27slide6

7 star strategies for your child's future

 

How can you put a price on the expression of pure bliss on your four-year-old's face

 

as she enjoys an ice-cream? When your 17-year-old whoops on hearing the news that

 

he has secured admission to his dream college, would your brain tick away at the

 

amount of money this is going to cost you?

 

These are non-questions to any parent. Parental love is unconditional and largely

 

unaccountable. It's heartless and clinical to count your child as a cost centre, and we

 

are not suggesting you do that.

 

Understanding expenses does not imply condemning them. On the contrary, it is only a

 

first step towards gaining an advantage over them. In fact, if you do manage to chip

 

away at the warm, fuzzy feeling of pride and accomplishment and examine the costs

 

of raising a child, you would be able to do a far better job of being the provider.

 

The dichotomy of spending on your children is a conflict between the present and the

 

future. Should you cave in and buy the Rs 25,000 Playstation 3 that your son has

 

been nagging you for? Will it come from the money you have been saving for his

 

graduation? Will that Barbie-themed Rs 50,000 party you threw on your daughter's

 

birthday be the reason she will have to do her hotel management in Goa instead of

 

Geneva? The only way to solve these dilemmas is to plan ahead and start investing.

 

Now.

 

Two big-ticket costs that all parents have to provide for fall under the heads

 

education and marriage. Post-graduate education is expensive, and in this globalised

 

world, if you want to give your child the advantage of an international education,

 

multiply the cost by 10 times, often even more. A grand celebration to mark your

 

child's wedding is a great Indian dream and something that all parents would like to

 

put some money away for.

 

1. Second baby

 

Most couples can afford one child and want to do the best for him or her. As financial

 

decisions go, the second child is usually one that swings the balances. The thought of

 

having to keep away double the amount of what you need for a child can be daunting.

 

Often, when the kids are young, one plus one does not add up to two - you could

 

re-use and recycle and keep your expenses slightly lower. But, as they grow older,

 

two children can be a real strain on finances. Guitar lessons for one, football coaching

 

for the other, science tuitions for one and mathematics for the other can add up to a

 

tidy sum every month.

 

A second child had always featured in Jayant Bhadauria and Kamalika Nandi's life

 

plans. It's just that they did not really have the time to have one. Jayant works in a

 

multinational software company in Mumbai and Kamalika looks after marketing for an

 

outsourcing company.

 

Between work, their travelling schedules and looking after Kamini, their four-year-old

 

daughter, the second child remained something to be done sometime in the future.

 

Which was why, in September, when Kamalika discovered she was pregnant, for a

 

minute she didn't know whether to be happy or sad.

 

"Of course, money was not the first thing I thought about," says Kamalika. "Once the

 

news sank in, I did realise that we would have to start looking at our expenses. So

 

far, if I have seen something and liked it, I have ended up buying it if I felt the price

 

was fair. Now, I feel, there would be a little bit of a compromise there. I do want the

 

best for my kids, but that does not necessarily mean the most expensive."

 

 

7 star strategies for your child's future

 

The baby is due in May and, for now, they are figuring out the expenses related to

 

having him - delivery and hospitalisation are just two of the heads. A normal delivery

 

in a reasonably good hospital costs about Rs 35,000. If there are complications, the

 

fee could be substantially higher. Kamalika reckons their monthly expenditure would

 

increase by at least Rs 7,000 for the first year of the new baby.

 

A substantial portion of the large expenses they incurred for Kamini would not have to

 

be repeated. Expensive baby paraphernalia like the cot, stroller, rocker and high chair

 

can be reused for the second baby.

 

Jayant has a couple of insurance policies. The rest of his investments are all in equity.

 

He has an employee stock option in his company. Besides this, he has also opted to

 

buy the equity of his employer, listed in the US, with a certain percentage of his

 

salary every month.

 

The rest of his portfolio is in various Indian companies. While equity investment is the

 

ideal route to create wealth for his young family, Jayant should also look at

 

diversifying his portfolio. A major chunk of his money is invested in one stock - that of

 

his employer.

 

Jayant is also evaluating a couple of child policies from insurance companies. He

 

wants to use these as vehicles to save for his kids' higher education and marriages.

 

He is confident that as the expenses of the kids increase, so will his wife's and his

 

own salaries and that there will not be a situation of having to face a financial crunch.

 

Kamalika plans to return to work once her maternity benefits expire. When she was

 

expecting Kamini, she had given up her job and stayed home till her daughter turned

 

two. "I will try and enjoy the baby more since this is the last one I will have, but it

 

might be difficult because I plan to go back to work," she says.

