Children's Education A Top Priority: 6 Strategies To Begin Saving For This Goal

Planning for your child's education calls for a robust financial strategy that accounts for the compounding impact education inflation is likely to have in the next 10-20 years

From school fees to higher education, whether pursued within India or abroad, education expenses can severely strain your budget if not planned for in advance

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Quality education is something every parent wants to provide their child. This aspiration is cherished by most parents and has remained consistent year-on-year, as reflected in a recent survey titled the ‘Aspiration Index’. Highlighting this trend, the survey notes that saving and investing to provide one’s children with the best education has remained to be one of the top aspirations among Indians. But, as education inflation rises in the face of stagnating incomes, this aspiration is becoming dearer to realise. From school fees to higher education, whether pursued within India or abroad, education expenses can severely strain your budget if not planned for in advance. 

Planning for your child's education calls for a robust financial strategy that accounts for the compounding impact education inflation is likely to have in the next 10-20 years. What may seem like a manageable sum today could be a financial burden in the future. It is, thus, important for parents to start early, while the children are young. Investments can be spread over a longer tenure in long-term instruments to get the maximum benefit of compounding. Beginning early also provides a cushion against unforeseen financial setbacks. So, if you are soon starting on your journey to save for your child’s education, here is a guide on how to begin. 

Estimate the cost

Begin by estimating the approximate funds you would need for your child's education. Consider the type of education you want for your child—undergraduate and postgraduate degrees, in India or abroad. Factor in education inflation, which ranges from 8-10% on average each year. This means, the current costs could more than double in a few decades. There are online education expense calculators which can help you calculate the approximate cost and update your estimate periodically as your child grows.

Start saving early

The earlier you start saving, the more you can benefit from the power of compounding. Start small but invest regularly so your investments can grow over time. For instance, if you start investing when your child is a toddler, you have 15-20 years to accumulate wealth. During this time, invest in higher-return options, like mutual funds or stocks initially for maximum growth. As the time approaches to use those funds, you can gradually shift to safer investment avenues.

Invest wisely

Children’s education is a long-term goal which requires careful financial planning. Diversify your investments across asset classes that offer assured returns. Explore options like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (for girl children), and mutual funds. Systematic Investment Plans (SIPs) are a convenient mode of investing in mutual funds and can yield higher returns in the long term. If you are more risk-averse, include options like fixed deposits or recurring deposits in your portfolio. Most importantly, ensure your portfolio is balanced. 

Borrow strategically

As education becomes more and more expensive, relying only on your savings may not be enough and you may have to borrow.  Education loans are a viable and popular option offered by many banks at attractive interest rates. Repayment begins only after the student completes their course, allowing time to secure a job before starting loan repayments. Also, the interest paid on education loans is eligible for tax deductions under Section 80E of the Income Tax Act. 

Secure your child’s future

Securing your child’s future with insurance is an important part of financial planning. Life insurance plans typically have a maturity benefit which can help fund your child’s education in the event of unforeseen circumstances. 

Review investments regularly

As your child grows, your financial situation as well as estimated costs can change with inflation. Thus, it is crucial to review your investments regularly and adjust them to ensure your savings and investments align with your goals.

Careful planning, taking informed decisions, and investing diligently can help you turn your aspiration of providing your child with the best education into a reality.

The writer is CEO, BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.