How Much Money Should You Invest for Your Kid's Education?

How much money you must save for your child's education is something you should determine early. Then you can get the maximum time to build the required savings to ensure a golden future for your kid. To figure out the amount of corpus to be built, you need to consider various factors. Here are the steps to evaluate the amount of money you should invest for your little one's higher studies.

Determine the Time Horizon

Time is the most vital factor when it comes to investments. Depending on how old your child is now and how old he/she will be when they pursue higher studies, consider the duration for which you'd like to save. 

Say, your daughter is 3 years old now. You wish to save for her higher studies which she is expected to pursue when she turns 18. That means you must ideally invest in a child insurance plan for 15 years.

Research Education Costs

You can determine the current cost of education based on the following factors:

·       The place where your child would pursue higher studies

·       The level of education that you wish them to receive

·       The kind of college you want them to visit

Say, your daughter aspires to be an engineer. So, you can check the fees of reputed local engineering colleges in your city. Suppose that the average annual fee for a degree course is around ₹1.5 lakh. Then it would be ₹6 lakhs for a 4-year course. Suppose that she would like to pursue MBA after that at a renowned B-school and currently the course costs around ₹15 lakh.

So, you should aim at saving ₹6 lakhs over 15 years and ₹15 lakhs over 19 years from now by investing consistently in a child insurance plan.

Consider the Effect of Inflation

Education costs often seem to increase faster than the expenses incurred for other services. Therefore, you need to look up the expected rates of inflation in the coming years to determine how much to save accordingly.

For example, you assume that the average rate of inflation over the next 5 years would be 6%. Then you'll need ₹14.5 lakhs and ₹45.5 lakhs to finance your child's engineering degree and her MBA course 15 years and 19 years from now, respectively.

Pick a Rate of Return

Consider choosing a reasonable rate of return higher than the inflation rate to preserve the purchasing power of your money.

Sticking to our example, you must choose a rate of return higher than 5%. A top insurance company offers investment growth rates of up to 10% on a child insurance plan.

Calculate the Needed Monthly Savings

Taking into account all the above factors, you can now estimate the required monthly savings for your kid's higher education using a child plan calculator.

For instance, enter your age, your child's age now, his/her age when the corpus is needed, the desired education, the required corpus for the desired education, the expected inflation rate and the desired growth rate of investment in the child plan calculator. You will see the required monthly savings amount instantly. 

Consider choosing a well-known insurance provider that offers child insurance plans with long-term investment options, goal protection features and several risk management options. You can also get tax benefits from your investment.