Dear All,
Please find below a very good article of Mrs. Uma Sashikanth as appeared in Economic Times for your reading:
Confused about investing right? Take a cue from how you pick your child's career
By Uma Shashikant
Children elicit better behaviour from their parents. I have seen carefree spendthrifts turn into diligent savers after the arrival of a child. In the modern times of hyper-involved parenting and indulgence, nothing but the best will do when it comes to children. Social scientists say that when parents believe their child will have a better life than themselves, the society changes for the better. As a finance professional, however, I see parents living in the archaic old world when it comes to money, even while they dream the big dreams for their children. This needs correction.
Children elicit better behaviour from their parents. I have seen carefree spendthrifts turn into diligent savers after the arrival of a child. In the modern times of hyper-involved parenting and indulgence, nothing but the best will do when it comes to children. Social scientists say that when parents believe their child will have a better life than themselves, the society changes for the better. As a finance professional, however, I see parents living in the archaic old world when it comes to money, even while they dream the big dreams for their children. This needs correction.
Simple earners, including domestic help and drivers, send their children to Englishmedium schools. They spend on additional coaching for the children and enroll them in summer classes. However, when I check with parents across the income spectrum about how they are saving for their children, I find that they invest in recurring deposits with banks or post offices, or have saving certificates or the PPF. While none of the children are going to government schools, the money is saved with the government. Parents have the energy, resources and aptitude to check the pass percentages of schools, quality of teachers, type of peer group, distance from home, timings, fees and other variables with great ease. However, they believe that checking the past performance of an equity fund, its fund managers, its peers, costs and terms might be a complex task. It is not clear to me how the two are different.
The usual refrain is that a precious goal, such as the future of a child, cannot be subjected to the risk of equity markets. Many parents say they are fine with settling for low returns since the risk is also low. The same parents, however, are very clear that without the additional coaching, the child is not likely to score the desired marks in the board exams. They are willing to join the few lakhs that write the IIT entrance exams, even if the probability that the child will make it is too low.
The approach is aggressive when it comes to pushing the child to do more, but the saving that is supposed to fund this dream education sleeps and snores in the low-yielding recurring deposit accounts. Just as the child needs that additional push, the savings also need the extra kick to get bigger. If engineering or medical degrees are chosen for a better income when the child becomes an adult, why should the money be admitted to a low-return, poorly performing basic degree course? The math is actually quite simple. If a parent desires a good professional education for the child, as most do these days, the money needed to get there is not small.
The cost of education is moving up sharply, thanks to the growing demand and limited supply. If Rs 50,000 is saved every year and is invested to earn an 8% return, it will convert to a corpus of about Rs 23 lakh in 20 years. The same money deployed aggressively to earn 16% will not produce twice that number, but 2.5 times bigger corpus of Rs 58 lakh. This is the power of compounding of money over a long period of time.
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