Saving for your child’s higher education abroad? Consider these important factors
These days many families want their children to go overseas for their higher education. This is to avoid immense competition in Indian and making sure that their child gets the best education possible.
These days many families want their children to go overseas for their higher education. This is to avoid immense competition in Indian and making sure that their child gets the best education possible. Although lack of funds can hinder this dream of foreign study. Overseas education is never cheap and parents are always trying to find ways to give their children more than basic needs. Parents are also trying to make these kinds of decisions early in their life so that they can have more time to prepare themselves financially.
What are some factors you should consider when you decide to send your child for overseas education?
In every scenario it is important to understand the right time to act. Acting in the right time will give you the buffer time to learn or experiment with your ideas. If you start early then you will be able to arrange funds without hurting yourself financially. You will be able to plan for the long term for the gains of the long term. In this case your target should be starting soon and be consistent with your savings or investments so that in the long run you will be able to generate wealth.
When someone is talking about long term wealth which will be used in your son’s/daughter’s education, it is necessary to make sure that all parameters are covered. You must not forget the inflation. IT is one of those parameters which are silent but it will definitely eat your wealth in the long run. It is known to everyone that the expense to go abroad and study overseas increases every year and in these kinds of circumstances one really needs to make sure that all the calculations are done. Education inflation is much higher than the rate of household inflation – almost double in some popular education destinations. Sometimes the amount that you might have in your mind will increase 2 fold when the time comes.
Do not ignore education inflation: While deciding the corpus for this financial goal, do not forget to factor in inflation. In many countries around the world, the rate of education inflation is much higher than the rate of household inflation. A lot of times when parents plan for their children’s future education, the corpus amounts they have in mind are the tuition rates and living expenses are planned, keeping the current inflation scenario in mind.
Contribution of the whole family:
Sometimes it is required for both parents to earn money in order to send their children abroad for higher education. Studying abroad is not an easy feat to achieve. Sometimes contributions of both parents are required to reach the targeted capital. If both of the parents work towards the same goal then the target amount of money will be reached quickly. In this case the savings of the family will be more than average due to the contribution of the both partners.
reduce the burden on just one partner. With equal contribution from both parents, it is possible that they may reach their target goal earlier, or in the best-case scenario over-save. The pressure will also be diversified.
Diversify the education corpus: It is a general tendency among Indian households to invest in FDs, gold, and real estate for the purpose of their child’s education as they often consider these options risk-free. While these asset classes have been reliable because of their stability, they can be lumpy and illiquid. FDs nowadays offer returns at a rate which is even below the inflation rate. Unlike education, which is a defined event, selling land or property is not-- there is no guarantee how long it will take to sell, and at what price. For investment horizons longer than 10 years such as saving for a child's future education, it's important to diversify one's investments.
Equity markets in both India and the US can help provide significant returns over time. If parents are set on sending their children abroad, dollar investments can help provide a boost against the rupee. If the rupee continues to depreciate against the dollar, parents can end up spending more money because it has less purchasing power for a tuition bill in dollars or pounds. Diversifying one’s investments into foreign stocks can help a parent earn in dollars and spend in it, too which would not deplete parents' own savings in the future.