Planning for a child’s education is one of the most important financial goals that parents have. From school fees, college fees, coaching, books, to travel, every component of education is a crucial expense that can add up significantly. In addition, education expenses like college fees can become prohibitively expensive by the time a child reaches his or her college-going years.
Therefore, parents need to start considering child education investment plans at an early stage to save for future expenses. With the right child investment plan, parents can start building their corpus early on and secure their child’s educational future.
The best child education plan depends on various factors, including the child’s age, parents’ income, estimated education expenditure, time horizon, and even the amount that parents or the child can invest regularly.
The following points will help identify the best child education plan.
Decide on the Education Goal
The first step in selecting the best child education plan is to decide on the education goal. Parents should estimate the type of education they need to prepare for and invest in. For example, a child education investment plan can cover higher education, which may be in India or abroad. Additionally, professional courses or degrees that the child would want to pursue may also be considered. While it is important to consider the type of education the child will want in the future, it may not be necessary to choose the exact course or college the child needs to go to at the nearest time.
Estimate Future Education Expenses
Parents should make realistic assumptions about future education costs when choosing the best child education plan. The costs associated with education today can balloon to impossible amounts within a decade. For example, a course that costs ₹10 lakh today can cost significantly higher in another 10 or 15 years, depending on inflation rates and other considerations. Consequently, estimating future education costs must involve realistic assumptions about the inflation rate when calculating the future value of education costs today.
When estimating future education costs, consider the following:
- Education fees today
- Estimated percentage increase in fees
- Course duration
- Hostel and other living allowances
- Books and study materials
- Travel costs
- Coaching or entrance test expenses
- Costs of studying abroad, if applicable
- Additional expenses or contingency fund
Once the future value of education costs is estimated, parents can compare this value to their ability to contribute regularly to a child investment plan to select the best option.
Ascertain Amount That Can Be Invested
Once parents have an estimated future value of their education goal for the child, they should ascertain whether their current financial status and best child education plan allow them to make regular contributions towards the child education investment plan.
Therefore, while choosing the best child education plan, it is important to avoid options that require unrealistically high regular premiums. Parents should select an option that is appropriate for their financial status and allows them to make regular contributions without putting undue stress on their finances.
Evaluate Education Investment Based on Child’s Age
When considering the best child education plan, it is also important to evaluate options based on the child’s age. If the child is quite young, several years are available to make consistent contributions towards the child’s education fund. On the other hand, if the child is already older and closer to college-going age, the contributions made to the child investment plan should be sufficient to meet the anticipated education costs.
Therefore, the child’s age should play a significant role in selecting the best child education fund. In most cases, two similar-looking education investment plans are not always suitable for every family.
Compare Features of Different Plans
When selecting the best child education plan, it is important to compare the critical aspects of different education investment options. Therefore, before choosing the best option for the child education fund, it is critical to compare the following features:
- Amount to be invested
- Policy or investment term
- Maturity benefit
- Life cover, if applicable
- Flexibility
- Withdrawal and surrender benefits
- Charges and taxes
- Other terms and conditions
While selecting the best child education plan, it is important to avoid picking the option with the highest maturity benefit. Parents should understand the terms and conditions of an education investment option before selecting it. If two options have similar maturity benefits, the one with more flexibility and additional benefits should be selected.
Consider Risk Exposure
Child education plans can either be market-linked or guaranteed. Market-linked options are subject to market risk, whereas guaranteed options carry less risk. In addition to risk, parents need to consider their financial status, investment horizon, and risk appetite when choosing the best child education plan.
For example, if parents have a long time to save up for their child’s education, it may be possible to choose a market-linked option. This way, the longer investment period allows them to mitigate some of the risks associated with market volatility.
Consider Life Insurance Coverage
The best child education plans often come with insurance coverage for the life of the policyholder. The importance of life cover in child education plans cannot be understated. Ideally, the education fund should be adequate to meet the child’s educational needs, even in the case of the death or disablement of the parents.
Therefore, when selecting the best child education plan, it is important to consider the amount of coverage provided. However, parents should also take into consideration their existing life insurance coverage, including any term insurance plan, to ensure that they do not over-insure.
Fund Separation
It is always important to keep the education fund separate from other expenses. This way, it is much easier to track the education fund contributions and even ascertain whether the contributions are sufficient to meet the anticipated education costs. Parents and guardians should set aside funds for their child’s education and regularly monitor the growth of the fund to ensure it grows at a satisfactory rate.
For instance, a child education fund that grows at an insufficient rate may require adjustments to increase the contributions. Parents should also review their child education fund at least once a year to ascertain whether their contributions will be sufficient to meet the education goals.
Use an Online Calculator
Several online calculators can help determine the best child education plan based on specific requirements. For example, an online calculator can help determine the amount needed to invest for a child’s education. These calculators require the user to enter specific details, including the age of the child and the anticipated costs of education. Depending on the calculator, an individual can enter the number of years remaining before the child joins college.
Choose a Sustainable Contribution Plan
When choosing the best child education plan, it is critical to remember that parental contributions are of utmost importance. In other words, the most attractive child education plan is useless if the parents cannot contribute consistently. Therefore, when choosing the best child education plan, it is important to consider the contribution term, realistic returns, and sustainability of the contributions.
Review Periodically
Child education planning is a dynamic and ongoing process that should be reviewed on a regular basis, depending on individual requirements. For example, a child’s education needs can change over time, and the initial education investment plan may need to be adjusted. Parents’ income needs to be considered when reviewing their capacity to contribute towards the child’s education fund. In addition, if the actual education costs increase, the child investment plan should be adjusted accordingly.
Conclusion
Choosing the best child education plan requires due diligence on the future costs of education, including when the education expenses will be incurred. Parents should choose an option that has realistic returns based on their financial status. When selecting the best child education plan, important considerations should include returns, risk exposure, flexibility, charges, life cover, and other features. Parents should review their education fund on a regular basis, depending on their financial needs and those of the child.
