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Common Mistakes To Avoid While Planning for Your Child's Future

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July 01, 2020

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Planning and investing wisely is no child's play. Especially, when it comes to planning for your kid's future. In addition to making the right money decisions and opting for appropriate investing avenues, you also need to avoid some common mistakes.

While there are numerous investment opportunities available today, parents must go beyond simply saving or making ad-hoc investments. To effectively plan for a child's education, they need to choose the right child plan at the right time to achieve their financial objectives. Striking a proper balance in asset allocation is key, but along the way, there are potential mistakes that parents should avoid when planning for their child's future.

Mistake 1: Starting late

Planning for children's education is a long-term financial goal. So, it's ideal to waste no time and start investing soon after the child is born. The compounded growth will help achieve the goal with small, monthly contributions. So, by the time the child is 18-20, and ready to go to college, you will have nearly two decades to create the right-sized fund for his/her need.

If you start late, like when a child is already in his/her teens, it might be too late to plan. But it is not the end of the road. It will take quite a bit of funds to be ready with the right amount and the choice of asset classes would have to be conservative. Plans like HDFC Life's Click 2 Invest – ULIP are ideal for achieving your goals.

With the options for term period starting at 5 years up to 20 years, HDFC Life Click 2 Invest - ULIP lets you enjoy market-linked returns along with valuable financial protection for your family. It has minimal charges to help fund value grow faster. There is a range of 11 fund options to choose from and premium payment options of single pay, 5 pay, 7 pay, 10 pay or regular pay. It also enjoys tax exemption* under Sec 80C and Sec 10(10D) of IT Act, 1961.

Mistake 2: Underestimating the future cost of education

Over the years, education costs have escalated quite a bit. Effectively, a good professional course within India will cost around Rs 7 lakh or more. If you are looking at studies overseas, it is likely to cost about ten times the amount. Although there is no way of knowing exactly what a child will do in another 8-10 years, one can make assumptions based on aspirations. So the investments need to be congruous to whether you are looking at foreign or Indian education for the child. HDFC Life has a Child Education Expense Planner Calculator that helps calculate the total education expenses against the inflation rate for your child's education needs.

Mistake 3: Not taking inflation into account

Funding higher education is a crucial financial goal. But most investors have a habit of picking up a random round figure as the target. Take a clue from the cost of the inflation index. The amount you are aiming at should factor in inflation and the future costs of education. Higher education is becoming more expensive with each passing year. According to a recent media report, the cost has grown at an average rate of about 13 per cent per annum.

What an investor needs to do is find out the current cost of the college or course fee, inflate it by a realistic number and get an estimate of the target corpus. Do the math and research what is a fair value to assign for this goal, before you begin to put aside the money.

Mistake 4: Opting for low return investments

Invest through instruments that provide inflation-beating returns. A long investment tenure allows you to take moderate levels of risk, which can potentially produce high long-term returns.

While security is important, being hesitant to take any kind of risk is not a prudent choice. You need to take calculated risks so that you have enough money for your goals. With a long-term investment plan through high-reward instruments, you can recover from periodic market fluctuations and emerge with the desired corpus in the optimum time-frame.

Mistake 5: Not insuring yourself

While making the #Decision2Protect your child's future, one should not forget about life's unpredictability. An unfortunate incident may leave your loved ones struggling to keep their finances afloat. Primary life insurance should be seen as a protection cover for family first. In addition to life insurance, you need to attach insurance to your child's future planning.

You can secure your family's finances with a term insurance plan like HDFC Life Click 2 Protect Life. It offers life cover, and safeguards against terminal and critical illnesses and disability and will help you maintain your finances through difficult times. Should anything happen to you, the payout from the plan can help your child continue their education.

Investing in your child's future and ensuring his/her financial future is of utmost importance. With a few smart investments and carefully-planned life cover, you can give your little one the help they need to make all their dreams come true.

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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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