What Should Be Your Priority: Child’s Education or Wedding?   Dec 27, 2018


As a financial planner and writer, I’m usually drawn into discussions and questions around financial goals, investment options, headlines that influence the stock market, etc. I’ve noticed how the countdown to New Year 2019 has most people making resolutions, life and financial goals, bucket lists, etc.

Recently, my next door neighbour came over with festive cheer and a plate of Christmas sweetmeats. In conversation with my mother and neighbour Mrs Pereira, Mukesh Ambani’s daughter’s extravagant wedding came up. Typically, Indian weddings are a fancy and an expensive affair. Even a decent low-profile wedding can erode your savings. While investment avenues can help you achieve any financial goal, prioritising them can give you the edge.

So, when you have Education and Wedding expenses to cater which one will you prioritise?

In my view, there is no substitute for good quality education to empower your child/children for a successful independent life, so they can have the necessities and comforts of life and can give the best to their children as well.

I truly believe in what Dr. APJ Abdul Kalam says— “Ultimately, education in its real sense is the pursuit of truth. It is an endless journey through knowledge and enlightenment

So, the worthwhile and wise thing to do is to start investing for your children’s future from the day he/she was born. If you haven’t already, start now. And, to ensure that your child succeeds at whatever aspirations they have, it’s imperative to plan for your child’s entire education.

In fact, good education can cost an arm and a leg; for instance, at the best universities India or abroad the cost of education is rapidly inflating. From Kindergarten to Secondary to Higher education, parents are finding it increasingly difficult to meet the drain of fees and other costs associated with the education institutions.

It is estimated that an average income couple spends a major chunk of their take-home salaries on child’s education and their needs. Roughly, the current education inflation is between 10-12 % annually.

Table 1: Impact of RisingEducation Inflation at Play in India

Course Engineering Medicine Arts MBA
Current Fees in Rs (2018) 10 lakh 25 lakh 2 Lakhs 20 lakh
Future Value in Rs (after 5 years) 16.85 Lakh 42.12 Lakh 3.37 Lakh 33.70 Lakh
Future Value in Rs (after 10 years) 28.39 Lakh 70.98 Lakh 5.67 Lakh 56.78 Lakh
Future Value in Rs (after 15 years) 47.84 Lakh 1.19 Crore 9.56 Lakh 95.69 Lakh
Assumed inflation rate at 11%
(For illustration purpose only)

Mrs Pereira has a 4-year-old son. She wants him to lead a prosperous life and see him successful and independent. How can she to go about with this in the right way?

I explained to her, ‘The first step is to evaluate your financial situation. Do you remember reading a case study written by my colleague, Deepika? That will have you asking yourself, ‘Am I Among The 35% Parents Who Will Not Be Able to Finance My Child’s Future?’

Calculate the various costs involved. The following questions can help you gain some clarity:

What area of interest or discipline does your child want to study?

Do you want him to study nationally or internationally?

How much time do you have to save for his future (graduation and postgraduation or PhD)?

How much overall cash flow will you require?

And how much time will it take for you to achieve this goal?

With having answered these questions, you can understand your financial positioning and what are the necessary steps you need to take in terms of prudent investments.

Prepare a goal based financial plan, that will enable you to invest not only for your child’s future but other financial goals including retiring rich. This will help you stay focused and you will not have to dip into the investments made for other goals (short-term and long-term)

Once you have all the facts and figures in front of you, don’t invest in an ad-hoc manner. Instead choose the right investment avenue wisely. Consider the right combination of asset mix (equity, debt and gold) based on your investment time horizon and your risk profile. Opt for a personalised asset allocation strategy of investment for each of your goals in a realistic manner.

Remember to have two more safety nets, as well—adequate insurance cover and contingency fund. One of the biggest potential setbacks to a child's education is the demise of the sole breadwinner in the family and the lack of insurance. Hence, it is advisable to have an adequate insurance cover. To know about the optimum insurance you require, try PersonalFN’s HLV calculator.

The contingency fund is a fund which helps you deal with unforeseeable events that can occur so that you don’t have to dip into your child’s education investment funds. Or there are expenses that you may have missed in case your child wants to pursue a different discipline for masters overseas.

Lastly, start investing right away for your child’s needs. Saving and investing early will give you a longer time horizon to meet your financial goals (such as child’s education) and build a bigger corpus.

Mutual funds are a worthy investment avenue to address your child’s future needs. However, make sure you select the best mutual fund schemes whereby the envisioned financial goals can be accomplished efficiently. To select the best mutual funds, click here.

All is well that begins and ends well…

Mrs Pereira thanked me and got in touch with PersonalFN's Financial Guardian service to get her personal financial plan and start an education fund for her son. The best gift any parent can give their child is to make them a person capable enough to face, survive, and thrive in this unstable, dynamic, ruthless world. Sure, spending extravagantly on their wedding is probably as important to you. However, if you have a rational financial plan, you and your adult, independent child/children can take care of the necessary wedding expenses together.

PS: If you wish to take a calculated risk and invest in equity funds, PersonalFN can help you pick hidden gems or lesser-known funds that are capable of generating big gains for you.

PersonalFN has released a report 5 Undiscovered Equity Funds especially for investors like you.

These undiscovered funds can help you counter inflation by a substantial margin. Subscribe today!

Author: Aditi Murkute



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