Let Your Child Fund Their Education!

Youngsters must remember education is their BIGGEST investment EVER: Their lifelong income-earning provider! asserts CA P V Subramanyam.

Should your children fund their own education? Every parent faces this question at some point in their life.

Like a true economist and CA, I have to start by saying, 'It depends.'

It could be that your child has always been a good student and a responsible kid. Or, maybe, she or he is not so great at studies but gets admission into a good MBA school or for a higher learning engineering degree course or for a medical degree course. Should you fund their studies?

In the US, it is easy to get admission into a decent college especially if you are willing to pay the full fee. So parents do succumb. But that is a post for a different day.

For now, let's ask again: should parents pay for their children’s higher education?

I feel if you have a net worth of, say, Rs 10 crores and your kids need Rs 50 lakhs, you could consider paying it.

However, here's why I feel children should borrow for their own education.

Let them take ownership of the financials

If your net worth is Rs 5 crore and you are headed for retirement in 5-7 years and your child has no clue, it's time they knew your financial position.

Stop saying 'I am a VP at my job and I can afford it.'

Maybe you CANNOT afford it.

Sit down, make your retirement plan and see how much money you can REALLY AFFORD to spend on your daughter's or son's education.

Taking loans gives students a reality check, even if the loan amount is small. It shows them how loan documents are prepared, the paperwork needed, the hassles involved, etc. Let them do it for themselves.

There is likely to be a grace period of six months after a student graduates for her/him to start repaying the loan.

This means they will need their degree to translate into employment that pays them well enough to run their lives and repay the loan.

Work with your children to research the current employment climate and determine which careers will help them get the kind job they need.

The money lesson they will learn here? The importance of return on investment.

Youngsters need to consider return on investment when allocating significant resources to any investment. They should remember education is their BIGGEST investment EVER: Their lifelong income-earning provider!

Learn to live on a budget

I know students who have got $700 a month from their college as a freeship stipend.

Indian kids being Indian kids they have lived well within that amount and saved enough money to contribute towards their younger siblings’ fees.

Many Indian kids learn to live on less and this frugal living helps them in their difficult times.

They will learn to manage their cash flow -- a very useful skill in later life too.

My advice to students: Finish your education as soon as possible and work as soon as you finish your education.

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P V Subramanyam is a chartered accountant with more than four decades of experience in the field of personal finance and blogs at subramoney.com.

Disclaimer: This advisory is meant for information purposes only. Any use of the information and related decisions of the recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.