Important Things to Consider When You Plan for Your Child's Education

Shaheen Shaikh

Feb 28

The rate of education inflation in India increased from 3.34% to 5.68% between September 2021 and September 2022. With rising education costs, it has become necessary to plan for your child's academic future from early on. If you start investing now in a child education plan and keep saving over years, you can build a substantial corpus for your kid's higher studies in the mean time.

But what should you keep in mind when planning for your child's education? Here are a few important things to consider.

Your Time Horizon for Investment

Calculate the years to your kid's higher studies (graduation and post-graduation) to decide a suitable time horizon for your investments. The longer it is, the better you can plan and invest. Investment horizon is one of the variables taken into account by a child education planner.

The Future Cost of Education

Tuition fee and accommodation cost are the two major components of education expenses. These will differ with the type of academic degree, time and place. If you plan to send your child abroad for higher studies, these costs will be higher.

Now consider your investment horizon in a child education plan. By the end of the time horizon, education costs would have risen owing to inflation. So, first see the tuition fees and accomodation costs at the preferred institutions now. Then research the expected rates of inflation over the years of your investment horizon and make an average of the rates.

Consider this when you estimate the future cost of education for your child. You can use a child education planner to incorporate these variables for accurate estimation of future costs.

Your Existing Assets and Liabilities

Say, an investment of yours will mature by the time your child is ready to pursue higher studies. Consider that as an asset unless the corpus generated from this investment is meant to finance another goal like your retirement. Say, you need to pay off some loans over the investment horizon of the chosen child education plan. Consider them as liabilities.

Add any assets and deduct any liabilities to understand how much you can invest in an education plan. Remember that you must not dip into the savings for other major financial goals to fund your child's education. Likewise, you should also not use the savings for your child's higher studies to finance other important goals or even low-priority expenses like home renovation.

How Much to Save?

Now you can calculate how much you need to invest in a child education plan. For that, you can use a child education planner that takes into account the following variables:

Your age
Your child's age
Desired education
Corpus for desired education
Child's age when the corpus is needed
Inflation rate
Growth of investment (in percentage)

After filling in the above information, the education planner can calculate an estimate of the amount you should save.

When choosing a child education plan, consider important factors like long-term investment option, goal protection feature, risk management options and payout frequencies. Opt for the plan from a reputed insurance provider in India for peace of mind.

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