Investment plan

Investment plan for children: 7 mistakes to avoid when saving, investing for your child

It is easy to make mistakes when spending or investing for your children. Here are some things to remember to avoid shortage of funds at any stage of a child’s life.

Choosing the wrong education goal

Parents can make the mistake of saving for an educational goal that the child does not want. “They may go into traditional fields like engineering or medicine, but the child may want to pursue professional golf, music or motor racing,” says Dinesh Rohira of 5nance. com. The money needed for these, whether for early training or to travel to competitions, could be at a younger age, not 18 as is the case for the regular streams. This means that the instruments you choose for investment and the risk profile will vary. So listen to the child’s interests before deciding on a career and education option.

Calculate the wrong goal value for education

Miscalculations can often lead to a shortage of funds for the child’s education. This happens when parents do not consider the goal in detail. “If you’re thinking of sending your child overseas, you may have considered tuition fees but overlooked living expenses, travel costs or even visa fees,” says Scripbox’s Anup Bansal. Similarly, currency depreciation could drive up your costs, but you might not take this into account. You might also miss out on coaching, career counseling, or placement fees, which can be exorbitant. If you’re considering taking out a student loan, don’t miss the interest component, or you’re dependent on a scholarship and the child doesn’t qualify, your plan could go wrong.

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Take CPI, not education inflation

Another mistake most parents make when calculating goal value is considering the wrong inflation value. If there is an education goal, you can take the Consumer Price Index (CPI) value, currently at 6.01%, instead of the education inflation value which is 10 -12%. This will lower your target value as you will be looking at lower inflation.

Choosing the wrong instruments to invest in

It is important to invest according to your financial objective, that is, to use instruments that will grow your money at the right rate and that will be available when you need them for the child. “I resorted to traditional insurance plans for the first few years after the birth of my child because I had no financial knowledge. It was only after a few years that I switched to mutual funds,” says Kadu.

Start late with investing

Another common mistake is thinking you have a lot of time to spare. You have to start investing for the child when you decide to become parents and start a family. If you haven’t already, start as soon as the child is born. Keval Rathod from Mumbai started when his daughter was one year old. “I’m constantly increasing my investment and I’m sure I’ll hit the targets,” he says.

Spending too much on clothes and toys

Most parents, in their exuberance of having a child, go overboard in buying clothes, accessories and toys. While it’s okay to indulge the child when they’re older, buying too much stuff for a baby is a waste of money, not only because the child outgrows the clothes and toys without liking them, but also because the same money could have been invested for his future needs.

Give in to peer pressure

As the child grows and makes friends, you might end up spending a lot due to peer pressure. The child may insist on buying clothes, gadgets or toys that his friends have, and in adolescence he may want to hang out in expensive restaurants or go on vacation abroad. This results in unnecessary wastage of money that could have been invested in his education or marriage goals.