Five ways to help secure your child’s financial future

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NEW DELHI: Parents, worldwide, worry about their child’s future, and strive to secure that with providing quality education and other means. India parents are no exception, but many do not invest in proper financial planning.

Micro and macroeconomic uncertainties such as increasing inflationary pressure, the depreciating Indian rupee, and the possibility of a global recession have made a parent’s job harder.

In this piece, we look at five ways securing your child’s financial future:

Start investing early: Planning investment early for your child can provide you with enough time to save money at your own pace and diversify your investment portfolio with more asset allocation towards equity for better returns.

Anup Bansal, chief business officer, Scripbox, said, “Delaying investments is the most common mistake parents make. This typically happens due to time bias, as parents think they have enough time to achieve their financial goals. However, time is a crucial and irreplaceable part of the investment journey. The sooner you start investing, the easier it will be for you to reach your goals and save for your child.”

Identify short and long-term goals: Not every financial goal has the same maturity. You need to invest differently to save a schooling fund and a fund for higher studies. Thus, it is crucial to identify short and long-term goals and implement goal-based investing to secure your child’s financial future.

Bansal says, “Goal-based investing means capitalizing based on that specific requirement, time horizon, and risk-to-reward ratio. For instance, for a shorter investment duration, you should weigh on liquid and stable investment options such as fixed-income instruments. On the other hand, for long-term investment goals, you have the opinion to invest in mutual fund SIPs, stocks, ETFs, etc. Even for mutual funds, you can invest in large-cap, multi-cap, mid-cap, etc., depending on your goals and risk appetite.”

Efficient asset allocation: Efficient asset allocation allows you to invest based on your goals, preferences, and risk appetite. Asset allocation based on your goals ensures that you have the required investment returns at maturity. Based on your goals, you can choose from various options such as mutual funds, fixed-income instruments, and more.

You must diversify your portfolio asset allocation based not just on investment avenues but also on maturity years. For instance, if your child is one year old and you wish to save for his schooling, you do not have the luxury of time. Also, schooling is more than a decade-long process. Thus, you need to save to receive funds regularly during the investment tenure.

“Your asset allocation should offer you liquidity and the option of partial withdrawals to help you keep up with your child’s increasing needs,” said Bansal.

Insurance is a must: Don’t forget to add kids to your family floater health insurance policy. Having adequate health insurance for your child is equally important as saving adequately for his future. Bansal says, “While children are less prone to severe diseases, they are more likely to injure themselves while playing or get infectious diseases. Such occurrences on a repeat can prove daunting to you emotionally as well as financially.”

Educate financial literacy at a young age: As a parent, if you wish your child to grow as a financially independent adult, you must make them aware of financial literacy. This responsibility to teach your child financial literacy will help them learn how to value money and use it wisely.

“If fundamentals like savings, investments, debt management, etc., are taught at a young age, they form a solid base for your child’s financial habits. You should help your child understand how you earn and save money for them and how it will help them in the future. You must encourage your child to differentiate between needs vs wants and let them budget their pocket money to understand the value of money. Also, pass your wisdom and experiences on your investment successes and failures to lead by example for your child,” said Bansal.

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