Worried about your child's financial future? Check these 4 ideas to make money for kids
Raising a child requires adequate financial planning by parents or even would be parents to secure her or his future. Here are some ideas to make money for kids.
Indubitably, parents worry the most about how they can safeguard the future of their child. Well, know here that shaping the financial future of your child is not that tough. It requires some amount of discipline and planning. The process to ensure financial freedom for a child requires parents to take care of even minute variables like inflation, volatility in the national economy and various other factors.
Speaking on the matter of ideas to make money for kids, Sousthav Chakrabarty, Co-founder & CEO, Capital Quotient told Zee Business online, "Raising a child in today’s times, requires adequate financial arsenal and thus, financial planning for securing his/her future is one of the most important decisions, parents or would be parents need to think about. From inflation to volatility in the economy, there are a bunch of factors, which need to be assessed when making the right investments for a better future." Sousthav revealed some of the factors, which need to be kept in mind by concerned parents. Of course, if a child is taught about finances, s/he can generate own money going forward and teaching that should also be one of the prime duties of parents.
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— Zee Business (@ZeeBusiness) March 14, 2019
How to safeguard your child's financial future: Ideas to make money for kids
1. Systematic Withdrawal Plan: Whether it is planning for your child’s education, marriage or even lifestyle, there is no denying the fact that the expense is huge, which necessitates, investing early with correct financial planning. Not just his/her higher education or marriage, every stage of raising a child comes with a barrage of expenses for which sufficient corpus is required. Systematic Withdrawal Plan (SWP) becomes pretty useful for managing several associated expenses whenever they crop up. Following are the steps that can be followed by the parent to execute the above:
a] Start a Systematic Investment Plan (SIP) of Rs 5,000 in balance mutual fund as soon as possible, generally before 2-3 years of planning for a child;
b] Have a pre-birth corpus accumulation of around Rs 2,25,000;
c] Convert entire corpus into liquid mutual fund; and
d] Give SWP of Rs 5,000 or Rs 10,000 from Liquid Mutual Fund.
2. Inflation rate: As Sousthav Chakrabarty revealed earlier, inflation takes a center stage when ensuring the correct financial plan is being laid out. With education inflation considered at 10 per cent per annum, your child’s higher education cost would amount to a way bigger amount than the one existing currently. This makes it a factor which needs to be assessed well in advance for having the required corpus when needed. Lifestyle inflation is also considered at 2-3 per cent per annum, which makes sure, you are able to meet the sudden associated expenses that crop up while your child is growing up, such as purchasing the latest gadget for better grasping of certain topics, sending him or her to an important overseas educational trip, etc.
3. Systematic Transfer Plan: Systematic Transfer Plan (STP) is a valuable option through which you can ensure meeting the long-term financial goals. For example, for long-term goals spanning over 20 years, parents should consider STP when they are a couple of years near to the goal. Due to equity market volatilities or a market crash on the 20th year, value erosion should not happen on the accumulated return of 18-19 years.
For this, the following steps can be followed by the parents:
a] Start a Systematic Investment Plan of Rs 5,000 in mid-cap equity mutual fund.
b] Total corpus after 18 years would be around Rs 62,00,000.
c] 18th year onwards, make STP of Rs 3,50,000 in a liquid mutual fund.
d] Utilize funds according to tuition fees from 20th year onwards. Rest of the funds will securely give risk-free returns from liquid mutual funds.
4. Investing right: Options to consider for executing the correct financial plan for your child could be child insurance policies, mutual funds, non-convertible debentures, etc. For the uninitiated, let’s take a look at some of these options in brief:
"Investing the capital collected from investors in company shares, stocks or bonds leads to the formation of a mutual fund. A mutual fund shared by several investors is collectively managed for earning the maximum possible returns," said Sousthav Chakrabarty.
In order to raise long-term funds by companies through a public issue, non-convertible debentures are used as tools and the lenders are usually given a higher rate of return compared to convertible debentures for compensating the drawback of non-convertibility.