Smart Financial Hacks Every Parent Must Know For Their Child’s Education

Smart Financial Hacks Every Parent Must Know For Their Child’s Education

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Financial Tips Every Parent Should Follow to Plan Their Child's Education

A robust education forms the cornerstone of your child’s growth and future accomplishments. Like most parents, you’re determined to provide them with the finest learning opportunities. However, education inflation, which refers to the rising cost of education over time, is surging at twice the rate of overall expenditure increases.

In terms of escalating prices, a recent BankBazaar analysis highlights that, while consumer price inflation (CPI) has been approximately 6% over the last decade (2013), the rate of inflation in education has been substantially greater, at roughly 11-12%. This could be an indication that education expenditures would double every six to seven years.

To illustrate education inflation, the report titled Inflation, Education, and Your Child used the example of a two-year MBA program at a premier business school that cost Rs. 3 lakh in 2003, Rs. 16.6 lakhs in 2013 and Rs. 24.6 lakhs in 2023, amounting to 11% inflation per year over 20 years.

Given these dynamics, starting to save for your child’s education might seem like a formidable challenge. To achieve this objective, you must factor in all relevant elements, including the cost of school inflation when considering investment options.

You must have a clear idea of how you’ll cover your child’s educational expenses, spanning from pre-kindergarten through college. Let’s explore some critical student financing choices that can support your journey.

Also Read: How To Help Your Financially Struggling Parents?

Analyze Your Budget

Education expenses can quickly accumulate, so it’s crucial to keep your budget in mind when planning for your child’s education. Public colleges are often more affordable, whereas private institutions tend to be costlier. Even homeschooling comes with expenses, such as curriculum materials and extracurricular activities. Hence, when it comes to student financing, comprehensive research and cost comparisons across various options are essential for effective planning.

Commence Early Investments

Initiating investments for your child’s education as early as possible provides your money with more time to grow. This means that even modest contributions over time can accumulate into a substantial sum. Allocating funds for your child’s education serves as an excellent introduction to saving and investing practices, laying a solid foundation for financial stability in the years ahead. Create a comprehensive strategy specifying which educational expenditures your plan covers and which depend on the funds you’ve set aside.

Explore Unit-Linked Insurance Plans

A unit-linked insurance plan (ULIP) for your child’s education offers a payout only upon policy maturity. ULIP is a long-term investment that blends insurance coverage with financial growth to safeguard your child’s educational future. A portion of your premium secures life insurance, while the rest is invested in either equity funds or the debt market. ULIPs provide both insurance protection and investment opportunities. If you’re concerned about market volatility affecting your wealth’s growth, consider this option.

Maintain a Long-Term Investment Strategy

Several investment alternatives exist, including gift funds and loan funds. Opting for mutual funds or direct stock investments necessitates a longer-term commitment. Children’s gifts, another investment avenue with a lock-in period, allow parents to engage over extended durations while benefiting from the power of compounding. Deliberate on your objectives, the time horizon, and your risk tolerance. For short-term goals (less than three years), explore debt mutual funds, fixed deposits, recurring deposits, etc. For long-term aspirations (more than three years), investigate equity mutual funds, equity exchange-traded funds (ETFs), gold bonds, and mutual funds, among others.

PPF for Your Child’s Future

The Public Provident Fund (PPF), a 15-year investment plan, offers tax-free investments. Consider opening a PPF account in your child’s name to earmark funds for their Indian education. PPF permits partial withdrawals after six years, offering a combination of reasonable returns and tax benefits. The government ensures the security of PPF investments, though note that authorized authorities can link appropriate accounts to recover tax debts.

Diversify Your Investments

As the ideal asset type varies from person to person, there’s no one-size-fits-all solution. Diversify your portfolio by spreading investments across various asset classes. This entails contemplating stocks, bonds, real estate, and other relatively stable options like utility stocks or private equity funds. While private equity funds often offer superior interest rates compared to bonds, they entail lower risk due to reduced volatility when compared to stocks.

Review Your Investments

Regularly assess your investments to ensure alignment with your financial objectives and optimize returns. Keep in mind that markets don’t always behave as anticipated. If you detect deviations from your intended path, consider adjusting your portfolio accordingly.

Leverage Government Initiatives

The Indian government supports children’s education through a range of initiatives and grants. Investigate and utilize these programs to significantly reduce student education loan costs. Some of the programs include Sukanya Samriddhi Yojana, Central Sector Interest Subsidy Scheme (CSIS), and Vidya Lakshmi Portal. Additionally, you should explore several student education loan options featuring low-interest rates and flexible repayment alternatives.

Student financing may initially appear daunting, demanding careful planning and forward-thinking. However, by initiating early and developing comprehensive plans, you can streamline the process for both you and your child.

Also Read: 7 Things You Should Do When Your Parents Haven’t Saved for Your College

It’s not a wise decision to sacrifice your retirement plans for your child’s education. If your savings aren’t enough to cover both goals, taking out an education loan is a better option. Depending on your risk tolerance and financial situation, you can consider a student education loan with or without collateral.

Student education loans won’t disrupt your financial planning because your child takes on the responsibility of repayment once they’re employed. This approach teaches financial responsibility to your child, helping them understand the importance of budgeting. As parents, you can have peace of mind knowing your child’s future is secure. Whether your child chooses a lesser-known or prestigious educational institution in India, Varthana’s student education loans can provide the financial support needed to make their academic journey smoother. Apply now to get started today.

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