People are often confused about whether they should save for their child’s education or plan for retirement. If the last option was to choose between child education and retirement planning, I would go with the latter one. (i.e. retirement planning.)
When I am talking about child education, it’s not referring to the education up to standard 12th. Instead, I’m talking about the major education expenses for graduation/post-graduation or some other specialized course.
Before we proceed and go through the article, let me make some clarifications.
Without a doubt, child education is a very emotional issue, especially for Indian parents. If I speak face to face with any of the parents about this topic, there will be problems. I am sure that half of them will straightway give me a punch on my face. I’m just giving my views on what to choose if there’s a limited amount to invest and you’ve no other option. You can have different views on the topic and I would be happy to see them in the comment box.
Let me take an example of a family whose monthly basic expenses are around 30,000. These include household expenses and school fees etc. The family consists of the following members:
Husband – age 38, Wife – age 35, Son – age 10 and Daughter – age 8.
The financial goals of the family are as follows:
- Higher education goal after 8 years – Rs. 10 Lakhs.
- Retirement at the age of 58 with a monthly provision of 25,000.
The family is not planning for child marriage goal as they’re unsure whether they’ve enough money to make the investment. What they want to know is whether they have enough funds to invest in child education goals?
Child Education – Investment Required
Assuming the education inflation rate of 8%, the value of 10 Lakhs would be around 19 Lakhs after 8 years. Assuming a return of 9%, the monthly investment required would be around 14,000. Let us move on to retirement planning now.
Retirement Plan – Investment Required
Assuming a 6% inflation rate, the value of 25,000 monthly expenses would be around 80,000 after 20 years.
Assuming an 85-year life expectancy for both husband and wife, the corpus required would be around 2.50 crores. (Assumption of 1% returns over inflation.)
If we assume that the person will receive retirement benefits of 50 Lakhs, the remaining amount required is 2 Crores.
Again, assuming returns of 9%, the monthly investment required is 31,000 to reach the required amount of 2 Crore.
And, the person has just 30,000 as an additional surplus to invest. If you ask me, can he reduce his monthly expenses after retirement? That’s not possible since the person is staying on rent and does not own a house. Most probably, the person would not even be able to purchase one in the future.
Now, tell me whether you will aim for Child Education or retirement planning?
If you ask me, I will go for retirement planning as mentioned at the very beginning of the article.
Now, let us drill down to the reasons for planning for retirement instead of saving funds for your child’s education plan.
Also Read : Fire Retirement in India
What would be your options if you invest the required amount in child education and remaining in retirement planning?
You would have to be half-dependent on your child after retirement. But why do you have to be half-dependent on your children? Because the investment required for higher education is 14,000. The remaining amount of 16,000 can still be invested in retirement planning.
Fair deal, but what if your child does not support you?
Sometimes, I wonder why our grandparents used to have 4-5 children. They very well knew the value of diversification. If one child does not support, they can always go to the other one. 😊
The scenario has changed now, with nuclear families, the chances are that you’ve to be dependent on your only child. Moreover, it is in his/her hands whether he/she will support you or not.
Please do not come with the Indianized concept of Mera Beta/Beti aisa nahin hai. If that statement was true, the old age homes would not have been filling so fast in India.
Taking a Loan
Do you have any other option of taking a loan? No, definitely not. Who will provide you with a loan after your retirement? If you’re not earning, nobody will be interested in giving you a loan, that too for your entire retired life.
Why Emotions Kill The Financial Life?
Imagine a situation in which you decided to be half-dependent on your child and invested in his higher education goals. What if the child is not able to secure a job even after finishing higher education?
Trust me, these are real-life scenarios and not fabricated stories. I have seen people spend 8-10 Lakhs for pursuing MBA. They do it just to end up with jobs that give them a package of 2 Lakhs per annum. And, they secure these jobs of 2 Lakhs after spending an entire jobless year in the market.
And this is particularly true for Indian parents, when they have money, they’ll push their children to get more qualifications. However, without realizing whether their children have the potential and capability for the same.
It is perfectly okay to be emotional for your child’s needs. But it is not at all okay to be dependent on your child after retirement. You have to be a little selfish here, after all, you have provided them with basic education, right? They can tread their own paths in the future.
In countries like the US, children manage their finances on their own when they go for higher education. Believe it or not, the same trend will prevail in India very soon.
No matter what, you have to be independent after retirement. Your child may have to face difficulties in the future but that is the way life is. Difficulties make you stronger in the long run, isn’t it?
Okay, enough Gyan for now. But what if you as a parent, are not able to invest in your child`s higher education goal? What other options would your child be left with?
If your child goes to an eminent institute, banks are there in lines to give you the required loans. I always say in my articles that you should learn to differentiate between good debt and bad debt. Educational loan is good debt in many ways:
- It is sort of an investment that your child is putting in himself/herself to improve.
- It gives your child a sense of responsibility.
- Educational loan helps your child to understand the value of money at an early stage of life.
During my engineering college days, I’ve seen my friends running errands and doing various part-time jobs. They did it because their parents weren’t financially stable enough to provide them with monthly allowance on a regular basis. In fact, even by giving tuition, they were making a lot of money. Their earnings were a lot better than the first package they received at the time of placements.
Some of them did not even accept corporate jobs. They developed full-time professions out of the part-time work that they were doing during their college days.
See, the choice is always yours in the same way as money and emotions, both are yours. I’m just trying to say, you won’t have any option except to be dependent on your children after retirement. Nonetheless, your children will still have options to explore the world.
So, take retirement planning as your topmost priority and keep investing.