- October 9, 2016
- Category: Financial Planning
Parents want the best of education for their children. And, they are willing to spend lakhs of rupees in these inflationary times. Wait, I am not talking about higher education here. It is school education which has become very expensive and ironically costs more than graduation! Besides the ICSE and CBSE curriculum, many schools nowadays offer international courses like International Baccalaureate (IB) and Cambridge International Examination (CIE) which are comparatively more expensive than the latter.
The Nursery fees generally range from Rs.50,000 in an average school to about Rs.1.5 lakh in a high end school. If you wish to enrol your child for IB and Cambridge courses, be ready to shell Rs.3-5 lakhs in the primary schooling years itself.
At the bottom of every school admission form is a note which states that school fees are subject to a 10-15 per cent increase every year. So imagine what would be the school fees you would be coughing out by the time your child reaches 10th grade. And, there is more. The school fees do not include bus transport fees, excursion fees, competitive exams, etc. Despite putting in the best of best schools, parents also spend a bomb on their children tuition fees, at least in the higher grades. And then there are extra-curricular activities to spend on for the overall personality development of the child.
With higher education a long term goal, at least 8-10 years away, parents have time to plan and invest in advance to achieve the target corpus. On the other hand, school fees are normally paid from the current savings every year. However, what if an unfortunate event strikes and disrupts your regular finances. Paying high school fees in one go could mean stretching your finances a bit during an unfortunate event. So it is prudent to plan for school fees in advance before the start of an academic year.
Usually for short term goals, financial planners advise to invest in fixed income options. The emphasis here is not much on investment and returns since it is a recurring goal every year. What matters is having the funds available at the opportune time when required. You can invest in debt instruments which offer guaranteed returns and carry no risk. For instance, you can open a recurring deposit account with a bank online. Depending upon the frequency of the fee payment, you can open more than one recurring deposit account and align its maturity with the fee payment period. So for e.g., if you will be paying the school fees in 2 instalments i.e., half yearly, you can open 2 accounts with a gap of 6 months and align their maturity with the fee payment period. So, every 6 months, your RD account will mature and you will have the funds in handy to pay the fees. This exercise would also instill the discipline of investing every month as against huge funds laying idle in savings account. Alternatively, you can also invest in fixed deposits to achieve your goal.
This may sound exaggerated but if you wish to put your child in an international school in the future, you should start investing even before your kid is born.
Considering inflation every year, the secondary education costs would involve very high fees plus parents inevitably also spend on private tuitions or coaching classes. If your child is small and secondary education is at least 7-8 years away, you can even consider investing not more than 20-30 per cent of the target fees in equity mutual funds.
Further, you would not like your child’s education goal to suffer in the case of any unfortunate event. So instead of buying child insurance plans, ensure that you have adequate life insurance cover so that your dependants would have the financial means to fund your child’s education in your absence.