Early Financial Saving Planning - A Parenting Victory

The concept of parenting has undergone a drastic change over the years, and most of it is a result of economic, social and cultural factors. Today, apart from working, mothers are also active participants in family decisions. Besides this, parents read and prepare way before the child is even born. Due to a smaller household size, a lot of attention is given to every little aspect of the child’s upbringing by both parents to ensure than no stone is left unturned.

In recent times, the cost of raising a child has risen considerably. For instance, education costs have skyrocketed. Despite this, a recent trend exposes that parents have been sending their kids abroad for higher studies, which in turn results in significant expenses. This cost is expected to increase in the future given the increase in demand and factoring in inflation.

In addition, our social set up also makes saving for child’s education an imperative objective. In fact, a survey conducted in 11 Tier 1 and 2 cities revealed that Indian urban parents give highest priority to child’s education (75%) during financial planning followed by health expenses (61%) and retirement (57%). To sum it up, saving for child’s education is the most important milestone and parents want to ensure that this objective is met irrespective of rising cost or any unforeseen circumstances.

As a result of other priorities, parents start planning their child’s future at a later stage. But in order to reap the benefits of financial investments, it is always advisable to opt for financial planning during the child’s formative years (3-8 years) to ensure ready sufficient funds when the child is ready to embark on a career. This gives a healthy time period of 10+ years to save for the child and have a robust amount of funds available when he or she needs them the most.

Life insurance plans are specially designed to ensure that investment risks are covered and the corpus is built uninterrupted to meet the objectives. Saving Plans designed on unit linked platforms usually referred to as unit linked life insurance plans (ULIPS) benefit parents over long term to gain from both protective umbrella of insurance and higher return from equity.

Child ULIPS are transparent and allow parents to choose the investment vehicle, according to their risk appetite. Most preferred instruments as bank FDs and post office savings earn lower returns in long term or beat inflation rate by a margin. As a result, in couple of years, it can bring down your purchasing power and capital too. Equity on the contrary will beat inflation with far better margins in long run. Moreover, investing in Life insurance ensures that parents are disciplined when it comes to preparing funds for the child-which is not the case in case of other products such as FDs. Having a child plan ensures that any contingency will not de-rail plans for the child’s future.

Savings for the child is time bound. What I mean is that the funds are needed at periodic intervals to fund school, college, higher education and marriage expenses. The payout years should be timed as per the age of the child. For example a child in class 10th may need funds after 5 years for higher education. Life insurance recognizes this need as essential and offers plans with regular payouts or withdrawals options, free of cost. These payouts can also be used for expenses related to holistic development of child such as art, dance, sports, extra tutorials, electronic gadgets etc. ULIPs also pay lump sums at the end of the policy term as fund value, which can be used for major expenses as college fees or marriage expenses. This ensures the key miles stones in your child’s life stage are achieved.