Financial Planning For Kids: Financial planning should be started even before the children come into the world so that the little guest is not only financially secure at present, but is also safe in the future.
Financial Planning: Are you a new parent? New parenthood is as exciting as it is challenging. The sudden emergence of diapers, wipes and baby formula can leave you stranded. While this exciting experience cannot be compromised by anything, one cannot help but reduce these expenses that come in the parcel as a part of parenthood. As the years pass and your child starts his education, these expenses keep on increasing. Hence, I always have one strong piece of advice for every new parent I speak to – start financial planning for your child’s future.
Before telling about the tips that can help parents in financial planning, understand how different the environment we live in now is from the life of our parents.
The professional and educational landscape has changed at a rapid pace in the last few decades. While our parents had only a few traditional careers to choose from such as engineering, teaching, medicine, banking, chartered accountants etc., the new generation has a lot to choose from. The nature of career ranges from a statistician to a horse rider. For today’s kids, the world is truly their oyster, as they say. The world is witnessing phenomenal growth in terms of career options and children are moving towards specialized education in various fields like Data Science, UI/UX, Art Therapy, Master Distiller, Gaming Analysis etc. Along with this, a large number of children want to get quality education abroad.
This means, parents should be prepared for big expenses as soon as the kids get to know what they have to do in future. In such a situation, careful financial planning is not only necessary, but also mandatory. So, how will you accomplish this challenging task? It’s going to be a bumpy ride, but it could be a successful one. Have a look:
c1. Take stock of possible future expenses
Generally, the cost component of conventional and non-conventional higher education will remain high. This cost will further increase if your child decides to study abroad. It is important to note that the cost of foreign education has increased by 20 per cent since 2020 and this is due to factors like inflation and foreign exchange rates, which will increase further over the next few decades. Apart from tuition fees, there may be additional costs like airfare, accommodation, extracurricular, emergency etc., which need to be provisioned for.
Therefore, your first task is to identify how much it is likely to cost you if your child chooses the foreign education option to start their graduation level studies.
2. Overall consideration of financial condition is necessary
No financial planning can be done effectively unless a holistic view is taken in which you consider your life events including emergencies. Multiple uncertainties can derail your financial preparation for your child’s future. Sudden illness in the family, disability or unexpected event like pandemic, loss of salary, death of the bread earner, etc. can cut your savings or investments in half if not accounted for in advance.
3. Can your financial solutions move fast?
As your children progress through their formative years, naturally their financial needs will also grow or change. It is important to note that your financial planning is based on your best estimate of what your child would need. Your kids will know what they are passionate about and what they want to pursue as a career when they are old enough to make their own decisions. Therefore, your requirements may change at a future date, and you may require more financial funds than before. Hence, the financial solutions you buy should be fast moving and flexible.
There are a few participating life insurance products now available in the market that can help you prepare for such risks. These products evolve as the customer evolves through life stages and offer significant flexibility in the form of freedom to choose the timing of benefit payments.
“For example, suppose you are building a financial corpus with the assumption that your child will go abroad for higher education after graduation in India. (i.e., before your estimate). This means that your financial need has come at least 2-3 years in advance. In such cases, participating plans like Flexi Savings Plan can offer a safety net. and save you from incidental expenses.
It is important to know about some thumb rules
a. Understand your goals completely and then start planning
b. Look at all your goals holistically and not in isolation. Otherwise, your financial planning may be inadequate
c. Re-visit your financial situation at each of your life events to ascertain whether there is a
need for any changes in your financial planning
d. When making any future projections, be conservative with cash flows and aggressive with expenses
e. Make sure the financial solutions you buy are flexible and agile enough to accommodate your evolving needs
There is no ideal or one-size-fits-all formula for financial planning; It is a difficult task as financial requirements differ from person to person. This calls for a smart, new age financial solutions that can truly unleash the power of each and every individual.
