The illusion of children-specific products

Financial products that are designed specifically for your children's future are not what they are cracked up to be

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If you love your children, buy our product. As product pitches go, it's simple, direct and manipulative. Unfortunately, it's also far too widely used. While I have nothing to say on the merits or otherwise of health drinks or educational aids or even cars (!) that use this tack, financial products are another matter. Products that use the children ploy to sell have a long history in India. Insurance, as well as mutual fund products that have the words ‘child’ or children in their name, have been around for so long that many people assume that there is a specific class of products that provide some unique advantage to their children’s future that other products do not.

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So much so, that at Value Research, we get a substantial flow of emails from worried parents who are looking for the best possible ‘child plan.’ With years of background exposure to the phrase, they just assume that somewhat like a tax plan, a child plan is an integral part of personal finance. Well, guess what, ‘child plan’ is actually not a financial term all but a marketing one.

There’s nothing distinctive about them. For example, one of the largest ‘child’ mutual funds was for years just a vanilla balanced fund of mediocre performance. The pitch was that you should invest in it and use the money for your kids’ college fees. However, the returns that such funds produce are not made up of money that is especially designed for paying college fees—it’s just normal money. However, if the loving parents had chosen better performing funds, they would have more of it and that would probably be some actual help.

Insurance products too play a similar trick. There’s nothing distinctive about the products themselves. You can pitch a product by saying that if you die then kids’ college fees can be paid out of the benefits, but so could those from any insurance policy.

The column first appeared in January 2013.

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