Top 5 Financial Tips to secure your client’s child’s future

As parents, your clients would want to give their best of everything to their child, feeding them the best healthy food, teaching them good habits, taking safety measures, monitoring their performance in school, they are taking care of their needs at all times.

While they continue to excel as a parent for their immediate needs, they tend to overlook an important aspect of parenting and that is securing their child’s financial future for the long-run.

Here are the top 5 Financial Tips to secure their child’s financial future-

1. Buying Insurance

   Becoming a parent means added financial responsibility for them in the years to come. Increasing their life insurance cover as soon as they have a child is a wise decision. Investing in a child plan with a waiver of premium benefit for the uncertainties of life is the best way to secure them. Apart from the life cover, the investment component provides you flexible payments to fund important milestones for their child.

   In case of the untimely death of the policyholder, the insurance company will pay out the sum assured and continue the policy till maturity by paying the future payments and help build the desired corpus so that their child receives the periodic payments for their financial requirements. This is called Premium Waiver Benefit.

   Moreover, the premium paid for a child plan is eligible for deduction under Section 80C and the income earned is tax-free under Section 10(10D).

2. Starting SIPs in equity funds for long-term goals

   Higher education, children’s marriage are all occasions that will arise much later in life, but given the high rate of inflation, it is important to start planning for them as soon as possible. Traditional debt instruments like PPF or FDs will not help accumulate desired corpus. Instead, starting goal-specific SIPs will ensure the creation of large corpus effortlessly through small contributions each month.

   Starting SIPs in Equity Linked Savings Scheme (ELSS) with long-term savings with a potential of higher returns and also provide taxation benefit as investments in ELSS are tax-exempt under Section 80C.

3. Opening a Bank Account on the child’s name

   Opening a bank account on the child’s name and depositing their pocket money and other cash received as gifts on birthdays and special occasions will ensure that the money is not spent without a valid reason. It will help them learn about money management as they will become accustomed to planning their expenses, budgeting and creating savings from an early age.

4. Keeping money in Fixed Deposit in the child’s name

   Regularly investing in equities is important for the growth of funds over the long-term. However, as equity investments have a degree of risk with them, balancing your client’s investment with debt is important to provide the safety cushion. Using any surplus that you have and making multiple FDs with different maturity dates will help ensure the timely availability of funds in the future for important financial milestones. It will also ensure that you don’t use the surplus to meet any short-term expenses or indulgences.

5. Buying adequate Health Insurance

   Rising healthcare costs and illnesses require them to have sufficient health insurance cover for themselves and all the family members including children. As children have lower immunity and more susceptible to illnesses, it is important to invest in a health insurance plan so that your client does not end up draining his savings in keeping yourself, the family and the child healthy in case of a medical emergency.

   From taxation perspective, the premium paid for the health insurance policy for children is exempt from tax under Section 80D.

   So, in order to create a healthy financial portfolio, your client must follow the ILR strategy, wherein he needs to:

   1. I = Immediate, i.e. start saving IMMEDIATELY, for the child

   2. L= Long Term, i.e. Think LONG-TERM and plan accordingly, not for a short-term goal

   3. R= REVIEW, i.e. REVIEW the portfolio periodically.

   If your client diligently follow’s the 5-step therapy along with the ILR Strategy, he will surely be able to build a healthy portfolio for the child.