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Building a Financial Safety Net for Your Child, this Children’s Day.

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Building a Financial Safety Net for Your Child, this Children’s Day.
November 07, 2024

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The investment risk of ULIP is borne by the policyholder.

Love Isn’t Just Gifts—Secure Their Tomorrow with These Financial Strategies Today

Children’s Day, celebrated every November 14th, is a reminder to nurture the potential of our children. Beyond gifts and festivities, it presents an opportunity to reflect on how we can prepare financially for their future. With the cost of education soaring, unexpected challenges around the corner, and dreams evolving over time, it is essential to have a plan that is both flexible and future-ready. Thoughtful financial planning ensures that your child has the resources to pursue their dreams without compromises.

1. The Soaring Costs of Education: Start Planning Early

The cost of higher education in India has been rising at an alarming pace. Today, a four-year engineering degree from a top private college can cost around ₹40-80 lakh*. Medical education at private institutions is even more expensive, ranging from approximately ₹50 lakh to ₹1.2 crore^ over five years​. For parents considering international education, these figures can easily triple.

Given this trajectory, starting investments early is essential to avoid taking on debt later. If parents invest ₹15,000 per month in ULIPs or child plans from their child’s birth, with an 8% annual return, they could accumulate nearly ₹73 lakh by the time the kid turns 18. That would be enough to cover college and other expenses comfortably. The key is disciplined, consistent investing that aligns with these future goals.

2. Planning Early for Milestones like Marriage to Avoid Financial Stress

Weddings in India are more than just ceremonies—they are often multi-day celebrations with significant expenses​. For many families, ensuring that their children’s weddings are grand and memorable is a deeply held cultural goal. However, without structured financial planning, such events can disrupt long-term savings or force parents to dip into other investments.

One effective way to prepare for this is by incorporating endowment plans into your financial strategy. These plans allow parents to build a corpus over a fixed period, with guaranteed payouts aligning with key milestones like marriage. Unlike other investments, endowment plans also offer life cover, ensuring that even if life takes an unexpected turn, your financial goals remain intact. With early investments in these structured plans, parents can meet wedding expenses smoothly, avoiding last-minute borrowing or liquidation of other assets.

3. Balancing Immediate Needs with Long-Term Goals

Alongside saving for future education, parents must manage ongoing expenses—healthcare, extracurricular activities, and unexpected emergencies. Financial planning should, therefore, accommodate both short-term and long-term goals.

An effective way to do this is by maintaining separate savings “buckets.”

  • Short-term bucket: Liquid reserves for healthcare and school-related expenses.
  • Medium-term bucket: Funds for upcoming milestones, such as coaching classes or entrance exam preparations.
  • Long-term bucket: Investments for higher education, built through savings insurance plans or endowment products with maturity payouts timed around important life events.

This division ensures that each financial need is adequately addressed without disrupting long-term goals.

4. Compounding: Small Steps Today Lead to Big Results Tomorrow

The earlier you start saving, the more powerful compounding becomes. Even small contributions grow exponentially when invested over a longer period. Here’s a simple example. If you invest ₹10,000/month at 8% p.a return for 18 years, you accumulate ₹50 lakh. But, delay by 5 years and invest the same amount and the corpus shrinks to just ₹28 lakh.

This scenario highlights the importance of starting early and staying consistent. Savings insurance plans offer both predictable growth and guaranteed payouts, making them a reliable tool for parents seeking long-term financial security.

5. The Role of Insurance: Protecting Against Life’s Uncertainties

Life can be unpredictable, and that’s where insurance becomes essential. Savings insurance plans not only help accumulate a corpus but also protect your family’s financial plan in case of unfortunate events such as death of a parent or loss of job for main income earner parent. If something happens to the policyholder, the insurance ensures that your child’s dreams—whether education, skill development, or entrepreneurship—remain intact.

These plans offer guaranteed payouts at predefined intervals, giving families the assurance that financial goals will be met even if circumstances change. Having this safety net brings peace of mind, knowing that your child’s future is secure no matter what happens.

6. Fostering Financial Discipline in Children

While parents focus on building a financial foundation, teaching children the value of money is equally important. Research shows that children who are introduced to financial literacy early tend to become more responsible with money as adults.

You can start by involving your child in small financial decisions—such as setting savings goals for toys or budgeting their pocket money. As they grow, gradually introduce them to more complex concepts like investments and the importance of insurance. These lessons empower children to manage finances independently and make informed decisions in adulthood.

7. Regular Reviews: Adapting the Plan to Changing Goals

Financial planning is not a one-time exercise. As children grow, their aspirations and needs evolve—requiring regular reviews and adjustments to the plan.

For example, the amount saved for college might need to be increased if your child decides to pursue a specialised degree abroad. Similarly, a change in income levels or life circumstances might call for a reallocation of savings or the addition of new insurance riders.

Child insurance plans provide flexibility through periodic payouts and policy customisation, allowing families to adapt their financial strategy without disrupting the long-term plan.

Conclusion

On this Children’s Day, reflect on the steps you can take to secure your child’s financial future. With education costs rising, life’s uncertainties always present, and evolving goals to consider, starting early and planning effectively is crucial. Savings insurance plans provide a reliable way to build a financial corpus while ensuring life cover, offering peace of mind that your child’s dreams will remain within reach. The decisions you make today will shape the opportunities your child has tomorrow.

Sources:

* - https://www.shiksha.com/engineering/ranking/top-engineering-colleges-in-india/44-2-0-0-0

^ https://timesofindia.indiatimes.com/city/bengaluru/mbbs-seat-breaches-rs-1-2-crore-on-tepid-supply/articleshow/54648341.cms

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ARN: ED/11/24/17575

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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