Child's Higher Education v/s Your Retirement: Which One To Prioritise As A Parent?

Becoming a parent is one of the biggest blessings of life, isn't it? But with this blessing comes the responsibility of shaping the child¡¯s future, especially the financial aspect. That's exactly why parents try to leave no stone unturned in saving to create an adequate corpus for one thing that shapes a child's career and future growth, i.e. higher education.

In the quest to achieve other life goals along with this one, the absolutely necessary financial goal of retirement corpus often takes a backseat for many parents, right?

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So, what exactly should a parent ideally do? Which financial goal should be prioritised? Can both goals be timely achieved instead of sacrificing one for another? Read on as we unfold all this for you.

Also Read: Over 50% Indians Fear Running Out Of Savings Within Just 10 years Of Retirement

Weighing The Two Goals

When stuck in the dilemma of prioritising a child¡¯s higher education corpus or their own retirement, it's the former goal that most parents tend to give preference to.

As a result, the process of creating an adequate corpus for your golden years post-retirement gets pushed for much later years of your 40s or 50s when you already have a much lesser time horizon to accumulate a big enough corpus. This also leaves bleaker chances of timely accumulating the target corpus.

Hence, this is where the mindset needs to change. Although both these goals are important, keep in mind that for your child¡¯s higher education expenses, an education loan can come to your rescue, with a plethora of banks and NBFCs offering this credit facility.

Or even if not that, other loan options would be present as well, like personal loan, gold loan, etc which you would be able to fetch and repay during your work life years for your child's higher education funding.

Also Read: Smart Money Habits In Your 20s That Can Make You A Millionaire In Your 30s

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But on the other hand, for your retirement corpus, no one will lend you to fund your post-retirement expenses, barring the reverse mortgage loan facility, which doesn't have much prominence in our country, with the scope being dim as only a few lenders offer this facility.

So when it comes to prioritizing one of these goals, the retirement corpus needs more attention for sure. Remember, retirement is inevitable, so you have to be prepared with a sufficient corpus in place to live a comfortable life once you retire.

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How To Achieve Both These Goals?

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Not having to prioritize one of these goals or choose amongst them is exactly what every parent should aim at. And that is certainly doable as well.

Wondering how?

The answer is starting early.

The early bird catches the worm. This adage holds true especially when investing in various life goals. An early start can help you adequately take care of all your life goals without stressing your finances too much. This is because the sooner you start, the less you need to invest, and more time your money gets to grow and maximize the magical power of compounding.

Whereas, on the other hand, delaying your investments would imply that you would have to shell out more money for timely accumulating the target corpus.

For the one-stop guide on step by step plan towards an adequate retirement corpus creation, click here.

As far as a child¡¯s higher education corpus is concerned, before the absolutely necessary step to start investing early and that too in equity mutual funds (just like retirement planning), these are the two key steps you need to take as a parent:

Calculating The Cost Of Higher Education Degree

How would you be able to create a corpus for your child¡¯s higher education without estimating the course¡¯s total fees? This would include not just the tuition fees, but other significant expenses like living expenses, the cost of travelling and other associated expenses.

And although when your child is at an early age of say 5 years or 10 years and its difficult to determine which course or career option will his/her higher education be associated with, you can at least have a rough estimate in mind after factoring in various courses' existing costs and the inflation as well.

For instance, if we look back 10 years ago, IIM-A¡¯s MBA fees was around ?15.5 lakh in 2012. And now the cost of MBA from IIM-Ahmedabad for this year 2022 has almost doubled to around ?30 lakh. India¡¯s retail inflation in the past month (Dec 2021) was 5.59%. Let's assume an annual inflation rate of 6% p.a. For the calculation.
The future cost of this course, after say, 10 years, is expected to rise upto ?53.7 lakh!

Hence, make sure you do a similar calculation and take into consideration inflation cost when estimating the course or in fact any target corpus. Always remember, inflation is a money eater, and reduces your purchasing power over time.

Also Read: Lifelong Money Lessons That COVID Lockdown Taught Us

Decide Upon The Source Of Funds

If you wish to contribute the entire expected corpus by yourself, then the above-mentioned step is enough. But in case you wish to avail the help of an education loan by the time your child reaches the higher education age, you need to remember one thing.

Most banks and NBFCs fund up to 85%-95% of the course¡¯s cost, depending upon the child¡¯s academics, chosen college, degree etc. This implies that the margin money of at least 5%-15% would have to be paid by you. So, as per the course and expected cost estimated as per the previous step, make sure you estimate the margin money and accordingly begin investing towards its timely accumulation by the time your child gets ready to kickstart higher education.

Also Read: 5 Investment Mistakes That Can Prevent You From Growing Your Money In 2022

Final Words

Given that your child gets around six months to 1-year post-course completion (as a moratorium period) to grab a job and start repayment of the education loan EMIs, taking an education loan gives a sense of responsibility for the graduating child to work hard and earn.

Rest, as parents, it's totally dependent on your mindset and what you think would be the best for your child. Whatever decision you make, just make sure your retirement kitty keeps getting accumulated and is not the one on the receiving end of a sacrifice.

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