Typically, when people plan for their children’s future, they take into account their education, marriage, etc. And in recent years, the need for saving and investing has extended to retirement planning. However, despite concern for securing a prosperous future for their offspring, it’s also important for parents to tread carefully and make informed decisions. Emotional influence in investment decisions can add complexity and introduce unforeseen challenges.
Let's explore some common missteps that parents can steer clear of when investing in their child's welfare.
Waiting too long to start saving can be a problem. Some parents only start worrying about their child's higher education costs when the child has already chosen a career and a study destination. It might seem hard to plan for education expenses when your child is still young, but as a parent, it's your responsibility to save and invest money for their future needs. In case your child gets through a very good university overseas for his post-graduation, you must have sufficient funds to fall back on. The best time to start investing for your child's future is now.
Not educating the child about managing money can lead to challenges when they leave home. Some young adults might be unfamiliar with budgeting, relying on their parents for financial support like an ATM. They may encounter periods of surplus between receiving funds and paying expenses, along with unexpected costs like concert tickets. Without proper money management skills, college life might not meet their expectations. Hence, it’s important to acquaint your child with the basics of financial planning like saving, investing, and budgeting, and to instill the discipline required to see through these.
Opting For Long-Term Debt Products: “Parents often prioritize the safety of their savings, opting for long-term debt products to safeguard their funds. However, these investments may not keep pace with inflation or provide returns that surpass inflation after taxes are accounted for. As a result, while parents diligently save, their accumulated funds may not adequately meet their future financial needs. Despite their efforts to secure their financial future, the failure to choose investments that outpace inflation and taxes could leave them falling short of their intended goals,” says Shweta Jain, founder of Investography, a financial planning firm.
When your children go out to do their higher studies, say overseas, they should be in a position to return home, as and when they need to. Suppose they are studying in a cold, bleak country, and they have their yearly vacation, but they are not being able to come back home to India, due to high ticket prices during that time. This is not a great situation. Hence, you must keep all incidental costs in mind while planning for your children’s education fund.
Admit, that you have taken a decent life insurance policy for your only son. While that’s a great initiative, you must also factor in risks beyond life insurance. What if you lose your job suddenly or you are down with a critical illness, while your child is still studying in school? A simple way would be to start investing early so that you have an emergency fund created. Failing to hedge the currency needed for education can be more harmful than inflation. You might also require an advisor who is attentive to risks, especially given the limited options for international investments.
