How to Ensure that the Pandemic Does Not Create a Hurdle in Your Child’s Financial Future

For your child's future, the earlier you start investing the better. Do not wait till the child is clear about his/her ambitions. One of the major benefits of starting early is that you will be able to accumulate a large sum since the investments will get enough time to grow and compound your wealth. A delayed start will mean setting aside a big sum for investment every month which could dent other financial goals.

It is important to take inflation into account while planning for long term goals and invest accordingly. Inflation on education can be expected to grow at a rate of 8-10%. Know the cost of education across various streams at present and determine the future cost of education that will help you arrive at the monthly amount to be set aside for investment.

Then choose the best and most suitable option based on the investment horizon. For instance, if you need the money in the next 2-3 years, avoid riskier investment such as equities and opt for stable and liquid avenues such, debt funds, bank deposits, etc. Whereas for a long term horizon of more than 5 years, invest across diversified equity mutual funds, direct equities, Public Provident Fund, Sukanya Samriddhi Yojana (if you a have girl child), etc.

If you are planning to send your child abroad for education, know that the cost element will rise manifold. In this case, you can consider diversifying your investment in international funds that can provide a hedge against currency fluctuations.

​Assure their well being

One of the biggest potential setback to your child's aspiration is the demise, prolonged illness, or job loss of either or both the parents. So, to secure your child's goals even in the face of difficulties ensure that you have the right amount of insurance.

Opt for a term life insurance that will assure your child's financial security even in your absence. While determining the coverage for life insurance factor in your income, expenses, assets and liabilities, future goals, number of dependents, among others. A common thumb rule is that the life cover should be equivalent to around 10 times of your annual income.

Besides, since medical emergencies may strike unannounced it is important to be well prepared. Having a health insurance is very beneficial in case you fall ill. It will cover a range of expenses such as hospitalisation, surgeries and other procedures, medicines, room charges, etc. This will protect your savings against medical emergencies, thereby allowing you peace of mind.

Prepare a Will

Have you thought about who will take the responsibility of taking care of your child if something untoward were to happen to you? The objective of a Will is to arrange and plan one's succession and financial affairs making sure it passes on to the intended beneficiaries. In the event of the unfortunate demise of both the parents, the Will would ensure that only the reliable guardian appointed by you for your minor child will be responsible for their care and managing investments till the child attains the age of majority.

Making a Will may seem complex, but it is not. One can write it on a plain piece of paper in their preferred language (e.g. English, Hindi, Marathi, etc.). Registering a Will isn't mandatory but it makes sense to register it to avoid questionability on its genuineness.

Educate your child on good money habits

It is important to inculcate in kids the habit of budgeting, saving, and investing from an early age so that they are well-equipped to handle finances when they are older. It will ensure that the hard-earned money that you saved for the well-being of the child is put to good use by him/her.

When you let your kids understand the worth of money, they will start spending wisely from childhood. This will make them less demanding and help them understand the value of hard-earned money.

Review your portfolio

Once your investment plan is in place, review it at least once a year. Check whether your portfolio is on track to achieving the goal. If you find that the scheme/s that you have invested in has been consistently underperforming, replace it with a better alternative.

You should also check whether inflation is rising at a faster rate than you estimated, in which case you may have to step up your investment amount. Ideally, you should raise the investment amount in line with the hike in your salary.

Also assess whether there is a need to rebalance your portfolio from equity to debt or vice versa to curtail the risk of over-exposure to a particular asset class.

To conclude...

Planning for your child's future requires a solid plan that can materialise even in the absence of the parent(s). When you plan for your child's future adopt a sensible approach and avoid following the herd because each one's financial health, circumstances, goals are different. And even after planning and forecasting for future needs, it would be prudent to have some buffer for an unexpected rise in expenses and contingencies.

"Hope for the best, but prepare for the worst".

PersonalFN believes that it is possible to fulfil the dreams you have envisioned for your children without jeopardising your personal desires, with the help of sound financial planning and suitable asset allocation.

You can seek the assistance of unbiased PersonalFN's Financial Planners who help you achieve your financial goals.

With personalized Financial Planning, PersonalFN can help you plan any or all of your life goals i.e. retirement, children's future, purchase of an asset, debt management, insurance requirement analysis and other such goals.

Avail of PersonalFN's Financial Planning Service to streamline your personal finances prudently.

Warm Regards,
Divya Grover
Research Analyst

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