Save for children’s schooling, college education and marriage via goal-based investing.

Every parent considers their children’s education to be their most important financial goal. After all, a degree from a prestigious institute like IIT, IIM, AIIMS, Oxbridge or MIT opens up unlimited opportunities. Similarly, a child may wish to pursue a career in arts, music, theatre, science or commerce from any global university or school of repute.

📚 Topics covered:

• What are the typical goals for children?
• A typical example of children’s goals
• How to estimate the SIP value for children’s goals
• Prerequisites before starting to invest for parent
• Things to know: what do and what to avoid
• How to save for goals
• Does this investment process really work?

What are the typical goals for children?

• School admission around age four
• Miscellaneous significant expenses every few years (school trips etc.)
• Undergraduate College at 17-18
• Postgraduate College (2 years, timing unknown, > 23y)
• Marriage
• Down payment (a part of it) for their future house

A typical example of children’s goals

We consider an eight-year-old child whose parents are planning for

• UG and PG college education
• wedding costs
• down payment when the child decides to buy a home in the future

These goals have been captured, and a goal-based investing calculator is used to calculate the investment amounts.

A few observations:

• the goal value will increase with inflation over time
• goals like a college education is not a single payment but a series of payments that begins with entrance examination costs
• the further the goal, the higher the target corpus
• the investment amount will have to be increased with time as a step-up SIP

Age	Year	Goal Description	Cost today	Target goal value	Portfolio balance	SIP amount (yearly)
8	2025				0	5.0
9	2026				5	5.5
10	2027				11	6.1
11	2028				18	6.7
12	2029				27	7.4
13	2030				36	8.2
14	2031				47	9.1
15	2032				59	10.0
16	2033				74	11.0
17	2034	Entrance Exam	2	4	86	12.2
18	2035	UG Year 1	6	13	90	13.4
19	2036	UG Year 2	7	17	92	14.8
20	2037	UG Year 3	8	20	92	16.4
21	2038	UG Year 4	9	24	90	18.1
22	2039				114	20.0
23	2040				143
24	2041				152
25	2042	PG Year 1	10	33	127
26	2043	PG Year 2	12	42	90
27	2044				96
28	2045				102
29	2046				109
30	2047	Marriage	10	44	69
31	2048				74
32	2049				79
33	2050				84
34	2051	House	15	84	0

In the example given above, the portfolio will look like this over time.

This post on estimating the cost of the degree shows how to get to the starting point of setting the goal.

How to estimate the SIP value for children’s goals

Prerequisites before starting to invest for parent

• An emergency fund with 6-12 months of expenses
• A term insurance policy (unless you are retired with no income)
• A health insurance policy (separate from the company-provided one, if any) for 10-15 lakhs as a base policy with a 50-100 lakhs super-top up
• A personal accident insurance coverage to safeguard against accidents where you do not die but cannot earn
• No high-interest debt like credit card or personal loans

Things to know: what do and what to avoid

• Avoid insurance plans: these have names with the words child, scholar, kid etc. in them: these are traps for parents to waste their money
• Gold can be bought for marriage but not too much
• Sukanya Samriddhi Yojana (for girl child) has 21-year lock-in and may be more appropriate for parent’s retirement than for UG education
• An additional 150,000/year can be saved in a PPF account in the child’s name for 15 years

Read more on operational aspects of investing here: Should you invest in the name of your children?

How to save for goals

We follow the standard framework replicated here:

• Decide the purpose (why), horizon (when) and cost of the goal today
• Assume at what rate the cost of the goal increases yearly
• Decide how much risk you want to take for this goal
• Formulate an asset allocation suitable as per assumptions in the previous steps
• Start a SIP in funds as per asset allocation and decide on a review frequency
• On every review, see if you are on track and manage risk via rebalancing your portfolio.

This post deals in more detail regarding where to invest for children’s goals.

You can perform these calculations using the Arthgyaan Google sheets-based goal planner. In addition, please refer to this post regarding how to set such goals. This post deals with how to prioritize our retirement over goals for children and is a must-read if you think that you cannot manage every goal at present.

Does this investment process really work?

We have prepared a simulation using 26 years of market data in India to show the effectiveness of the goal-based investing process that shows how effective the process is for reaching close to the target. You will find more details here: What is the best way to invest for your child’s college education?