 

"My career has suffered because of the break I took the last time and I don't want to

 

do it again. But, my company is employee-friendly and I feel that I would be able to

 

get leave in case I need to spend more time at home."

 

For now, they are not thinking about late night feeds and diaper changes. They have

 

chosen to focus instead on Tahitian weddings and exotic holidays for their kids.

 

2. Nascent dreams

 

When Simran Kumar thinks about her kids' future, she is not worried about which

 

school they will secure admission in or how big a wedding they will have. But, as a

 

modern, aware mother, she does get anxious about the world they will occupy, what

 

with environmental pollution, global warming and the rest. "I am concerned about

 

security issues, about violence against women, childhood respiratory diseases from

 

living in a polluted and crowded city," she says.

 

Simran and her husband, Zafar Baig, have two children under the age of two -

 

daughter Ananya is 22 months, and son Vivan is four months old.

 

Simran is an anchor for a television channel and Zafar works for an export house. With

 

two well paying jobs, they have not been worried about spending on the luxuries, so

 

far. But as their young family grows, they want to make sure they get started on

 

laying the foundation for a sound financial future.

 

"Now, we do not spend carelessly and have cut out a little bit of our frivolous

 

expenses. I want the best for my kids," she says.

 

One of the dreams Simran and Zafar have for their children is to offer them an

 

opportunity to follow in their footsteps and study abroad. "We are not very

 

money-savvy, but now want to invest in our kids' future. We do not really know

 

where to start," says Simran.

 

7 star strategies for your child's future

 

They have, however, opened bank accounts in both kids' names and all the money

 

they have received as gifts has gone into them. Zafar has bought a couple of

 

insurance policies and invested a bit directly in equity, as well as in some mutual

 

funds.

 

He recently invested Rs 50,000 in HDFC Standard Life's Young Star Plan. Even as they

 

try and cope with the 'now and here' expenses of a family of four, as well as investing

 

in their dreams for their kids, Simran and Zafar would also like to buy a house.

 

They are not alone in wanting to do several things at once. Most couples are in the

 

early stages of their careers when they start their families. Often, the need to put

 

away for a rainy day is lost in the euphoria of youth and its maxim of living for the

 

day.

 

When the kids come, several priorities tumble out of the financial closet -- a house,

 

some means of protecting income and insurance against unforeseeable events, buying

 

things for the baby, hiring someone to help look after them. Often, with this, also

 

comes a drastic drop in income levels if the mother chooses to stay back home and

 

look after the kids for a few years.

 

The key here is in being able to prioritise and not trying to do everything at once. The

 

important goals of higher education and marriage of children are quite far away and

 

even putting away a little sum of money starting right away would be enough.

 

What is key is getting into the discipline of saving, the amounts can be large or small.

 

As the goals are far away, most investments can be directed into equities. Systematic

 

investment plans (SIPs) of good funds, with a long-term view, are ideal here.

 

Short-term expenditure can be rationalised and reduced if there are opportunities.

 

Simran reckons she spends about Rs 10,000-15,000 a month now on the kids. This

 

includes diapers (about Rs 500 for a pack of 50), food and household help.

 

Simran works three days a week, and that leaves her with enough time to spend with

 

her children. Once they start school, she can go back to working full time. Simran is

 

optimistic about her future. "It's all there somewhere, I am a positive person in that

 

sense," she says. "For now, I want to focus on enjoying my babies," she adds.

 

3. Wonder years

 

The five years when the child has started school but is not yet in a higher class that

 

warrants private tuitions is the ramp up stage for the finances of parents. The goals

 

of higher education and marriage are some distance away, yet well within view.

 

Even though the primary schooler's ambitions vary widely from day to day, you could

 

still get a sense of the direction in which he is likely to head. This is the stage where

 

you could build your savings. If you have SIPs, you could increase the amount you

 

invest every month.

 

On the expense side, this is perhaps the easiest stage. You do not have the

 

heavy-duty everyday requirements of diapers and baby food, nor have you reached

 

the stage where you have to spend Rs 300 for one hour of mathematics tuition.

 

School fees, books, birthday parties and expenses on outings and excursions would be

 

areas of high spends. A birthday party can cost anywhere between Rs 3,000 and Rs

 

20,000.

