Generally, when such a question is asked, the expectation is that I will suggest some kind of Insurance Plan for the child, or maybe some Investment plan directed towards the child’s future.
But if you really want to safeguard your child’s future, you need to do a lot many things, which are not limited to doing investments, and where the real financial planning comes into the scene.
Below are a few pointers which you should keep in mind and act on:
#1 Writing a WILL
You should write a WILL and mention the name of the Child’s Guardian(s) in your absence. Of course, there are natural guardians (Mother and Father), but here we have to answer What ifs too. What If Both Natural Guardians are not there? Do the Grandparents or Other relatives get guardianship automatically? And the answer is NO. Moreover, it is wise to make this decision yourself and decide who can take of your child better in your absence. (Read: Ensure your Family’s secure future, write a WILL)
#2 Insuring yourselves, adequately
Yes, insurance is for the earning member of the family, so in case of an eventuality, the dependent members should remain financially secure. You can’t protect your child’s future by buying insurance in the child’s name, since this is you who has to provide for his education and other needs. And In case something happens to you then the child and other family members will be at loss. So, do buy Life Insurance cover and Disability cover for the adequate amounts.
If you are a business person and your work involves taking loans and other liabilities. It is wise to buy a Life Insurance policy under MWP Act. (Read: How to buy a life insurance policy under MWP Act)
Also, do add your child’s name to the Family Health Insurance Plan.
#3 Doing your Retirement Planning
Before planning to save for your children’s education or wedding, allocate the required money for your old age. Even if you are a business person or a Professional, make your retirement planning a priority. This way you will provide a great amount of security to your child’s future by ensuring that he/she does not have to take care of old parents and can live independently. (Also Read: Why Retirement Planning should be the most important financial goal?)
#4 Keeping yourself Light on Real Estate
You must agree with me that managing real estate in India is not child’s play. It’s not something you buy and sell at a click of a button. Unlike the financial instruments which can be bought and sold online, in whichever part of the world you are, real estate management is a completely different ball game. As I wrote in the beginning, you always have to answer What if along with whatever action you will take, and in the case of real estate you have to answer what if you were not there to manage. (Read: 10 reasons why real estate is riskier than equity?)
#5 Not falling into the trap of Traditional Insurance Plans
If you are really serious to save for your child’s future education, which is quite far away, then do not take much exposure to traditional saving instruments, which are high on safety and low on returns. Always remember you need to beat inflation to reach your goals and only equity is the instrument that will help you reach there. But high equity means high volatility, which may not suit your risk profile. So, asset allocation is the answer here. (Also Read: Laddering approach to managing child education expenses)
Though every moment and every decision impacts your child’s future, you need to understand that more than finances, family environment and values impact a child’s life and shape the future.
Children do what you as parents do in front of them. So, keep your actions in check and impart goodness to them.