Child’s Educational Plan
Everyone yearns for future security. This yearning exponentially increases for new parents or who have been parents for a few years now. The question is, ‘WHY?’ The problem we face while answering this question is that there are too many variable to consider. The only peace of mind is that we at least know what these variables are. If we try to make an exhaustive list of the variables, the list will became very large. Still, we will put together a few variable to get started with.
The variables of uncertainty
Here is a quick list of some of the variables that make our lives so very uncertain that we feel helpless at times:
- Economic volatility which includes
- Economic recession.
- Currency devaluation.
- Job loss (because of bad economy as well as challenges put forward by technological advancements) etc.
- Political turmoil that can lead to massive layoffs.
- Constant threats of wars, terrorism, riots, coupes etc.
- Threats of unforeseen accidents and diseases.
- Ever increasing cost of education.
- And more…
Increasing cost of education
No one in this world denies that the cost of education is increasing at an unprecedented rate. Things get uglier when it comes to higher education. Not every student is equally talented and hence, not everyone gets to enjoy scholarships.
The major problem in India is that the middle class is increasing rapidly. In most of the families, husbands and wives earn but that is not good enough. The cost of education is increasing at a higher rate than income. This is why parents are highly concerned about the education of their children. What they are really concerned about is not whether their children can make it to higher education or not. Their concern is, whether they can afford the cost of higher education of their children should the situation arise.
The need for child’s educational plan
Now that we know what is really bothering young parents, we need to take a look at the possible solutions. One of the most viable solutions at hand is that of a educational plan. The question is, ‘is an educational plan really a solution?’
The simple answer to this question is, NO!
Sound’s weird right? Allow us to explain!
A child’s educational plan is all about saving money today so that tomorrow when the time comes, parents have a bulk amount of money in hand to cover the cost of education for their child. This is logically true. However, there are a few problems here:
- An educational plan will never be able to predict the field of study that will be chosen by the child in future. Different fields of study have different costs. Most of the parents in India actually tend to decide what their childern should become in future. Put in other words, parents dream of their children becoming doctors or engineers or scientists or architects etc. and then buy a educational plan based on projections of how much it would cost if their children puruse their (parents’) dreams. This is not done!
- A child’s educational plan predicts the future cost of education. Future prediction involves too many variables and hence, predictions aren’t always correct. The major problems of correct prediction include currency devaluation and of course, inflation.
- An educational plan does not account for the premature death lead earning parent. These plans do not answer a simple question – ‘what will happen if the parent paying the premium for the child’s educational plan dies prematurely?’ Isn’t this a possible scenario?
Overcoming the basic problems
The problem is that there is no such thing called the ‘Perfect’ child’s educational plan but the irony is that you need to settle for at least one plan even though none of them are foolproof and perfect. So, how do you go about deciding on which plan to purchase? Here are a few things you need to keep in mind:
- Forbid yourself from deciding your child’s future. Let go of the age old wisdom that ‘parents always select the best for their kids’. This was never really true. The only thing you need to think is that you need a lump sum amount of money for your child’s eduction in future irrespective of the field of study chosen by your child. Always and always target the highest sum assured possible.
- Select plans that not only promise a high lump sum payout on maturity but also allow a regular payout. This is necessary because cost of education is very volatile by nature. Even during the school years of your child, the cost of education can fluctuate and, a regular payout can actually help you cover such unexpected costs. Additionally, a regular payout actually allows you to channel extra funds in polishing your child’s interests. For example, your child may actually be interested in astronomy. You can always buy a telescope for your child at a very early stage using the extra regular payout. This will only help you to reinforce your child’s interest.
- When we talk or regular payouts, we are actually looking at market-linked plans. This means that the money you are investing is subjected to market risks, especially when the funds are invested in equity instruments. You need to keep in mind a few things:
- Consider your own risk appetite.
- Consider the history of the fund manager. Simply put, check out how the company has been dealing with funds in last 10 years compared to its competitors. Also, check out the total value of the assets managed by the company.
- Things get complex and nasty at this point. You really do not know which field of study your child is going to select. So, take your time a make a list of all possible interests your child is showing at an early age. Based on those interests, map out the possible fields of study your child might pick up. Based on those fields, shortlist the best educational institutes for each field of study. When you have a list of institutes in hand, dig out the current and if possible past costs of education for those institutes. We know what we are saying. We are very much aware that it is nearly an impossible task but you can at least try. If you get at least some data, you can have fair idea of the type of expenses you should be looking at in near future. This will help you to decide the sum assured you want. Of course this isn’t a foolproof method but it can help to some extent.
- Never forget to consider the fact that if something happens to you, who is going to pay for the educational plan of your child. Talk to the company representative and get the details. If the plan itself doesn’t have a fail safe mechanism, consider an alternative source like life insurance for yourself which can help to cover the cost of your child’s educational plan as well as the the sustenance cost for your family that you leave behind.
- Of course, consider your own income before you jump into a plan. You need to sustain and maintain the educational plan to ensure that it stays active.
Sit down. Don’t rush. Do research, study properly all possible aspects and yes, make sure that you include your spouse’s ideas and suggestions. If your child is old enough to pitch in some suggestions, consider that as well. There is no need to buy a child’s educational plan the very day he or she is born. You can always wait for a few years before you purchase a plan and it is actually a good idea to wait.
If you have bought childs education plan then please read this article for 80C benefits.