Seven out of ten Indian parents say that planning for their child’s education is the best investment they can make, according to a HSBC study called ‘value of education - springboard for success’. The research explores parent’s attitude and behaviors towards children’s education.
Suresh Sadagopan of ladder7 financial advisories agrees with the findings and says that many clients have two major goals – child education and retirement. He suggests financial advisers to keep education inflation in mind before recommending any products. “Typically, education inflation is much higher than CPI and WPI. Also, if parents aspire to send their children abroad, advisers should factor in currency risk. It’s better off to recommend a combination of equity funds, debt funds and term insurance plan which covers equal liability. Child plan offered by insurance companies are expensive for your clients.”
“In India, parents feel funding for their child’s education is one of the major responsibilities,” says Kiran Telang of Dhanayush Capital Advisors. She is of the view that advisers should advise their clients, especially newly married clients, to start investing for their child. If the accumulated fund is not utilized for education, it can be used for other goals. She too believes that a combination of equity, PPF and term insurance is best suited for child education.
The study shows that parents across the world usually allocate 42% of their overall investible corpus to children education. Navlakhi believes that many clients give overriding priority to child’s education. He says, “In fact, some clients are ready to cut down their allocation to retirement fund in order to build the corpus for children’s education. Here, the role of advisers is very imminent. We should try to maintain a proper balance in one’s portfolio so that our clients can meet all their financial goals.”
Of the parents who are paying for their child’s education, the vast majority (91%) fund it partially or fully themselves. Most rely on current income (82%), while savings (42%), investments (19%) and specific education plans (13%) are less common sources. “Some clients bought real estate properties to fund their children’s education. Such decision would be risky due to illiquidity of this asset class. One should try to educate clients about diversification. It will reduce risk and ensure better returns to them,” says Lovaii.
Other key findings of the report:
- 83% of Indian parents want their child to study at a post graduate level
- 46% of Indian parents find making decision about their child’s education daunting
- 58% of Indian parents wish they had started to save/plan earlier for their child’s education
- 85% of Indian parents aspire to send their child abroad for a better university education
The report represents the views of 4592 parents in 15 countries around the world. The survey was conducted online in December 2013 and January 2014, among parents who have at least one child under the age of 23 currently in education, and who are solely or partially responsible for making decisions about their child’s education.