According to a study by the National Sample Survey in 2014, around 44.81 million Indian undergraduate students were too poor to continue higher education. These students were between the ages of 18 and 24 years. Therefore, 16.6% of males and 9.5% of females in the country do not have the financial stability to pursue their education. This is a result of the high costs of education in our country. Another study found that the rise in college fees over the past few years was even higher than the inflation rate. It has become the norm for popular courses such as Medicine and MBA to have fee of a few lakhs atleast. Thus, keeping this trend in mind, it is important to start planning for your children’s future. With the help of some small steps, you as a parent can ensure your child’s future educational and other expenses. This article discusses some methods of effective financial planning for children.

Steps for kids to learn financial planning

Following are some things you can teach your children from a young age, to help them understand the importance of saving for the future.

1. Having a piggy bank

One important lesson to teach your children is patience. You can hand your children a piggy bank for personal use. Whenever your children ask you for something, you give them a small allowance every week and tell them to save it in their piggy bank. Once they accumulate the money they can buy the thing for themself. This teaches the children patience and savings first hand.

2. Teach kids the value of money

A good way to show children the value of money is by showing them how the less fortunate survive. Hence, take them to visit an orphanage and make them understand that some people in the world are more fortunate and privileged than others. Show them how privileged their lives are, and how important it is to save money to continue living a comfortable life.

3. Give them pocket money

Once children attain a certain age, it is a good idea to give them some pocket money. You can give them a weekly or monthly allowance and give them the freedom to use it. But let them know that they have to use the money sensibly and they will not get more money before the next cycle. Keep monitoring their pocket money spending as well. This is a great way to teach children financial planning and budgeting.

Consecutively, involve your children in important financial decisions of the family. For instance, if you are planning a family vacation then ask your children to design an itinerary on the basis of your budget. Alternatively, make children do the household grocery budgeting by asking them to list down all ration needed for a month. Again, this instills the ideas of budgeting and financial planning in children.

4. Make children read more books

Instill the habit of reading in your children. Make them develop the hobby of reading in their free time instead of watching television or play video games. Books have a plethora of knowledge and children will accumulate more and more information as they start reading from a young age. A good book suggestion from us is Rich Dad Poor Dad.

Steps for parents to practice financial planning for children’s future

Some steps which parents can practice to do their bit for secure financial planning of children are as follows:

1. Savings

A great idea is to have a separate bank account apart from your normal savings account. Maintain a balance of up to six months of your salary in this separate account. This fund will come useful in case of emergencies such as unemployment, health scare or loss in business. This is good to have for a rainy day. But don’t accumulate more than six months salary in this account since the value of money depreciates over time. To understand how better ways to save money watch Safe Investment Options with High Returns.

2. Insurance

Firstly, it is important to have life insurance. But more than that it is important to pick a life insurance which is enough to sustain your family. The life insurance must cover all emergencies, education plans, future marriages, as well as inflation rise, for your family. We suggest having a term insurance plan. These are relatively cheap and provide a good insurance cover keeping all expenses and liabilities in mind. Learn more about term insurance in Term Insurance Plan – The Financial Advice You Definitely Need.

Secondly, it is important to have health insurance which covers all your family members. Health issues can crop up without any notice and medical bills, especially in private hospitals, can get very expensive. Thus, it is important to have a health insurance plan for your family in place. A good insurance plan from the government is the Ayushman Bharat Yojana Scheme (PMJAY), which you can look into.

3. Save and invest

It is recommended to not put all your eggs in one basket. The aim is to plan for the long-term. So keeping in mind the financial planning of your children who will become adults in 17-18 years, you can try following investment options:

• Public Provident Fund (PPF) – Open a PPF account for your children and deposit Rs 1 lakh every year. This will yield a return of Rs 31 lakhs after 15 years. It has a lock-in period of 15 years so no withdrawal is possible. It is a safe scheme so it will not be seized for any legal measures too.
• Sukanya Samriddhi Yojana for girl child – This is a government scheme for female children under 10 years of age. It consistently has a high return rate and covers education and marriage expenses for the girl child in future.
• Mutual Funds – Although riskier than PPF and Sukanya Samriddhi Yojana, mutual funds have a higher return rate. Hence, it is good for beginners in the stock market who want to slowly step into such investments. After some practice, you can start investing more.

4. Write your will

To prevent any future conflicts, it is important to write your will while you are still healthy and wealthy. Therefore, take a lawyer’s help and draft your will with clear instructions for the segregation of assets among all your children. Also, specify a legal guardian for your children who will replace you if the need be. This task must not be procrastinated or postponed and must be done as soon as possible.

5. Start investing early

Start saving and investing as early as possible. Investment follows the rule of compounding, so the difference of a year can result in lakhs in terms of money. To ensure the best financial planning for your children, start investing from the day they born.

Watch the video on financial planning for children below.

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