 

In Kolkata, nine-year-old Arkatapa wants to be an archaeologist one day and a

 

teacher the next. She attends classes on ancient mathematics, Bharatnatyam, singing

 

and drawing. But her mother, Arpita Roy, feels when it comes to choosing a career,

 

Arkatapa will pick an academically-oriented one.

 

7 star strategies for your child's future

 

Arkatapa's father, Barun Kumar Roy, is an officer in the West Bengal government. His

 

money mantra is that investments should be made for the short term and loans should

 

be taken for the long term. He spends 60 per cent of his salary and saves the

 

remaining 40 per cent.

 

Barun invests with a three-to-four-year view. His first priority is insurance policies, so

 

that in case anything happens to him, his family does not suffer financially. He has life

 

insurance policies and Ulips with accident covers. He also has some investments in

 

Prudential ICICI Mutual Fund. These are in both equity and debt funds. Child plans do

 

not attract him, he has not taken any for Arkatapa.

 

An ideal asset allocation at this stage of your child's life is to have 75 per cent of your

 

investments in equity. This implies that in the intervening years between 0-4 and

 

5-10, you move some part of your money from pure equity to balanced or debt funds.

 

Arpita never wanted a career, she was always keen on staying home and looking after

 

her family. But her advice to her daughter would be to be self-reliant and have the

 

financial ability to look after herself.

 

Arpita finds her joy in her daughter's accomplishments. "When she scores 15 out of 15

 

in a test, I feel very happy. Even though it is a little silly, I do feel happy," she says.

 

"My daughter is not a very brilliant student, but she is still young. I am not worried

 

about her career now, water will flow where it will."

 

Her husband agrees that it is too early to predict what their daughter will grow up to

 

be, but he is certain that he must invest in her future. "Whenever she makes her

 

choice of education or career, it should not get stuck because there is no money for

 

it," he says emphatically.

 

"Every moment as a father has been a proud one." His dream for his daughter is that

 

she grows up to be honest, respectful and a good human being. "Everything else is

 

extra," he says.

 

4. Early teenage mayhem

 

As Rishab Nanda grows tall and lanky, his parents, Manisha and Manish, are beginning

 

to anticipate the mood swings and door slamming that will start as their

 

soon-to-be-12-year-old grapples with adolescence. Already, there are arguments and

 

high drama about pretty much everything -- from walking the dog to going on trips

 

with friends.

 

Although Rishab is yet unsure of exactly what he wants to grow up to be, the options

 

are getting clearer by the day. His parents do not want to get caught on the wrong

 

foot at the last moment and are now quickly squirrelling away as much money as

 

possible to fund his dreams.

 

Rishab's school offers the International Baccalaureate (IB) programme and his parents

 

expect that once he finishes his class 10, he would opt for this. Not only is the IB

 

course more expensive than a regular school, the chance that a child going for it

 

would ultimately pursue his graduate programmes abroad is also high. A two-year IB

 

course costs about Rs 4 lakh, compared to Rs 1 lakh that you would pay for a regular

 

CBSE or ISC school.

 

Manisha and Manish know that this would be an expensive proposition. They would like

 

to save enough to fund the full cost of his foreign degree, but are not entirely sure

 

they would be able to. The actual amounts they would need would depend on the

 

course, college and country.

 

When the child is between the ages of 10 and 14, regular day-to-day expenses are

 

also high. School fees in secondary classes are higher than those in primary, and

 

children also need a lot of academic and non-academic stimulation outside school.

 

This would mean a mixture of tuitions and lessons. Rishab takes lessons in playing the

 

drums, speech and drama. These add up to Rs 18,000 a year.

 

7 star strategies for your child's future

February 26, 2008

This is also the age of having to make large-ticket purchases. Gameboys,

 

Playstations, the latest skating boards and other 'toys' cost quite a packet, some

 

starting upwards of Rs 25,000. You can manage to spin some yarn and convince your

 

eight-year-old that the Barbie she has is better than the Barbie she wants, but there

 

is no talking reason, logic or threat to a 13-year-old.

 

The Nandas have made several investments in equity mutual funds. They also have

 

two child-specific plans -- one from LIC and the other from UTI. Ideally, the Nandas

 

should move their portfolio more towards debt and balanced funds. One, they would

 

need a large sum of money to pay the IB fees after Rishab completes his 10th

 

standard.

 

Also, since he is likely to go abroad for his undergraduate studies, their requirements

 

of funds would be sooner than usual. In case the stockmarket enters a lull phase after

 

four years, the largely equity portfolio of the couple could prove a problem.

