Planning children’s future is an essential need and desire of all parents. Every parent would like to secure their children’s future with happiness, health and financial well-being instead of pain, shortage of money and debt.
The primary step in future planning for children is to develop an understanding of future financial needs by estimating the upcoming expenditures, which may include the expenses of higher education. And thus, parents need to do proper financial planning to secure their child’s future. If one does proper planning, they won’t experience difficulties with their children’s upbringing, education, or marriage.
Furthermore, in today’s world, high inflation can eat into one’s savings and investments. So, while parents plan to build a sound financial future for the child, they also have to keep in mind the average inflation rate over the years.
There are certain aspects, which if followed, can help parents plan for their children’s future in a better way.
Start Planning Early
An earlier start in investing for children’s future improves the odds of higher returns. Here are the reasons:
- Power of compounding: Compounding is a magic formula wherein the interest earned from an investment is reinvested in the original investment, giving better and more prominent returns over the years. Thus, the amount you get when the investment matures is higher than what one would get without the power of compounding. Time is a crucial aspect in this, as the longer the time of investment, the higher will be the return.
- Beat the volatile market situation: Stock markets are known to be volatile, but if the investment is done in the right growth stocks or blue-chip stocks, it can provide more stability and provide better returns in the long term.
- Nominal investments: The returns on a financial plan are directly proportional to the duration of the investment. As a result, a small amount of money invested regularly can grow to a large sum over time.
Evaluate Children’s Future Needs
One should always support their children until they can support themselves. Hence plan for any future expenses and save appropriately for them.
Invest in Quality Education for Children
Education remains the most important aspect in the children’s overall development and securing their future. Without good education, children can face considerable challenges in getting employment when they grow up and it can impact their earning potential in future. Hence, the importance of investing in quality education for children cannot be stressed enough.
With the advent of the internet and online learning, quality education can also be accessed without the need for attending conventional physical schools. Online schooling can offer several advantages such as personalised and skill-based learning, flexible self-paced learning, relatively low cost, no geographical barriers, no commute, improved computer and internet literacy, real-time assessment among others. Online schools such as 21K School offer affordable high-quality education with several international accreditations right from the comfort of your home!
Secure Children with Life Insurance
Life insurance is an essential tool for securing the children’s future not only financially but also in terms of safety. While insurance is a key aspect, having an investment instrument that offers investment and insurance both would be an added advantage. These types of financial instruments are known as ULIPs, which are excellent for long-term goal-oriented investments. It is an investment which offers the potential for higher returns coupled with the added security of life insurance.
Choose child plans with premium waiver benefits that are designed to meet the needs of children. This ensures that if an unfortunate event occurs, children receive the payout without having to pay future premiums until the policy term expires. As a result, they will have sufficient funds to protect them from financial shortfalls in your absence.
Prioritise your goals and build distinct investment opportunities for every need to better manage the funds.
A secure future is dependent on being financially stable for important life events such as university admissions, weddings, and buying a house.
Start Saving with a Proper Asset Allocation
One can use financial instruments that provide tax-free returns, such as PPF, and equity (through mutual funds). If the returns are taxable, the amount of return will be added back to the parent’s income and taxed according to the parent’s tax bracket. Thus, one needs to be smart while investing in any option.
Gold is the best asset to have after cash in case of liquidity. And hence, having some gold in physical form or as bonds will be an added advantage.
Never purchase insurance in the name of the child. Understand the importance and purpose of insurance, which is to manage the risks arising from one’s death, health problems, accidents etc. If one wants to meet the goals comfortably, then proper insurance planning is inevitable. Also, the sum insured is more important than the number of policies.
Invest in the Stock Market
The stock market is one of the riskiest markets if not invested properly, but using proper investment techniques and investing in blue-chip stocks can give amazing returns to children in their teenage years. Parents should also gradually teach their children about investment techniques along with their school curriculum so that children can start understanding their finances better and understand the wonders of the stock market at an early age.
One can start this journey by investing in stocks of good-performing companies that are already well known to children, such as banks (e.g. HDFC, IDFC) and FMCG companies (e.g. Nestle, Britannia, Johnson and Johnson). These blue-chip stocks can offer more stability in volatile times while also providing great returns. Children can do their initial investing under the guidance of their parents and then can take over the command after they get a proper grip on their finances.
One can also provide their children with online education classes regarding the stock market and finances for better understanding.
There are several assets available that you can invest in to secure your child’s future. Land, gold and stocks are one of the most popular assets for children’s future planning, while mutual funds, ULIP plans and LIC policies are other options that can help you make your children’s future financially secure.