5 Financial Strategies to Opt For in 2023 to Secure Your Child's Financial Future

To which I responded, "Sure, Rohini I will help you with that. One of the most pleasant elements of life is seeing your children growing up without having to watch them struggle financially. As a result, you need to establish a comprehensive financial plan to safeguard your child's future."

Every parent aspires to give their child the best of everything. Planning for your child's future is not an easy task. The cost of education is rising every day, and as parents, you may be concerned about providing your children with the best education possible. However, by planning ahead of time, you can ensure that your children do not have to give up on their dreams due to a shortage of funds.

Most parents strive diligently to provide a considerable financial cushion for their children, yet their resources may be insufficient in times of need. Making the right investment choices at the right time is critical when attempting to develop a solid financial backup for the child's future. Given rising inflation and macroeconomic instability, it is critical that you plan for your child's future needs wisely.

While there are a plethora of investment options dedicated to children available in the market, it is always recommended that you study and assess them carefully. Choose the investment option depending on your need and suitability.

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As we approach the New Year 2023, focus on implementing financially strategies that secure financial future of your children. Here's a list of financial to-dos in 2023 to ensure you children lead a financially secured life ahead.

1. Start saving at an early stage

Saving for the multiple needs of your kid could take time; if you begin saving as early as possible it can provide you with enough time to save money at your own pace. Setting up an account will allow you to save money specifically for your child. Start saving as soon as a child is born, One of the first steps to incorporating the safety of their financial future is opening a bank account under their name and adding some amount as the initial deposit.

You don't need to wait until the child turns 18 years of age to open their own savings bank account. Several banks are offering savings accounts for kids, like ICICI Bank's Smart Stars Saving Account for kids a minor above the age of 10 years, similarly, HDFC Bank offers Kids Advantage Account, whereas PehlaKadam and PehliUdaan are savings account for children offered by the State Bank of India (SBI). You need to fulfil the basic documentation requirements, and it will be classified as a minor's account.

For a girl child, you may consider Sukanya Samriddhi Yojana (SSY) which is a government-backed small deposit scheme for a girl child and her financial needs. It can be opened any time after the birth of a girl child till she turns 10. It offers higher rate of interest of 7.6% compounded annually with a minimum deposit of Rs 250/-.

2. Get adequate health insurance plan for your child

One can never predict the unprecedented events that can unfold in the future. Due to the escalating cost of medical treatment, it is best to provide your child with health insurance until he/she reaches the age of majority. Consider purchasing adequate health insurance for your children as the New Year 2023 approaches. Most health insurance plans cover practically all major illnesses, injuries, and annual health check-ups, which can come in helpful at any age. When your child reaches the age of majority, he or she can purchase their own health insurance policy.

A term plan is highly critical for your child and family. While the child receives a corpus post the policy term is over, what makes such plans special is that in case of any unfortunate happening to the premium-paying parent, death benefits are paid to the nominee and the rest of the premium is waived off. There is no lapse in the policy and the child gets the maturity amount at the end of the policy term.

3. Maintain an emergency fund

A parent must always keep appropriate emergency finances on hand in order to be prepared for any emergency! Creating an emergency fund protects against such eventualities. These funds will act as a safety net in the event that a parent or child requires money due to an unforeseen incident or emergency. For example, many parents found it difficult to pay their children's school fees during the pandemic. Here, emergency funds can come in handy.

Since, as parents you do not want any financial crunch to create a hurdle in you children's education, it is prudent to set aside a contingency reserve. Ideally, your rainy day fund should include 12-24 months of regular monthly expenses, including EMIs on loans, if any, in a separate savings account or liquid funds. This will help you deal with unpleasant surprises viz. medical emergency, a sudden rise in school fees of your child, loss of job, etc.

4. Invest wisely for your child's future

Some parents still use traditional savings methods such as purchasing insurance policies or bonds in their children's names. Instead, you may consider investing in Mutual funds through SIP which is an ideal option to build the corpus for your child's future. Since it will help you invest in the right asset mix and a diversified portfolio that enables you to earn inflation-beating returns over the long term. SIP in mutual funds helps you attain your financial goals by investing small amounts of money on a regular basis.

As a parent, it is critical to effectively plan for short-term goals such as expenses you will incur within the first 1-2 years of your child's birth such as clothing, medicines, baby food, and school fees, among other things. Furthermore, you should begin planning for long-term goals such as your child's wedding expenses and higher education, which is an expensive affair that should never be bound by monetary compromises.

Under mutual funds, Children Funds are equity-oriented mutual funds that have a lock-in period of 5 years or equal to the number of years left for your child before attaining the age of majority (18), whichever is earlier. Children's mutual funds prevent investors from withdrawing the money until the policy matures, making it a suitable long-term investment option for most individuals. As a result, you must carefully examine your liquidity requirements to determine when you will need money to complete the goal. Consider elements such as current education costs, inflation rate, child's age, admittance age, estimated returns, and so on to arrive at the required goal amount.

To achieve each goal within the given timeframe, you must estimate the amount of money needed. If you need any help in selecting the best equity mutual fund schemes for your child's future, I recommend PersonalFN's SMART Fund Explorer, which provides you with list of recommended best suitable mutual fund schemes to invest in based on your financial goals.

5. Teach financial discipline to your children

Inculcate the habit of saving and growing money! One of the best ways to ensure the safety of your child's financial future is to help encourage them to build a healthy relationship with money.

You may start by making money a part of your dinner table conversations and ensure you are passing down the right and adequate financial wisdom to your kids. You may also introduce children to a few board games associated with money such as Monopoly, Cash flow (inspired by Robert Kiyosaki's Rich Dad, Poor Dad it teaches how to be in better control of your finances), etc. When your child grows up, they would appreciate the lessons and the values you have imparted.

However, in order to inculcate good financial habits in children and teach them money management skills, it is important for the parents to be financially literate. Parents need to empower themselves with the weapon of financial knowledge to secure their child's future. Financial literacy assists you to become a financial guardian for your family, especially for your children and make informed financial decisions for their future.

Therefore, this New Year's Eve make a resolution to enhance you financial knowledge to better understand the above mentioned financial strategies and secure your child's financial future.

PS: We at PersonalFN understand that not everyone is equipped with financial knowledge. Here we encourage you to gain and enhance your financial knowledge and become a 'Financial Guardian' of your family. You will understand the financial planning elements to become your own financial planner.

And in case you are wondering how to become that financial guardian for your family, PersonalFN's latest special initiative, the "Certified Family Guardian," organised into eight modules with 24 extensive videos, will help you with all the relevant tools and learning modules needed to get better at money management. It also offers a host of other benefits to help you make informed investment decisions. Read here for complete details...

So, if you wish to give your loved ones a meaningful financial gift that they will cherish and which helps them secure their financial future, you must enrol with their name for the "Certified Family Guardian" programme today!

Warm Regards,
Mitali Dhoke
Research Analyst