Edition: 19th September, 2021
Curated by the Knowledge Team of ICS Career GPS
- Excerpts from article by Eela Dubey, published on moneycontrol.com
Lack of funds for your children’s higher education can hurt their dreams as well as yours. This could happen for both domestic and international education. It is so important to save for your children’s education corpus. There are other factors too that parents should consider.
Factors to consider while saving for your child’s education corpus:
1. Do not ignore education inflation
- In many countries around the world, the rate of education inflation is much higher – almost double in some popular education destinations.
- Often, when parents plan for their children’s future education, the corpus amounts they have in mind are the tuition rates and living expenses of the current times.
- This rationale often becomes a reason for their child to make painful adjustments later because it doesn’t take into account that tuition fees increase year on year.
- A better strategy is to adjust for education inflation. You can find education cost calculators to help you in this process.
- It is best to use a calculator that accounts for a comprehensive list of factors, including the study destination, the field of education, accommodation expenses and more.
2. Start early
- If you let time slip through your fingers without proper financial planning, watching your child grow up quickly won’t be the only surprise that’ll await you. The cost of their future dreams may be a rude wake up call.
- Starting an investment portfolio dedicated to this goal can have long-term benefits, especially if these are investments in equity-based asset classes.
- With the right amount of time, these investments can compound and yield sizable returns.
- Starting early does not necessarily mean beginning with large amounts at once – even a small amount can go a long way over time.
- The idea is to start soon and be disciplined with your investments.
3. If possible, both parents should contribute
- Having both parents contribute to their child’s education corpus can define how quickly this goal is achieved.
- If both parents contribute a part of their salaries each month, this amount can compound on a larger scale.
- It is possible that the parents may reach their target goal earlier or, in the best-case scenario, over-save.
- Conversely, parents who have many liabilities can think of smaller amounts.
- Partners tend to be more responsible when it isn’t an individual goal but a team one. The consistency and motivation levels remain high.
4. Diversify the education corpus
- It is a general tendency, especially among Indian households, to invest in FDs, gold, and real estate for their child’s education. While these asset classes have been reliable because of their stability, they can be lumpy and illiquid.
- Unlike education, which is a defined event, selling land or property is not – there is no guarantee how long it will take to sell, and at what price.
- In recent months, some FDs have been unable to beat the rate of household inflation.
- For investment horizons longer than 10 years, it’s important to diversify one’s investments.
- Equity markets in both India and the US can help provide significant returns over time.
- If parents are especially set on sending their children abroad, dollar investments can help provide a hedge against the rupee.
- If the rupee continues to depreciate against the dollar, a parent can end up spending more money because it has less purchasing power for a tuition bill in dollars or pounds.
- Diversifying one’s investments into foreign stocks can help a parent earn in dollars and spend in it too.
5. Find yourself the right platform to save
There are three things to narrow down on a platform while investing for your child.
1. Is the platform helping you set the right goals that account for the rising costs of education?
Many goal-based investment platforms arbitrarily look at your risk and time horizon. However, when saving for a goal such as education that is not enough. Make sure the platform you’re using helps you consider inflation, accommodation fee, and the cost of living.
2. Does the platform allow you the option of selecting across multiple asset classes?
While long term investments in equities can help reach your goal faster, some investors may not have that kind of risk appetite. Or they may want to balance their risk in equities against other asset classes, such as FDs.
3. Does the platform offer services to help you think about the entire higher education planning journey of your child?
The planning journey is not solely about finances but also academic readiness. It’s important to see if there are any added benefits like education counselling or help with the admission process that the platform can provide when your child is ready for it.
Whichever platform you choose, ensure that you’re treating your child’s education corpus with as much importance as the other goals that you’re saving for.
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(Disclaimer: The opinions expressed in the article mentioned above are those of the author(s). They do not purport to reflect the opinions or views of ICS Career GPS or its staff.)
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