Managing Education Inflation - Part 1
Subject: Planning child education
When it comes to a family with Children, the first biggest goal and overwhelming financial burden that causes deep stress in family life is child education and its attributable cost. The cumulative cost of education during the entire course of education life right from the toddler to graduating from college runs up from 40 lacs to as high as 200 lacs depending upon what professional course they opt for. While this by itself is a huge range the biggest devil in the detail will be the inflation that will make this career milestone look longer than we expect. So put in perspective, a college fee of 1 lac per annum in today's cost can go up to 2.5 lacs per annum (10 years) and 4.2 lacs per annum (15 years)
In this 2-part series, we will explore;
- Planning Methodology
- Future cost & savings plan
Part 1: Planning Methodology
The core of the Family is all about child education to help them liberate from the clutches of financial imprisonment.
How to plan your child's education:
Indian education inflation, like any form of inflation, refers to the increase in the cost of education over time. This can have significant implications for parents planning their child's education and can create financial burdens if not properly managed. To help your child realize their dreams and goals without financial strain, here are some steps and considerations to take:
- Start early: Begin planning for your child's education as early as possible. The sooner you start, the more time you have to save and invest, which can help you accumulate the necessary funds.
- Set clear goals: Determine the type of education you envision for your child, such as a specific course, college, or educational institution. This will help you estimate the future costs accurately.
- Research costs: Gather information on the current and projected costs of education at various levels (school, college, university) and institutions of interest. Take into account tuition fees, accommodation, books, supplies, and any additional expenses that may arise.
- Inflation factor: Consider the impact of education inflation on future costs. Historically, education inflation in India has been higher than general inflation rates. Use an inflation rate of around 7-8% to estimate future costs.
- Consult professionals: Seek advice from financial planners, investment advisors, or education consultants who can guide you through the process and help you make informed decisions.
- Create a financial plan: Develop a comprehensive financial plan that includes saving and investment strategies. Consider various financial instruments such as fixed deposits, mutual funds, and education-specific savings plans to grow your money over time.
- Regularly review and adjust: Revisit your financial plan periodically to ensure you are on track to meet your goals. Adjust your savings and investment strategies if necessary.
- Avoid overburdening yourself: While it's essential to prioritize your child's education, make sure you don't compromise your financial stability. Find a balance between saving for education and managing other financial responsibilities.
- Explore scholarships and financial aid: Encourage your child to pursue scholarships and grants that can help offset the cost of education. Research and apply for financial aid programs offered by educational institutions or external organizations.
- Teach financial literacy: Educate your child about financial matters from an early age. Instill responsible financial habits and teach them the value of budgeting, saving, and investing.
In summary, planning for your child's education requires starting early, researching costs, accounting for inflation, seeking professional advice, creating a financial plan, and regularly reviewing and adjusting it. Remember to strike a balance between funding your child's education and maintaining your financial stability.
In our next series, we will discuss the future cost of various budgeted education costs and how to save for it.