In the previous article, we discussed what is a better asset to invest in a child’s future. It is common knowledge that parents should start investing in a child’s education. But when should you start? How do you start? In this article, we will talk about when to start investing in a child’s education.
Saving up for children’s education is a daunting task for parents. The question “When should you start to save for your child/children’s education has a universal answer. The answer is “as early as possible”.
Every parent aspires to provide their child with the most extraordinary life possible. Parents, particularly when it comes to their children’s education, are always looking for methods to stay one step ahead.
Parents who take a proactive approach and invest methodically from an early age can protect their children’s futures. As a result, financial planning is critical for achieving a goal as important as supporting a child’s education.
Time is the most critical component. The powerful notion of compound interest benefits you more the longer you invest.
Education costs are rising faster than inflation. As a result, the expense of sending your child to a university or college will almost certainly double every six to seven years.
Tax Benefits of Investing in Child’s Education
An undergraduate course at the Indian Institute of Technology (IIT) costs around 2 Lac per year. The IIM charges roughly 20 lakhs for a two-year diploma program.
Starting investing early is the only way to protect your wealth against inflation and save enough money to send your child to a prestigious college.
While the annual rate of return and the original investments are essential, the length of time you invest the money is the most crucial element. So, if you want to put money aside for your child’s education, get started immediately.
Example
Let us take an example to understand why you should not delay the investments for your child’s future education:
Two mothers, Anita and Archana, want to save for their respective daughter’s education. Both intend to save money and invest a lump sum of Rs 2,00,000 in equity-focused mutual funds (offering 12% per annum yearly returns).
However, the difference is that Archana made the lumpsum investment when her daughter turned ten years old, while Anita invested as soon as her daughter was born.
So, the time horizon for Archana is eight years and the time horizon for Anita is 18 years. Let us see the difference between the accumulated amount at the end for both mothers.
Anita will have Rs 15.3 lakhs for her daughter’s college by the time she is 18, while Archana will have only approx. Of Rs 4.9 lakhs. In other words, by investing ten years sooner, Anita could save over three times as much as Archana.
The visual below gives a good representation of the example:
In the above example, Archana and Anita put money into the same mutual fund. The amount they invested and the rate of return were identical.
The only variation was the investment period. Anita continued to save for another ten years, but her final corpus was three times that of Archan.
For savers hoping to build money through compounding, time is everything.
FAQs
When to start investing in a child’s education?
Ideally, parents should start investing in their child’s education before they are born. This can help them keep up with the rising costs of education which is growing at a faster rate of inflation than income. Planning, investing, and saving for a long duration allows one to take advantage of compounding.
Why parents should invest early in their child’s education?
Parents should invest early in their child’s education because education is costly. The cost is increasing every year due to high competition and education inflation.
Saving and investing early on can help them take advantage of investment assets like mutual funds, ETFs, and stocks that can beat inflation and help them preserve the value of their money.
What age is too late to start investing in your child’s education?
It’s never too late to start investing. You can start with low-risk investments that can help you save up more in a short duration. You can consult a financial advisor to figure out your options based on your risk appetite.