 

Right now, Rishab is keen on pursuing his athletics and art. The Nandas know that

 

these are unconventional choices, but if Rishab does stick to either of these and

 

decides to pursue a career in it, they would encourage his choice.

 

Manisha was an advertising executive who switched careers to become a teacher.

 

She wants Rishab to have the guidance that enables him to discover his aptitudes so

 

that he doesn't waste years working in a profession he does not really want to be in.

 

"But," she says proudly, "at the end of the day, I think he is a survivor. Like me."

 

5. Terrible teens

 

In Delhi, Priyanka Verma is one busy 16-year-old. She is in her 12th standard and

 

preparing for her board exams pretty much takes up all her time now. She has opted

 

for the science stream and is studying physics, chemistry, mathematics and computer

 

science at Shriram School in Gurgaon.

 

Her mother, Sarika Verma, is an arts teacher and had noticed, very early, Priyanka's

 

creative bent of mind. "But," she says, "my husband had the foresight to advise her

 

that even if she wanted to subsequently pursue a career in arts, it would benefit her

 

to opt for the science stream at this level." Priyanka's father, Ashutosh Verma, works

 

in the Indian Trade Promotion Organisation.

 

Priyanka has now found a career that will allow an artistic expression of her science

 

education - she wants to be an architect. Not only that, Priyanka also decided on a

 

foreign language early on, and now she is learning French at an advanced level. This

 

means that she could opt to study architecture at a good college in France, where

 

the cost of education would be lower than in the US or the UK.

 

The Vermas are self-confessedly not very money-savvy. They decided early on that

 

Priyanka's education would have the first claim on their finances; everything else

 

would be secondary. Right now, these education expenses are high. Priyanka takes

 

tuitions in a couple of subjects and these cost Rs 300-400 an hour. This, added to

 

school fees, the bus charges of going to school and coming back home and other

 

expenses aggregate to a neat Rs 20,000 a month.

 

"There was no room to splurge or go on binges. We knew we had limited resources

 

and, for us, spending was not a way of living. We set our priorities and refused to

 

worry about anything else," Sarika says.

 

The Vermas have left what they managed to save in their saving bank account. They

 

will have to drum up the funds once Priyanka secures admission in a college of her

 

choice. They are looking at the option of taking an educational loan to augment their

 

reserves.

 

 

7 star strategies for your child's future

 

When the child is between 14 and 18, the first big goal draws close. The money

 

needed for higher education should be ready and ideally, a large chunk of it should be

 

moved into debt and balanced funds. A 50 per cent exposure to equity is sufficient at

 

this stage.

 

Those sending their children abroad - for undergraduate or post-graduate studies -

 

should be in a position to provide for at least the first couple of years. If you do not

 

have enough saved up, you can seek an educational loan from a bank. Usually, kids

 

find part-time work that helps fund a part of their education or, in the least, provides

 

for their living expenses once they settle down in their new country and campus.

 

Ideally, earmark your investments for your needs. If the monthly SIP of Rs 7,000 is

 

going into junior's college fund, the Rs 4,000 one could be the marriage resource. As

 

the event draws close, you could switch the investment from an equity to a debt

 

fund. This would allow it to continue earning higher returns than a bank account while

 

being absolutely liquid.

 

Sarika is certain that her daughter is a bright spark. "My only dream is that in her life

 

she should be able to get opportunities to use her many talents," she says.

 

As for her marriage, it is still far away. "Even if I am rich, I wouldn't splurge on her

 

wedding; I am totally against that kind of fanfare," she says.

 

6. Action!

 

It all comes to pass now, the years of swinging between anticipation and hope. Now

 

is when your constant refrain of "go to your room and study" goes through its test.

 

And the money you have put away finally finds its purpose.

 

Bina Sharma's older son Prabhat is doing his electronics and communications

 

engineering in Bangalore. As he prepares to finish this and zone in on an area of

 

specialisation for his post-graduate course, Bina feels a mixture of relief and anxiety.

 

For one, Prabhat is bright enough to have got through a better college. But, she did

 

not want him to stay home for a whole year and prepare for the engineering entrance

 

exam. So, he joined the college where he got admission. This means that if he does

 

not get through to an IIT for his post-graduate degree, it is best that he go abroad

 

for it. By the time that would be happening, the younger son would be starting his

 

first year of college, seeking a medical degree in all likelihood. Bina is remarkably calm

 

for someone who is juggling so much.

