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How to Plan and Save for Your Child's Education

Last updated :
March 10, 2024
/

minutes read

Introduction

As parents, we all want our children to have the best possible education. However, the cost of education in India is increasing rapidly, making it crucial to start planning and saving early. According to a recent survey, the cost of education in India has risen by around 10-12% annually in the past few years, making it difficult for families to afford higher education without financial planning.

Assess Your Needs and Goals

To start planning and saving for your child's education, the first step is to assess your needs and goals. This involves setting realistic goals, understanding your child's educational needs, and identifying the cost of education.

A. Setting Realistic Goals

It's important to set goals that are achievable and realistic. For instance, if your child wants to study abroad, it's crucial to research the cost of tuition, living expenses, and other associated costs. You should also consider the timeframe and the amount you'll need to save each year to reach your goal.

B. Understanding Your Child's Educational Needs

Each child is unique and has different educational needs. For instance, some children may excel in academics, while others may be more inclined towards extracurricular activities. It's important to understand your child's interests and abilities and consider them while planning for their education.

C. Identifying the Cost of Education

The cost of education in India varies based on the type of institution, location, and course. For example, the cost of engineering education in India ranges from INR 5 lakhs to INR 20 lakhs. Similarly, the cost of medical education can range from INR 10 lakhs to INR 50 lakhs or more. It's essential to research and identify the cost of education to create a realistic financial plan.

Explore Savings Options

Once you've assessed your needs and goals, it's time to explore different savings options.

A. Government Savings Schemes

The Indian government offers several savings schemes that provide tax benefits and decent returns. These schemes include Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Certificate (NSC). These schemes offer fixed returns and are ideal for long-term savings.

  • Sukanya Samriddhi Yojana (SSY) is a government scheme that aims to promote the education and welfare of the girl child. It provides an interest rate of 7.6% per annum and allows tax-free withdrawals after the girl child reaches the age of 21 years.
  • National Saving Certificate(NSC) can be a useful tool for parents who want to plan and save for their child's education. For instance, a parent can invest in NSC regularly and accumulate a significant amount of savings over time. The interest earned on NSC is compounded annually and added to the principal, which means that the savings grow at a faster rate than traditional savings accounts.

For example, let's say a parent wants to save INR 20 lakhs for their child's college education in 15 years. They can invest in NSC every month or annually and accumulate the required amount over time. Assuming an interest rate of 6.8% per annum, they would need to invest around INR 7,753 every month for 15 years to reach their savings goal.

B. Mutual Funds

Mutual funds are a popular investment option for long-term financial goals, including education planning. They offer high returns and a variety of investment options that cater to different risk appetites.

Mutual funds in India have provided an average annual return of around 12-15% over the past 5-10 years, making them a popular investment option for long-term financial goals.

C. Fixed Deposits

Fixed deposits are low-risk investments that provide guaranteed returns. They offer a fixed rate of interest and can be a good option for short-term savings.

Fixed deposits in India offer interest rates ranging from 4-7% per annum and are a low-risk investment option for short-term savings.

D. Unit-Linked Insurance Plans (ULIP)

Unit-Linked Insurance Plans (ULIPs) provide both insurance coverage and investment opportunities. They offer high returns and are ideal for long-term investments. Fixed deposits in India offer interest rates ranging from 4-7% per annum and are a low-risk investment option for short-term savings.

Here are some statistics, and data related to planning and saving for your child's education in India:

  • According to a report by the National Sample Survey Organization (NSSO), the average monthly expenditure on education in India has increased by 175% from Rs. 1,004 in 2007-08 to Rs. 2,765 in 2017-18.
  • According to a survey by HSBC, the cost of education in India is expected to rise by 8% annually over the next 10 years.
  • The cost of education in India varies widely based on the type of institution, location, and course. For instance, the average annual cost of an engineering degree in a private institution in India is around INR 5-10 lakhs, while the cost of a medical degree can be as high as INR 50 lakhs or more.

Budgeting for Education

Once you've explored different savings options, it's time to create a realistic budget.

A. Creating a Realistic Budget

A realistic budget should consider all the expenses associated with your child's education, including tuition fees, accommodation, transportation, and other expenses. You should also consider inflation and adjust your budget accordingly.

B. Allocating Funds for Education

It's essential to allocate funds for your child's education regularly. You can automate your investments and save a fixed amount each month to reach your financial goals.

C. Managing Expenses

Managing expenses is crucial to ensure that you're on track to achieve your goals. You can cut down on unnecessary expenses and save more towards your child's education.

Planning for the Future

As your child grows and their educational needs change, it's essential to adjust your savings plan and reassess your goals and budget regularly.

A. Adjusting Your Savings Plan as Your Child Grows

As your child grows, their educational needs and aspirations may change. For instance, they may want to pursue a postgraduate degree or study abroad. It's essential to adjust your savings plan and allocate funds accordingly.

B. Reassessing Your Goals and Budget Regularly

It's crucial to reassess your goals and budget regularly and make adjustments as needed. You should review your investments and savings plan periodically and make changes based on the changing market conditions.

Conclusion

In conclusion, planning and saving for your child's education is a crucial aspect of parenting in India.

With the rising cost of education, it's essential to start early and explore different savings options. By setting realistic goals, understanding your child's educational needs, and identifying the cost of education, you can create a realistic financial plan.

Budgeting for education, managing expenses, and adjusting your savings plan as your child grows are also essential steps towards achieving your goals. Encouraging young employees and new graduates to plan for their future can help them achieve their educational aspirations and build a secure financial future.

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Shuaib Azam
Shuaib is a Marketing & Growth lead at Hubble. When he isn't working on growth initiatives, Shuaib writes fiction and doodles space monkeys.

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