In recent years, Education expenses in India have been inflating at a higher than average rate. The average 5-year annualized inflation for the tuition fees for an MBA course stands at 10%, Engineering courses at 9%, and MBBS at 12%. And what’s more, tuition fees are not the only expenses one needs to save for – there’s also rent for hostel or PG accommodation, books, study materials and what not!
To make matters worse, most of us are clueless about the right way to save for our children’s education. We continue to blindly put away money into “Child Plans” that are essentially Life Insurance policies. Many of these plans provide poor returns that do not even outpace inflation!
What’s the “right way” to save for your child’s education?
Do The Math
Set clear goals in terms of target dates and amounts. Don’t forget to consider inflation!
When’s the best time to start saving? The day your child is born! The earlier you start, the more you’ll benefit from compounding
You’ve got time on your side. Go for high risk, high return investments such as SIP’s in equity oriented funds. No FD’s, please!
A simple term plan is all you need to protect your loved ones. Don’t get trapped into one of those poor performing, opaque “Child Plans”!
Child education planning: points to consider
A Georgetown University Report estimates that quality of education could impact lifetime earnings of an individual by 20-50%
Loans = A Bad Idea
Either you’ll be paying EMI’s when you should be saving for your retirement, or your child will get off to a debt-ridden start. Both are bad situations to be in.
Mutual Fund SIP’s Work Best
Mutual Funds can help your savings outpace inflation. Their flexibility will allow you to gradually de-risk as you approach your goal.