FIVE STEPS TO BUILD A SOLID CHILD EDUCATION PLAN
Every parent aspires to provide their child with the best possible education and opportunities for growth. Planning early for a child’s education helps ensure financial readiness when higher education expenses arise and reduces stress caused by rising costs.
In India, education is often seen as a long-term investment and a form of security for the future. Many families make personal sacrifices to save for their children’s education. However, due to limited financial awareness and rising education inflation, poor planning can lead to financial shortfalls sometimes forcing parents to dip into retirement savings and compromise their own financial security.
Earlier, traditional savings instruments such as PPF, National Savings Certificates (NSC), Kisan Vikas Patra (KVP), and fixed deposits offered attractive returns. Over time, however, returns from these instruments have declined, while education costs have risen sharply. This makes structured, inflation-aware planning essential.
Steps to Build a Solid Child Education Plan
Below are five practical steps that can help parents create a strong and sustainable education plan for their children:
1. Start as Early as Possible
Child education planning is a long-term financial goal. The best time to begin is as early as possible—ideally at the child’s birth. If a child begins college at age 18, parents have nearly two decades to build the required funds.
Early investing allows the power of compounding to work effectively, meaning smaller monthly contributions can grow into a substantial education corpus over time.
2. Factor in Education Inflation
Education costs increase faster than general inflation. For example, a professional degree that cost ₹6 lakh in 2008 rose to over ₹21 lakh by 2018—an annual growth rate exceeding 13%.
If this trend continues, the same program could cost significantly more in the future. Therefore, it is critical to estimate future education expenses by factoring in realistic education inflation while planning.
3. Avoid Low-Return Investment Options
Since child education is a long-term goal with high inflation, relying solely on low-return investments may not be sufficient. Investments should aim to beat inflation over time.
Equity-oriented investments, when held over long periods, have historically delivered higher returns compared to traditional savings options. With a longer time horizon, investors can manage short-term volatility while benefiting from long-term growth.
For example, investing ₹10,000 per month at a higher return rate can be more effective than investing a higher amount at a lower return rate. Choosing growth-oriented investments early reduces the monthly burden later.
4. Start Small and Increase Gradually
Large financial goals can feel overwhelming, but they become manageable with a step-by-step approach. Parents can start with a modest investment and gradually increase contributions as income grows.
For instance, if income increases by 10% annually, increasing education savings by the same percentage can significantly enhance the final corpus without causing financial strain. This method allows savings to grow alongside income.
5. Ensure Financial Protection
A solid education plan should include adequate financial protection. Life insurance plays a crucial role in safeguarding a child’s future if an earning parent passes away unexpectedly.
Adequate insurance coverage helps replace lost income and ensures that education and other life goals remain unaffected. Ideally, insurance coverage should be sufficient to support the family and long-term financial commitments.
Conclusion
Building a solid child education plan requires early action, realistic cost projections, disciplined investing, and adequate financial protection. With rising education costs and changing economic conditions, structured planning is more important than ever.
Education empowers children with knowledge, skills, and opportunities that shape their future. Thoughtful financial planning ensures that children can pursue their aspirations without financial constraints, while parents maintain long-term financial stability.
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