WHEN SHOULD PARENTS START SAVING FOR THEIR CHILD


Planning is essential as we all want to have a quality lifestyle and a quality lifestyle comes with a price. Planning helps set clear goals, develop plans for such goals and maintain the discipline to achieve them. As parents, we will always desire that our children lead better lives than us and hence planning for a child’s future is critical.

Ideally, parents should start planning for their child soon after the child’s birth. There are several reasons for the same:

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When the child is born, there are several festivities in the household and invariably, the child is showered with gifts, monetary or otherwise. Hence, there is a critical mass of wealth already gathered post the child’s birth to start the process
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As the child grows older, the needs of the child grow and unless proper planning has gone into the financials, often parents find their finances in a mess
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It is always better and easier to put aside a small amount of money every month for the child. With compound interest working, the small amounts will grow themselves to a lucrative financial plan for the child

Parents usually believe in the concept of saving for the child; however often that intention does not translate into real action. What that means is: parents believe that all their finances will anyway be inherited by the child hence there is no need to separately plan for the child. This is an incorrect belief since proper financial planning is crucial to ensure there is enough money to finance the child’s future education/ marriage, etc.

Formal financial planning for the child can be done in the form of opening a savings bank account in the child’s name. Several public and private banks provide the option of opening ‘minor accounts’ in the name of the child. Also, increasingly, banks are providing exclusive packages for opening special bank accounts for children and investing through those accounts.

Parents should actively avail opening these accounts for their children and regularly deposit money in the accounts. Furthermore, parents should not only use these accounts to build savings balances but also use the ‘systematic investment plan (SIP)’ scheme to invest for their children. What this means is: parents can decide and put Rs.1000 every month in SIP, which is a small amount on a regular basis. Over a 20-year period, this monthly deposit of Rs.1000 will result in a sum of Rs. 7.9 lacs!!!! Ain’t that great and all that requires is putting aside a monthly sum of Rs.1000 in the name of the child.

Mostly parents are very skeptical in putting money in the stock market since they believe that it is a high risk element and they do not wish to risk the money being invested in the name of the child. Hence, most savings done in the name of the child lies either in PPF or savings account. The SIP plan helps parents achieve two goals:

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Parents can set aside small amounts of money regularly instead of lump sum amounts periodically
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The SIP plan invests the money in selected market funds, which typically yield higher return than savings interest rate. Yet, the volatility of the market is evened out due to long term nature of the investment; hence there is no ‘stock market’ related risk to the investment

As the child grows older, financial planning done from an early age becomes a parent’s asset. It allows the parents flexibility to provide the child with better education; send the child abroad or even ensure a lavish marriage as the case may be. All the youth dreams and desires of the child can be fulfilled using the finances gathered rather than stressing at the time of immediate need.

The chart below details the education expense for a child papa. By 2025 and clearly gives only one message – START SAVING NOW, IF YOU HAVENT STARTED ALREADY!