In the world famous novel, Harry Potter and the Philosopher’s Stone, there is a scene where Harry’s cousin Dudley receives around 34 gifts on his birthday. However, Dudley is not satisfied because his parents promised him 35 gifts. Dudley is an obnoxious boy no doubt, but generally, children can be petulant when it comes to gifts. And in their immense love for their kids, parents spend a lot of money buying gifts for their children. But the sad truth is kids outgrow their toys pretty fast. But what if you could give your children a gift that they never outgrow?
High future costs
A good education is perhaps the best gift you can give your child. But these days, education has become very expensive. And this is not just at the college level. In the pursuit of ensuring that their child gets quality education, many parents spend untold amount of money right from the kindergarten stage.
As a responsible parent, you may want to offer the best education. But it is also important to be prudent. It may be necessary to create a ceiling on the budget. Once the education costs breach this level, you should go look for alternative modes of funding like education loans. But before that, the most important thing is to identify the best investment avenues to ensure that your child can fulfil his/her life’s ambitions and goals.
The menace of inflation
Inflation impacts each and every aspect of our daily lives. Take any goods or services that you buy regularly (toothpaste, shampoo, soft drinks). Compare how the prices have changed over the past ten years. You will find that there is a considerable difference. But in the case of education, the impact of inflation is much greater. A four year engineering degree that costs Rs 8 lakh today could cost as much as Rs 17 lakh in just eight years, if the current rate of education inflation persists.
Importance of financial planning
These numbers can seem mind-boggling. But it shouldn’t be a cause for alarm, especially if you have a clear financial plan in place. A lot of people think that it is enough to create savings in a bank account for these large expenses. However, bank savings do not grow at a fast pace. Instead, you need to look for better alternatives to allow your money to grow into a large sum in the limited amount of time.
Investing in mutual funds is probably one of the best ways to achieve your goal. First you need to come up with a number. How much money do you wish to set aside for your child’s education? Based on this, you can identify how much you need to save each month in a Systematic Investment Plan (SIP) to reach the goal. You can invest in equity funds to earn high returns for the long term.
Another good option is to invest in child plans. Many mutual fund houses including Franklin Templeton offer special child plans that focus on meeting various financial requirements at different life stages of the child. This is a simple and easy way to invest regularly towards your child’s future.
When your children are young, all they want are gifts. More the gifts, the better it is. Toys and dolls are important. But that said, it is important to focus on the long-term future of your child too. And giving them a quality education is probably the best gift you can give them.