Worrying about college education of your teenage child? Here is how you can prep
Parenting a teenager can be a bittersweet experience – it is that phase in the journey of parenthood when you may have to deal with a tornado of emotions what with your child behaving in ways that may seem inscrutable and even shocking. But these feelings of apprehension and sometimes even exasperation will always be laced with moments when the realization dawns on you that in a few more years they would be adults and get busy in their respective paths they would have chosen for their lives.
You may also find yourself fretting about how they would be able to survive in the big bad world outside the protective cocoon of home and you would want nothing but the best for them. One way to do that would be to financially prepare for your teenage child’s college education if you haven’t started already.
Over the last 10 years, school fees and other associated expenses have increased by 150 per cent. During the same period, the average annual expenditure in private schools has increased by 175 per cent, while the costs of professional and technical education have increased by 96 per cent. However, the irony is that only 20 per cent of parents surveyed had specific investment demarcated for child education.
Parents consider fees as the savings target but forget to consider the following things - Inflation in tuition fees; travel; accommodation; day-to-day expenditure and exchange rate fluctuations (in the case of foreign education). Sadly, then they have to regret or sacrifice many things meant for achieving their personal life goals and end up working extra hours. Their unpreparedness not only results in unfulfilled dreams but also shifts the burden to children in the form of education loans.
So what can be done?
Sujata Sinha (name changed), a banker and a mother to two aged 15 and 20 narrates, “Ideally, all parents should begin saving for their children’s college education from the day they are born but more often than not life blows your best laid plans to smithereens and you find yourself unable to work towards your financial goals. Something similar happened in our case and we could only start building a dedicated corpus for funding our children’s college expenses when my older son was 14.”
According to Sinha, it may seem a herculean task to build a solid reservoir of funds in a shorter time span compared to what you would have accumulated if you had started earlier but it is not impossible. “Yes, it is harder but it is also doable and the biggest revelation in our journey was that having honest conversations with your children about their college expenses helps in easing the financial demands on the whole family. My husband and I discussed our financial plans with them while giving them the assurance that we would leave no stone unturned to fund their education. But we also explained how strict we had to be with money to be able to save enough for their studies. That made them realise that money is a finite resource and it also fuelled their drive to be better students.”
The costs of higher education in India are skyrocketing. Add inflation to the mix and you have a tricky situation. According to a report by CARE ratings agency published in 2019, in the preceding decade, the expenses on general education that includes primary to post graduate courses increased fourfold to ₹8,331 per student per annum and the cost for professional courses went up by nearly 52%.
Your financial plan would hinge on what course your child wants to pursue after high school. If your child has taken the class ten board exams, it might be a good idea to have a chat with them about the courses they are interested in and the colleges they may wish to apply to. For instance, pursuing an engineering or medical degree in a private college or university would require a significantly larger corpus. On the other hand, a degree in humanities or commerce may cost less. You can garner information about the tuition and hostel fees of the last few years charged by some colleges to get an idea of the capital you would need.
Picking the right investment path
It is pretty obvious that if you are aiming to have a corpus ready for your teenage child’s college education you need to have a bulletproof budget. The next important step would be to pick your investment avenues keeping in mind that you may not have more than 5-6 years for your goal. Traditional investment vehicles may not generate inflation-proof returns and in case you fall short of funds when your child is about to go to college, you may have to tap into other funds that you may have built for other goals or you may have to take up an education loan.
Mutual fund investments in a mix of equity and debt instruments through SIPs can be a better way to accelerate your capital accumulation. Given the time frame, it would be advisable to invest in large caps and diversified caps fund as they entail less risks than mid caps and small caps equity funds while investments in high quality debt funds can offset the risks of the equity component. Since mutual funds afford investors the flexibility of starting investments with as little as ₹500, you do not have to wait for accumulating capital for investment as is the case with fixed income instruments. What’s more SIPs will help you reap the benefit of rupee cost averaging by allowing you to enter the market at different points without you having to actually time your investments which can be risky business. As you move closer to the timeline of your goal, you can gradually start leaning more towards debt funds and reduce the equity weightage so that in case the markets hit a precarious territory, you do not run the risk of losing a chunk of your corpus at once.
Sinha believes that the journey of investing for higher education can also act as a springboard for kids to pick up money management skills. “My older son is studying at one of the best engineering colleges in the country. Looking back, I feel that the choice to make our children privy to the financial strategy for their education has helped them develop a mature perspective about managing finances. This is a milestone that concerns the children themselves and parents can use this opportunity to make them familiar with what goes into ideating and executing a financial plan for meeting your goals.”
• If you feel too overwhelmed at the thought of having less time for saving up for your child’s higher education, speak to a financial advisor who can draw a plan best suited for your abilities.
• Proper planning at the right time is the only solution to this. A planned investment, done over a long period of time, has the potential to give desired results by the time your child is ready for higher education.
• Mutual funds aim to provide a convenient method to plan and invest in market-linked financial products which can beat inflation in the long run.
• Maintain a good credit score by paying your EMIs and credit card bills on time so that incase, you are unable to accumulate enough capital by the time your child is ready to go to college, you can easily avail a loan for funding his/her education.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.