How should I invest for my child’s future?
Every parent wants to give their child advantages they might not have had in life. So most start planning their finances as soon as the child is born. However, how to set aside a corpus for your child is a topic often skewed by societal norms, which sees parents invest in value stores like gold and illiquid assets like real estate. While we're not saying these are inherently bad ideas, and will likely still produce better returns than leaving money in a savings account, there are better ways to approach the bedrock of your child's financial future.
Let's dive in:
1. Don’t blindly invest where everyone else does
You're basically building a portfolio that will mature in a decade or two (if you start when your child is born), so treat it very much like you would your own investments. (Would you put 100% of your capital in gold, for instance?)
Your child will likely live in a very different world to yours when they are in need of the finances you put aside for them. So while some investment in gold or real estate is advisable to bring some stability to your portfolio, it's better to put aside a decent chunk in equities and other liquid options that can produce outstanding returns in the longer time horizon you have to play with. The liquidity available also means no matter what needs they may have in future, they can deploy the capital accordingly. Lifestyles might change easily, but the nature of money itself won't be such a quick shift.
2. Process over Event
Gone are the days when parents would burn the midnight oil with the sole aim to get their children into a good college or save enough for their marriage. Don’t assess your portfolios with the sole aim of the future events in your children’s life. Instead, think about the process. After all, financial independence doesn’t come overnight.
3. Even education has a valuation
A lot of parents fall into the trap of sending their kids to only the 'best' schools and colleges, more for personal bragging rights than the child's benefit. A lot of great private and even public schools offer great quality of education and extracurricular activities. Focus on raising smart and curious children and they will thrive in any environment, not just 'the best'. As a bonus, add the money saved to their portfolio for them to use when they need it later.
4. Give them the option to pay for college
College is considered a rite of passage in many countries, and while its social and networking benefits are usually beneficial, the quality of education is increasingly failing to keep up with what smart teens can teach themselves online. That said, offer your teen the opportunity to partially or fully fund their own college education (by working part time for example), so they can utilise more of the money you have saved up for them for other needs. (If you've been practising the tips from our other blogs <link to parent blogs section>, they'll most likely utilise it to grow more wealth, and not splurge on Airpods Max).
Building a stable future for your child is not easy, but it also doesn't mean you must blindly subscribe to 'accepted wisdom'. If you teach them to be curious and seek knowledge, that's half the job done. The wealth, that's a bonus.
5. See your children as your biggest investment, but not a retirement plan
As obvious as this sounds, in the hustle of securing a safe future for your kids, many parents forget that their children themselves are the biggest investment. Focus on their individuality and nudge them to make decisions that reflect their sensibilities. Their happiness is your biggest return.
At the same time, do not seek protection in your old age as a ‘return’ for helping them out. You choosing to create a cushion for them should be your choice, just as their desire to aid you when you are no longer generating more wealth should be theirs.
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