Why we need to start investing early for our children’s future

Published: October 15, 2016 at 9:40 am

Last Updated on

“Why should I invest for my child’s future needs like education or marriage?”, asked a reader. “Why can’t I simply get them an education loan?”, “why can’t they foot their own marriage bill?”.

Well, we need to invest what we can for the simple reason that life does not pan out the way we plan. Especially when their school graduation is years away. While retirement is the number one financial goal, anyone who says they will not be spending a dime for their children’s college education/marriage are either not yet parents or just not being practical.

The key point is, without planning, that “dime” will be redeemed from our retirement corpus! So we should be investing for this and other goals just to protect our future retirement corpus from getting depleted!

I will not (need not) elaborate any further because this is not a post about why one should invest for the above-mentioned goals. This is a post about why one should start investing early – real early. If possible from the moment we decide to start a family. Now that might seem extreme at first, especially if you are not yet a parent, but it will make all the difference as explained below.

Before we proceed, I would like to point that this also not a post about the cost of delay or postponement. Anyone who has used the goal planning calculators can tell you about that. Put off investing for a goal like retirement by just 12 months and from the 13th month, you may need to invest as much as 15-18% more! For every month of postponement, the amount that needs to be invested will grow at the rate of 1-2%! So it is common sense that one needs to start early to reduce the investment burden.

There is yet another reason to start early. Let us stop and think about the expenses associated the growth of a child. Ignoring food, clothing and toys which are mandatory spends, the other big-ticket spends are

Pre-school; school; summer camps, tuition classes, coaching classes (eg. cricket, painting, skating, salsa etc.), hobbies (eg. photography) plus more?

 

If you notice, all these expenses are (or can be) incurred before they go to college and many of them after they cross age 10 or so.

If we start investing with just college education as the goal, we may be able to provide of many of the above expenses (which are impossible to predict early) from the same corpus.

As an example, I started investing for my son’s education when my wife was in her third trimester. So have been doing it for nearly 7 years.  When I ask, ‘what is the current worth of the corpus?’ it is comfortably higher than a typical UG degree. Therefore, I can afford to withdraw from it for my son’s other needs.

This might sound obvious, I know people who have ignored such expenses. For example, only when the child came to the 8th standard, they realised the need to ready money for IIT JEE coaching classes. The money involved is not small, and it is not practical to plan for such goals. Therefore, the simplest way to handle these is to start early as mentioned above.

The early bird can feed all its chicks more than once!

early-bird
Photo by Jan Truter

This way, we protect the corpus for two goals – their education (+ marriage) and our retirement.

Start Planning and Investing Today!

Here are some resources to plan for the future needs of your children.

How to plan for your child’s education and marriage. (include a comprehensive child planner).

The trouble with fixing the current cost of a child’s education

Should I invest for my child’s marriage?

Why I will not invest in my child’s name

Smart ways to accumulate gold for a marriage

What do you think? Do share your experiences below.

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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