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Financial Planning for Child’s Education



“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” – Malcolm

In India, everyone firmly believes that education is everything. We want our kids to go to the top schools and support them in what they want to do. We understand the importance of good education, but the cost is a concern. The cost of education is increasing at a high rate. As per a report in Financial Express, education inflation stands at 11 to 12%. Let us understand the impact of this inflation.

Assume your son is three years old, and the cost of education today is Rs 5 lakh for the courses you assume he may get enrolled in. You have 15 years before your son gets ready for graduation. Assuming 11% inflation, the education cost will be approximately Rs 24 lakh. Financial planning for a child’s education becomes essential to beat high inflation.

Steps you must follow

You can follow the below steps to start financial planning for your child’s education:

  • Know the time: The first step is to know how much time you have for your child’s graduation. The longer the time horizon, the easy it is for you to plan for it. You must not delay and wait for the last hour to start planning. It is one of the essential and mandatory financial goals, and you must plan NOW.
  • Find the cost of education: It is one of the toughest questions to answer as the education cost will depend on many factors. The first question to answer is whether you plan to send your child to a foreign university or you want them to graduate in India. There is no way you can predict – the course your child will enroll in the future. You can only assume – your child will be in a profession similar to yours. For example, if you are a lawyer, check the cost of this field and factor in inflation to calculate the education cost in the future. You may need a lot more or less depending on what your child is interested in doing, but it is a good starting point.  As the child gets closer to their 10th/12th standard, one may be able to plan based on your child’s interests.
  • Know the amount that needs to be saved monthly: Once you know the amount for education, you must decide the amount you need to save and invest to reach the corpus. If the goal is far away, the easiest way is to opt for regular monthly investments. Your goal should be to put aside some money regularly to meet your goals. Assume you are unable to invest the required amount for a child’s education. Then, you must try to reduce your household and personal expenses or find an additional income source. Taking the help of your financial advisor is one of the best things you can do. You can achieve your goal with a lower investment amount with proper guidance. They have expertise in balancing the risk and the reward.
  • Plan your investments smartly: This is the most crucial step in financial planning. You have to decide where you will invest to achieve your goal. You need to invest your hard-earned money in suitable financial instruments depending on your risk profile and investment horizon. You will also need to follow asset allocation. When the goal is far away, you can make most of your equity investment. As the financial goal nears, you have to move gradually from equity to debt – rebalancing is essential. If you think you cannot do it yourself, get in touch with Right Horizons. We have expertise in financial planning.
  • Prepare for the unexpected: Like any other journey, you may have unexpected turns in your financial journey. You should be prepared for them. Figure out what happens to your goals if you have an untimely death or an accident and can no longer earn. One of the biggest setbacks to a child’s education is the death of the only breadwinner in the family, and there is no insurance. Have enough insurance for your life and health. The coverage should be able to take care of your family’s future needs and also take care of your child’s education. Investing in plans that offer a child’s education protection option (for example, ULIP) can also be considered. A financial advisor would be the best person to tell you which is the best option to secure your goals.

Start now

The last thing or the first thing you must do is to start NOW. One way to surely not achieve your goal is procrastination. Since it is a mandatory financial goal, you should start it as soon as your child is born. You can save and invest early since the longer the time horizon, the easier your financial journey becomes. The power of compounding works magic for you.

If you have any questions about your child’s education planning, get in touch with us. Right Horizons has a range of products to share your burden and you to secure your child’s future.

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