your child's education, you as a parent need to do two things:
1. Invest appropriate amount systematically and at regular intervals
2. Provide for a financial security blanket to cover any eventuality
It is never too early to start saving and investing for your child's future especially in today's context. For example, the cost of a professional degree today is approximately Rs 2.5 lakhs. If your child is one-year-old today, after 17 years when he/she goes to college, you may require a sum of Rs 6.3 lakhs, assuming an annual rate of inflation of 6%.
There are many products which your Financial Planner can use to achieve the above objectives. For example, he could suggest a Children's Future Plan offered by any good insurance company, to build a corpus for your child's higher education, and provide for a security cover in the event of the parent's unfortunate demise
The reasons for Educational Planning
1. To provide better and dreamed education to your child in the right time.
2. To secure your child’s future even in case of any uncertainties like death, disability, loss of job etc.
3. To accumulate required amount of money for your child’s education over a period of time through systematic and flexible investment plans.
The reasons and needs which prove the importance of educational planning are many. But, it all differs from person to person depending upon you annual income, dreams and aspirations.
The Different investment solutions to plan your child’s education better
The investment tools to plan your child’s education includes,
- life insurance plans
- mutual funds
- long term equities
- Bank deposits, etc.
You need to consider your present financial status, age, family status, expected growth in your annual income, age of your child, your plans and dreams on your child’s future before choosing the right investment tool or before allocating your assets in different investment tools.
I have already discussed about all the above investment tools in my previous articles. Therefore here I am just giving you a brief idea of how these can be matched to your educational plan.
In our country, mothers start accumulating jewellery for their daughters’ wedding from an early age. However, that is not necessarily the best way to use money.
These days, insurance policies play a key role in the financial planning activity revolving around the children. I mentioned earlier that insurance companies offer children’s plans which help parents fulfil their most important financial responsibility towards their children even in their absence – and that is financing their higher education. Children's insurance plans have several variants, the important ones being:
Policies that provide a certain percentage of the sum assured during the closing years of the policy, or a lump sum at its maturity, or the entire lump sum at the early demise of the person whose life is assured (the parent). Reversionary and terminal bonuses are paid at maturity.
Children’s endowment insurance plans under which, the life of the child is insured, and the sum assured is paid out at maturity (for example when the child attains the age of 18, 21 or 24 under different plans). Generally, these plans aim to support the financial requirements for higher education or marriage.
Unit-linked insurance plans allow the policyholder (parent) to choose their premium payment and investment options. The premium is invested in different financial instruments by the insurance company, and the accumulated sum is paid at the time of maturity.
In the event of premature death of the policyholder, the assured sum is paid to the child and the insurance company will pay the premiums and continue the investments on the policyholder’s behalf until maturity.
Children’s plans are offered by both public and private insurance companies. Although the policies of different companies vary in the details, most of them have some common features like:
a. Aiming at securing the educational/marriage needs of the child.
b. Term period of 10-25 years.
c. The minimum sum required is around Rs. 50,000.
d. Most have no maximum sum limit.
e. This investment is tax exempted under Section 80C and Section 10 (10D) of the Income Tax Act, 1961.
Do not liquidate your savings:
If you have successfully built a corpus to secure your child’s future, don’t succumb to the temptation to liquidate it to tide over other expenses.
Without adequate financial planning, you might be able to fulfill your children’s needs, but not their dreams. A bit of foresight can help you achieve both.