Children can be the apple of their parents’ eye. In fact, many loving parents think of their children as priceless! As parents, you will love your children and want to protect them from the world. You will want to provide the very best that life has to offer – give them things that you may not have had when you were a child. Nothing is too good for your child.

 

But as we all know, children cost money. From the time that they are babies to when they go to school, then college, then perhaps a post graduate education, and then their marriage, there are expenses that are directly linked with your children. And the earlier you start planning for them, the better off you will be!

 

Let us take up the case of a couple having a young daughter.

 

Mr. and Mrs. Shah (all names have been changed to protect identity) have a young daughter Preeti, age 4. They want to plan for all expenses that will arise for her from today till her age of say 25, by when they assume she will probably be married and thus independent.

 

Preeti’s financial goals are:

 

1. High School expenses (For 11th and 12th standard)
2. College fees for her Bachelor’s education in the field of her choice – whether in India or abroad
3. Post Graduation – whether in India or abroad
4. Marriage expenses

 

Taking each goal one at a time, let’s see how much money the Shahs need to invest for their daughter Preeti.

 

1. High School Expenses (Standard 11 and 12)
   
   Preeti will start school this year. She will be in school and then junior college from 2010 till 2023.
   Her school fees are Rs 50,000 per annum and we can consider an average of 10% increase in the fees each year. Mr. Shah will meet the school fees and other expenses from his annual cash flows, but would like to plan for her 11th and 12th standard fees from investments.
   
   The fees in 2022 and 2023 will be Rs 1.45 lakh and Rs 1.60 lakh for her 11th and 12th standard respectively.
   
   To achieve these figures from investments over the years, Mr. and Mrs. Shah need to invest approximately Rs 12,200 per year in an asset allocation of 80:20 in equity and debt (mutual funds). The corpus will then be ready as required.
    
2. College fees for her Bachelor’s education in the field of her choice – whether in India or abroad
   
   In 2024, Preeti will go to college for her graduate education. If she goes to a college in India, Mr. Shah anticipates requiring a corpus of around Rs 10 lakhs in today’s terms. If she goes abroad he anticipates that he will need around Rs 25 lakhs in today’s terms.
   
   This means that in 2024, Preeti’s graduation education fees will be:
   Education in India: Rs 35 lakhs
   Education abroad: Rs 92 lakhs
   
   To achieve Rs 35 lakhs in the next 14 years, Mr. Shah needs invest Rs 10,800 per month starting today, into equity and debt in the ratio of 80:20.
   
   To achieve Rs 92 lakhs in case Preeti goes abroad for her bachelor’s education, Mr. Shah will need to invest Rs 27,000 per month starting today, in the same 80:20 ratio.
    
3. Post Graduation – whether in India or abroad
   
   Assuming Preeti does a 3 year degree course and then decides to study further, she will need Rs 20 lakhs in today’s terms for a PG course in India. A PG course abroad could cost as much as Rs 35 lakhs in today’s terms.
   She will be going for her Post Graduation in the year 2027.
   At that time, factoring 10% p.a. inflation, the costs will be as follows:
   
   PG Education in India: Rs 92 lakhs
   PG Education abroad: Rs 1.61 crore
   
   To achieve Rs 92 lakhs in the next 17 years, assuming Preeti studies in India, Mr. Shah needs to invest Rs 19,400 per month starting today in the same 80:20 ratio.
   
   To achieve Rs 1.61 crore in the next 17 years, assuming Preeti studies abroad, Mr. Shah needs to invest Rs 34,000 per month starting today in the same 80:20 ratio.
    
4. Preeti’s Marriage
   
   While it would be certainly an emotional occasion to prepare for the marriage of one’s daughter –it can also be quite a costly event.
   Mr. Shah imagines that in today’s terms he would probably throw a wedding worth Rs 10 lakhs. Assuming Preeti gets married by the age of 25, and considering inflation in wedding costs at 10%, such a marriage would cost approximately Rs 74 lakhs.
   
   To achieve this figure, Mr. Shah needs to invest Rs 8,500 per month in the same 80:20 ratio.
   
   Considering all Preeti’s financial goals together, Mr. Shah needs to invest a total sum of approximately Rs 51,000 per month starting immediately if he assumes she does her entire education (both her undergraduate and post graduate) here in India.
   
   If he assumes Preeti does her entire education (both graduate and post graduate) abroad, then he needs to invest around Rs 82,000 per month starting today – to plan for all of Preeti’s financial goals.

 

Conclusion

 

The main factor that is in Mr. Shah’s favour is Preeti’s age.
Since she is only 4 years old and her financial goals are all more than 10 years away, and in case of her marriage 21 years away, Mr. Shah has given himself the gift of time. He can thus invest more into equity and comparatively less into debt, taking full advantage of the long term growth anticipated in equities. Relatively smaller investments today will help him achieve all his dreams that he has for his daughter.

 

However, had Mr. Shah started So this Diwali, give your children the right gift – a financial plan for their goals.
Remember, the sooner you start planning for your children’s financial goals , the more they will feel priceless – not expensive!

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Comments
girish811@yahoo.com Apr 20, 2012 Crisp and clear, Good article.
iphotostock@hotmail.com Jan 20, 2012 I told my grandmother how you helped. She said, "bake them a cake!"

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