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“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!
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.
Do check out these related articles:
About the Author
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. 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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Generally, we mean child’s collage education cost by child’s education cost. My experience & perception are that one needs to spend a very good amount of money for his/her child education from pre-nursery to 12th standard itself. School fees and other associated cost are unthinkably increasing every year. I do not have exact inflation figure in primary & secondary education.. I do not expect it to be below 15%. In my area,now secondary education { including school fees(charged under several heads apart from tuition fees), transportation, books, coaching class(most of students opt for the same) etc.} costs around 1.5-2 lacs per year. This price takes a step-jump in 11th & 12th std, if the child aims for engineering/medical entrance test & opts for one of the popular coaching-outlet.
Personally I find so many common/uncommon, foreseen/unforeseen expenses have cropped up /are cropping up from various angles in my life and most of these are unavoidable if we want our life to go on. I am not referring to any discretionary cost for any entertainment / even semi-luxury.
In Mumbai workshop, discussion was going on emergency fund. On a humorous note, Pattu mentioned that having twin-baby may also be considered as emergency situation. So true…!! Some years back, one of my friend became father of twins, during their 2nd issue. This was not enough.After few years, they found one of the twin is having autism. Including various therapies for the child with autism, they are now spending about 4.5-5 lacs per anum for their 3 children, which is expected to go up as years go by & simultaneously my friend approaches retirement…!!
Crux of that matter is that many of us are very poor in personal financial knowledge, though we may have good in other branches academics. From early life itself, we need to learn to lead frugal life (off-course not a life of miser..!!), think & work hard to save as much as possible & make those money to work harder & multiply in long term… one may choose any name to his/her financial goal …only thing, that should motivate one to save/invest and designed to have potential to cater all future requirements.
Though I started late, I feel myself lucky so as to have started following your blog few years back and taking actions accordingly …. thanks a ton .. Pattu..!!
I applaud the intent of the article and the realistic scenarios outlined.
However, lot of these big ticket expenses are “created” by parents (trying to keep up with the joneses) and can be easily avoided.
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“…summer camps, tuition classes, coaching classes (eg. cricket, painting, skating, salsa etc.), hobbies (eg. photography) plus more?…”
Until the 20th century, tuition and coaching classes meant the child was a laggard and it was a great insult and prestige issue. Now it is a thing of pride!
LOL and SMH @ skating and salsa
All these classes are pointless anyway. End of the day, that child is going to keep mugging on the terrace with cable tv shutoff from X to XII and end up joining BE somewhere and an IT company from there on. LMAO
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Amusingly simplistic to assume everyone is trying to keep up with the Joneses and that every expense is unwarranted.
In developed countries, children always foot their own education loan as well as their marriage expenses. The parent’s responsibility ends once the child turns 18. Are you saying parents in developed countries are all impractical and unreasonable?
I think this will be the path future Indians will follow as well. The days of feeding on your dad’s fortune till your 30s are starting to become a thing of the past and rightly so. I have my own goals in life too and I am not gonna throw everything to the wind to save for marriage et all like previous generations. Yeah call me impractical.
Anjan — Kudos and bravo . But keep your radical opinions to yourselves.. This is india. Anything original and unconventonal will be ridiculed ad hominem
Not every expense is unwarranted but the kind of expenses he highlighted are most definitely. I used to be extremely proud of the fact that I was possibly the only one in my school to have never taken private tuition or coaching. I didn’t in college either. Nowadays, it seems parents must compulsorily keep aside a few lakhs for these coaching classes. Why not encourage the child to self-study and achieve good grades on his own merit?