Islamic Finance Blog & Articles
Planning for your child's future is probably one of the best gifts you can ever give as a parent. Your child would thank you for giving them a secure future, and with your smart financial planning, you won't have to worry about them when you're gone.
There are several ways to plan up for your child's education. We will be talking about these ways of saving up, and also the best way to approach financial planning. Read on to find out more about ways to save up for your child's education and future.
Ways To Plan For Your Child's Education
1. Personal Savings
You can start saving up for your child's education in your personal savings. Money usually accumulates interest in banks, and if you have projected how much your child would need for tertiary education, you will know how much to put in your bank account.
As a parent, you would also have to take into consideration that your child might want to study abroad, which usually costs more. Your personal savings should account for tuition fees, transportation, food, extracurricular needs, and miscellaneous fees.
Alternatively, you can open a savings account for your child, and instead of the money staying in your personal account, it can go into theirs. You can also create a prepaid tuition plan once you have an idea of how much you'll be spending when your child reaches college.
Lastly, you can also create a trust fund, where you nor your child can use the money in it until they enter college. It's a great way of saving up since trust funds are usually time-bound. Trust funds can be paid out in one lump sum amount, or you can choose to have the money withdrawn in increments, whichever most suits your child's needs.
However, personal savings are not a surefire way of being able to save for your child's future, since they can be affected by factors like opportunity costs, a lower income, and inflation.
2. Bank Loans
This kind of loan is given to students who cannot fully pay their tuition fees. Some bank loans have lower interest rates and have flexible options for repayment.
If you're thinking of taking out a bank loan, make sure to canvas among several banks so that you can choose which one suits your financial plan best. You would have to take into consideration the interest rates, repayment options and schedules, and other terms and conditions the bank might have.
Keep in mind that your child would have to pay the bank loan once they matriculate and enter the workforce. You would have to be sure that they will be able to repay the loan responsibly.
Scholarships are a great way of having funds for your child's education, but it has to be earned. If you're a parent wanting to get a scholarship for your child, you should equip your child with the skills to be eligible for one. Scholarships are given on a case-to-case basis, depending on the child's academic achievements, and planning for your child to get one means that you have to recognize your child's talents and abilities at an early age so you can help them develop.
The downside of building up a child to get a scholarship is that it might stress them out, and having high expectations for them early on can cause them to burn out early. You might also be resented by your child if they don't get the scholarship despite the preparations that you have been doing since their childhood.
4. Investment Plan/Endowment Plan
An endowment plan will pay out a lump sum when the time comes. There are several endowment plans available for parents to choose from, and with the help of a financial advisor, it would be easy to research the returns given by these plans.
Usually, endowment plan has a "payer benefit rider," which in the case of death or disability of the parent paying the premiums, will have the rest of the payments waived so that the funds for your child will be protected.
It's also good to keep in mind that you will be paying premiums until the endowment plan matures. As a parent, you would need to plan how to get to the amount you want by engaging the help of a financial advisor since an endowment plan or investment plan will have you shelling out money for a long time until your child needs it in college.
Paying a certain sum over a decade might put a dent in your other finances, so it's best to plan wisely.
The best way to start saving up for your child's future is to talk to a financial advisor. Even if your child is still very young and far from getting into college, a relationship with a financial advisor can help you navigate the ins and outs of saving up for it since trends change over the years.
A financial advisor may know these changes and update you from time to time on which method of saving best fits your income. Additionally, they would also explain in detail what an endowment plan can do for your child's education in the long run.
Having professional advice would not only help you save up for your child's future, but it would also help you save up for yours. Once your child leaves the nest for college, you wouldn't want to be left with an empty house and no money. Smart financial planning and a great investment plan for your child and the rest of your family is achievable if you have a good financial advisor to help you.
As a parent, you might think it's hard to save up for your child's education and future, and it's true, to an extent. However, with the help of a financial advisor, you will barely notice that you've saved up more than enough, and your child will be thanking you for the extra money that they have in the future.