21 Jun 7 Reasons to plan for your Child Education as early as possible
Darshana and Ganesh (name changed), our recently added income tax clients, took a ₹50 lakh education loan this year to send their daughter abroad for higher education. Mr. Ganesh, who is 56 and likely to retire in the next 2-3 years, regrets not planning earlier and investing towards her daughter’s higher education. This would have reduced the need to borrow such a large amount, especially when his priority now is saving for retirement.
Like Mr. Ganesh, many Indians aspire to send their children abroad for higher education. When that isn’t feasible, they strive to provide their kids with the best possible education here in India. While every parent wants to give the best opportunities to their children, planning for these opportunities often takes a backseat to life's other demands. It’s a sad reality that very few people actually plan and invest with such a vision.
Let's us today understand the potential benefits of early planning and investing for your child’s education
Inflation:
It’s a well-known fact that the cost of goods and services increases over time due to inflation. However, when it comes to education, the rise is significantly higher than the average inflation rate.
Consider the following data:
| Field of Professional Education | 2009 (fees) | 2024 (fees) |
|---|---|---|
| MBA | 5.89 | 24.61 |
| Engineering | 2.05 | 8.55 |
| Medical | 16.97 | 70.88 |
According to this study, the cost of pursuing professional education courses such as MBA and Engineering in India has risen sharply over the last decade. The expenses for similar courses abroad are even higher.
Why Education Costs are Rising?
Indian educational institutions, driven by limited supply and high demand, possess significant pricing power. As a result, their fees are expected to continue increasing over the next 10-20 years. This trend should not come as a surprise.
By early planning & investing, you can ensure that your savings grow at a rate that outpaces inflation, preserving the purchasing power of your money over time.
2) The Uncertainty of Life
Life is unpredictable. What we earn today might not be the same tomorrow. Economic downturns, deteriorating health conditions, and unforeseen circumstances can put brakes on our earnings and, eventually, on our child’s aspirations. In such an uncertain world, having an investment plan can significantly mitigate these risks and secure your child’s future.
3) Reduced Stress and Anxiety
Financial planning for education in advance reduces the stress and anxiety associated with sudden large expenses. It allows you to manage your finances more effectively, without compromising on other financial goals such as retirement planning.
4) Better Loan Management
If loans are still necessary, early planning can reduce the loan amount and make repayment more manageable. Smaller loans mean less interest over time, and a more secure financial future for both you and your child.
5) Teaching Financial Responsibility
Involving your children in the planning process can teach them valuable lessons about money management, the importance of saving, and financial responsibility. This can set them up for a financially prudent future
6) Compounding:
By starting your investment early in instruments like Mutual Funds, you can take advantage of compounding interest, allowing your investments to grow significantly over time. This reduces the amount you need to save each month compared to starting later
7) Flexibility in Educational Choices:
With a well-funded education plan, your child has the freedom to choose the best educational institutions, whether in India or abroad, without financial constraints limiting their options.
Take Action Now
Investing in your child’s education is not just about securing their future but also about ensuring your own financial well-being. Start planning and investing early to maximize these benefits and provide the best opportunities for your child without compromising your financial stability.
Remember, the best time to start was yesterday. The second-best time is now. Take the first step towards a secure educational future for your child and a worry-free retirement for yourself.