01 Jun 12 Child’s education: The biggest financial commitment for parents…

Every parent wants to provide their child with the best possible education. This is one of the biggest financial commitments for families, and Indian parents are no different. In a recent survey conducted by ValueNotes for HDFC Life, 3 out of 5 parents listed child’s education as their primary concern while planning their finances.

Urban Indians across four consumer segments, who were surveyed in the inaugural Life Freedom Index report, listed child’s education (59%) as the primary concern during financial planning, followed by health expenses (51%) and retirement (37%).

Source: HDFC Life ValueNotes Life Freedom Index report

Of late, the rising cost of education, as well as the overall cost of living, is a cause of concern for not only chief wage earners but also wisdom investors (aged 45 years or above), urban women and even young aspirants (aged 20 to 30 years).

With expensive international schools opening in India, education has acquired a new dimension altogether. Education costs are sky-rocketing, and with each passing year we are witnessing an increase in the fees of various academic institutions. In today’s world, education has become more globalised with demand for more degrees. So with demand/need for expensive foreign education or degree increasing, parents need to plan for it as it is unlikely they will become cheaper than now!

According to the National Sample Survey Organization (NSSO) survey, spending on education between 1999 and 2009 increased by a mind-boggling 378% in rural areas and 345% in urban India!

How are parents supposed to cope with such a financially challenging situation?

Children’s education plans

To fund and prepare for such a scenario, children’s education plans can provide some relief to parents. From schooling to higher education to professional education, a child plan can help in providing for all these expenses.

Though children’s education policies have always been popular in India, their attractiveness has gone up lately, thanks to rising education costs, and consumer education initiatives taken by insurers as well as IRDA (Insurance Regulatory and Development Authority).

According to a Business Standard article, the child plan market in India in 2009 was around Rs 35,000 crore annually, making it approximately 20% of the entire life insurance market. Even insurers have realised the growing potential of this market and thus have been launching a variety of schemes to attract parents. In 2011 alone, 10 out of the 24 life insurance companies active in the country launched their maiden or second child education plan.

Almost all life insurance firms have child plans in their portfolio of offerings. Some plans are ULIP-based while others are traditional. Such a wide range of child plans from different insurers like HDFC Life, LIC, SBI, Reliance Life, Birla Sun Life, Aviva, etc are bound to cause confusion. Hence, parents must take the trouble to compare child plans and select the one that best suits their financial goals.

Through child plans, parents will be forced to set-aside some stipulated sum of money in a disciplined manner, thus ensuring that they save enough and build a sufficient corpus to fund their little one’s dream.

Anubhuti Sinha

As a Team Leader at ValueNotes, Anubhuti led a team that provided on-going research support to an information provider in the US.

  • DR IT Group
    Posted at 15:52h, 27 October Reply

    This is true that one of the biggest responsibility of the parents of their children. It makes the best and secure future of their children. Education degrees are more demandable in this world.

  • Ashish
    Posted at 16:28h, 06 June Reply

    Good Article ! A must read for all parents.

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