Rising cost of education: Best ways to save for your child’s future

April 02, 2021 9:17 PM

As parents, it is natural to want the very best for your child – the best schooling, best opportunities in life, etc.

education, higher education, education inflation, best ways to save for children, financial planning, equity investment, mutual fund, withdrawal planEven though education is the most important priority for parents, the costs are a major concern.

By Arindam Sengupta – Co-Founder at EduFund

Education is the key to unlocking the world, a passport to freedom. If you’re like most parents, you want your child to go to a renowned college. At the same time, paying for college is probably one of your biggest financial concerns. As parents, it is natural to want the very best for your child – the best schooling, best opportunities in life, etc. But you see, education is one of the best gifts your children can receive.

It is strongly ingrained among Indians that education is everything, and we want our kids to go to the top schools for their chosen fields. Even though education is the most important priority for parents, the costs are a major concern. They shell out a large portion of their savings to provide the best education. Even the best colleges, in India or abroad, come with a price tag. With the impact of a rising inflation rate, the price tag associated with higher education is often a hefty one.

Financial Planning

Hence, a financial plan to achieve this goal is very important. If you already have children, the earlier you start planning, the better. Especially if you want your child to attend good institutions and abroad. You must begin planning soon as the education costs are only on the rise. The scenario with millennial parents is different. Millennials are saving on average 11 per cent of their income which is significantly lower than the recommended 30 per cent of income, after all, expenses. It is difficult for millennials to save a larger chunk of their salary, given the ever-increasing expenses and splurges made on lifestyle, travel and more.

Start Investing Early

An early start isn’t enough. Parents must also invest right to get optimum returns, if you have 15-18 years left before your child starts college, equity funds should be the preferred investment for you. Over such a long period, the volatility in returns is flattened out. If you have the risk appetite, your allocation to equities can be as high as 75 per cent. A high level of equity is necessary to counter the high rate of education inflation. One should save some portion (irrespective of the SIP amount, no matter how small the corpus is) from an early date so that tomorrow, if aspirations change you can use a loan as a plan B to fill the gap.

How to pay and manage pocket money for your kids in digital age

As a parent, you can look for a better option to invest your money in a plan that can offer good returns in future. Delaying the investment, putting money in the wrong plan or parking it in the bank might not get you the desired corpus. A smart parent would start investing in Mutual Funds in a systematic manner.

Withdrawal Plan

The investment process is never static, especially if you are investing for the long term. We have suggested equity funds for those with an investment horizon of over 12-15 years. However, five years before your goal, you should start shifting money out of equities to the safety of debt. Start a systematic transfer plan from your equity fund to a short-term debt fund (average maturity of 1-3 years). Rego emphasises the need to act conservatively when you are saving for a crucial goal that cannot be postponed. Keep in mind that the date of your child’s admission to college is fixed.

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