A reader says, “I am an Army Officer and have been a DIY investor for some time now, thanks to the invaluable lessons from you and many other knowledgeable teachers on YouTube. My investment approach has been quite sufficient for my requirements, and being in a pensionable service (by the grace of the Almighty!), I am fortunate not to require a high corpus”.
“However, I have concerns regarding my son, who is currently four years old, and our plans for a second child in the near future. The likelihood of them entering a pensionable service in the future seems slim, as such services may cease to exist in the coming years”.
“Additionally, I am apprehensive about investing money in my children’s names, given that they would have full access to it from the age of 18, which I am uncomfortable with considering the uncertainties of how they may turn out”.
“To address these concerns and secure their future to a certain extent, I have devised a strategy that ensures limited accessibility to the funds until their retirement as follows,
- Initially, start an NPS Vatsalya account with a lump sum of 5 lakhs per child.
- Provide a credit card for kids with a small limit at age 15 to help build their credit score.
At age 18, begin a term insurance policy with a coverage of at least two crores using a lump sum payment option.
Initiate a health insurance plan that covers double the requirement at the time.
After marriage, start an NPS account and term insurance for the spouse and also add the spouse to the child’s health insurance plan.
I would greatly appreciate any feedback or suggestions you may have regarding this plan. Your insights have been instrumental in shaping my investment approach, and I value your perspective on ensuring a secure future for my children.
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Thank you once again for your guidance and support. I also fully consent to sharing this strategy (if you see fit) with your followers like myself.
Dear Sir, I admire your pragmatism. You recognise that investing in their college education and other needs in their name is not prudent and also have realistic expectations of their future employment. See: Why I will not invest in my child’s name.
However, I do not quite agree with the rest of your plan. I think education about personal finance is the best way to invest in our children’s future. We need to make them responsible money managers after they become adults. Meaning we do not interfere unless they need help.
- NPS may help the corpus grow reasonably untouched due to its lack of liquidity. However, it also has exit limitations (80% annuitization if we leave before 60). Unless there is a mandatory employer requirement, there is no need for an NPS.
- Your Rs. 5 lakhs are much better off in a simple Nifty 50 index fund
- As far as I know, minors cannot have a credit card. Building a credit score can wait long after they start earning and investing and have an actual need for a loan!
- You cannot get a term insurance policy for two crores when the insured is not earning.
- Health insurance is necessary.
- Once the children start earning, I think parents should only offer solicited advice and take a backseat.
So I suggest focusing on how to make children responsible with money. The rest will fall in place naturally. This may be useful to interested readers: Teach your kids financial decision-making with our book: “Chinchu Gets a Superpower!”
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
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