Moneymanagement’s Weblog

Building a financial plan for your child

Posted in investment, mutual fund by moneymanagement on July 9, 2009

When it comes to raising children, money is limited, and demands far exceed the supply. Your child, being the centre of your universe, is going to drive a lot of the financial decisions of your household.

From the moment your child is born and even before, if you consider the doctors visits and preparations for the arrival of the child it’s at least 20-25 years before your child can start earning, and is financially independent.

Bringing up a child takes more than can you imagine. Babies tend to outgrow things even before you buy them. As they grow older, peer pressure works not just on the kids but also on the parents. Isn’t it you who also want your kids to wear branded clothes or join a class that is popular? While it is laudable that you want the best for your child, it’s expensive too.

The cost of children’s education is one of the largest expenses that parents face so it’s crucial to start saving as soon as possible. Just the college years will cost you anywhere between Rs. 6-12 lacs depending on the course your child does and her/his   spending habits.

So on a rough estimate an upper middle class family would spend at least Rs.20 lacs on the child’s upbringing, education and to ‘settle the child’.

This estimate is at current levels of cost of living. We have not yet factored in the raging inflation.

Planning for your child’s education in the same way you would plan for other big life events will help enable you to secure your preferred education choices. While education can amount to one of the highest expenses you will incur for your child, it can provide the means for them to pursue a dream, prepare for future success and fulfil their potential.

Where to invest

Financial planning for children should start as early as possible.

There are various ways to save for your child

  • Savings accounts and fixed deposit accounts
  • Insurance plans for children
  • Mutual funds for children
  • Investing in the stock market for long term gains
  • Informal investments like chit funds, buying gold, property etc.

No matter which is your preferred avenue of investment, you need to ensure that you set goals and work steadily toward them.

This article first appeared in Moneylife magazine