While it is crucial to make early plans for your child's education, there is an important responsibility for parents than ever
21-Nov-2022 •Dhirendra Kumar
Let's start this page with a few obvious and universal truths. People invest for the future and for most of us, the most important part of the future is what it holds for our children and how we can help them achieve it. Every parent believes that providing adequate funds for whatever education is best for their children is the main financial duty they have in life. So far, so good.
What is to be done is not in question here. It's how that is getting more and more complicated with every generation. I don't know whether or how the inflation rate of higher education can sensibly be calculated, but we all know that it would outstrip the general inflation rate, as well as any rate of return that one can expect from any sensible investment. This, along with healthcare costs, is the most difficult part of navigating personal finance today.
Until a couple of decades ago, education costs were not really a top-of-mind issue with Indian parents, as publicly funded, reasonably priced education did the job, more or less. I know it did for me, as it did for most of the friends of my generation. Now, most parents with growing children are acutely aware of how expensive education is and try to save enough to finance it despite the fact that this is a decidedly difficult thing to plan for. Perhaps the single most difficult thing to plan for.
In the cover feature of 'Mutual Fund Insight' December 2022 issue, we have created a logical framework for our readers to attempt this difficult task. The framework's elements are the same as any financial goal. There has to be a balance between the returns needed and the risk taken, and a fallback plan. There is always an element of uncertainty and, of course, one has to start early enough. Luckily, given that it takes a child 17 or 18 years from birth to need expensive higher education, starting early enough is not that difficult.
The main difficulty is that the goalpost keeps shifting as the child grows up. So far, it has always shifted in the wrong direction, that is, in the direction of higher cost. It's possible that from now on, it will shift in the correct direction. The rewards of the internet and the efficiencies of a connected world have not shown up in education costs yet. Hopefully, over the next few years, they will.
Still, this is only one children-related money issue. There's another one, which most parents do not think of, but is actually more important. 'Mutual Fund Insight' last did a cover story on this two decades ago and over these years, the problem has remained just as acute: most of us teach children nothing about money. I find that grown children, even teenagers, have no real idea about how money works. Not only do they not know about earnings, savings and investments but they literally have no idea about the flow of money in society. People get educated, get jobs and start earning money, yet they have no clue about the essentials of personal finance.
Teaching all this is as much a parent's responsibility as anything else. What happens when you buy something? What exactly does a bank do with your money? How do taxes work? What are investments? How do investments grow? How is money created? Why does the value of investments increase with time while that of a car or a phone decreases? Why were prices of things low in the past? Why will they be higher in the future?
In fact, we tend to shield children from thinking too much about money. This is a grave mistake and something we have discussed in one part of the cover story 'Mutual Fund Insight' December 2022 issue. There's an old proverb, "Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime." Spending on one's children is good, but teaching them about money is something that should not be ignored.
This editorial appeared in Mutual Fund Insight December 2022 issue. To read the cover story and other insightful analyses, columns and articles