 

"Prabhat is in two minds and has not decided whether he wants to do a Master's in

 

Engineering or an MBA," she says. "My sense is that he'll stick to the technical line. If

 

he does, he might choose to pursue his Master's in aeronautical engineering or

 

continue in electronics and communications. Either way, if he does not make it to a

 

top rung college in India, he would go abroad."

 

A postgraduate degree abroad is much easier to manage compared to an

 

undergraduate one. All said, it would cost about Rs 40 lakh (Rs 4 million) a year to

 

study in the US. This means an outlay of Rs 80 lakh (Rs 8 million) for a postgraduate

 

course, compared to Rs 1.6 crore (Rs 16 million) for an undergraduate degree. Bina

 

has started planning and has put away a part of this. By the time Prabhat finishes his

 

degree, she should have the rest of the money on board. If her resources fall short,

 

the Sharmas may have to take an educational loan.

 

The Sharmas have been forecasting their finances towards these goals. While they

 

meet their monthly expenses from the money generated by the business of Bina's

 

husband, Vipin, her salary is saved in its entirety. They have invested in equities,

 

mutual funds, fixed deposits and provident funds. They also have bought some real

 

estate with the express purpose of liquidating it to meet the kids' college expenses.

 

7 star strategies for your child's future

February 26, 2008

A 25 per cent equity allocation is ideal at this stage. While the remaining money is

 

invested in lower-risk debt instruments, this 25 per cent would give the kicker of

 

higher returns.

 

College expenses cannot be calculated to the last rupee in advance as various factors

 

come into play on securing admission. Prabhat is planning to pursue a technical

 

degree, so the possibility of getting sponsorships and fee waivers is higher. However,

 

the couple needs to peg a basic minimum and work towards it.

 

The current expenses of the family are also high. Bina paid Rs 150,000 for the first

 

year of Prabhat's engineering. Over this, he incurs a monthly expense of Rs 8,000.

 

Bina is focused on her kids having a sound base in education. Once they graduate,

 

they are free to choose any career they want. She feels that Prabhat's rational

 

expectations would hold him in good stead through his education and career.

 

After the stress of steering two boys through their teens, Bina is looking forward to

 

the final satisfaction of seeing them settle down. "I will then put up my feet and

 

finally relax," she crystal gazes.

 

7. The last mile

 

Sumona Gupta did not want to make the career decisions of her daughters for them.

 

Snigdha, 23, works in advertising in Google for Hyderabad, and Shaila, 16, is an

 

aspiring fashion designer. Now that Snigdha is 'settled' professionally, Sumona is

 

certain that like her choice of an occupation, she would also let her daughter choose

 

who she wants to marry.

 

Sumona exudes the confidence of a successful parent -- one who has done the right

 

thing for her daughters and who can now take it easy and enjoy their success.

 

Sumona freelances in real estate, helping in renting, buying and selling of property.

 

Her husband, Sumit, has a shore-based job in a marine operations company in Dubai.

 

Together, they have set aside some money for their daughters. Most of this is in the

 

form of equities.

 

"When my daughter does get married, I would like it to be a big wedding; not overtly

 

so, but within our budget," Sumona says. A wedding dress for a bride would cost

 

between Rs 5,000 and Rs 60,000. Of course, if you have the resources you can even

 

spend a couple of lakh for an outfit. Food for guests sets you back by Rs 50-2,000 a

 

plate. Ideally, the funds for the kids should be moved out of equity at this stage.

 

If you have set aside enough, you could leave a small portion, about 5 per cent of the

 

portfolio, in equity to improve your returns. Investments in gold, ideally in bars and

 

coins or units of a gold exchange - traded fund, would also come into use now. There

 

are hardly any expenses you have to incur on behalf of the child now, they have their

 

own salaries to pay for most of their needs.

 

Sumona would rather worry about her daughters' financial stability than who they

 

would marry and when. "There is nothing very secure in a married life," she says. In

 

fact, she would like Snigdha to go for a postgraduate course, such as an MBA, than

 

find a man and settle down immediately.

 

Parenting is full of paradoxes. Even as we wait for the child to cross her next

 

milestone, we begin to miss the precociousness of the earlier stage. As they wean

 

themselves away, all we can do is gather all the special moments we have had and air

 

out their warmth every now and then.

 

When they grow into adults - people with careers, aspirations and points of view - we

 

can only wonder how they were ever so small that they fitted into the crook of our

 

arm. If we have planned ahead and made our children's journey to adulthood that

 

much easier, that is a job well done, a life well lived

 

Done