Keep an eye on your retirement kitty as you pay for children’s education

Mumbai: School fees are one of the most common dinner-time conversations across cities. Over the years, school fees have been increasing at a faster pace than income growth. Parents and financial planners point out how the cost of their entire education is now the annual fee of a primary class. “I have a friend whose children go to an international school where the fee for two is ₹11 lakh. My colleague sends her child to a private school where the fee is around ₹4 lakh. The cost of primary education can start from ₹3-4 lakh in metro cities and for high-end schools it can go up to ₹5 lakh,” Mrin Agarwal, founder director, Finsafe India Pvt Ltd. Healthcare and education continue to see double digit inflation. If you don’t pay close attention to this expense, it can spill over to other goals which you may not be able to meet. Here is why:

Child’s education, a priority

“Our data shows that the top goal for a parent is child’s education and not retirement. When we say prioritise, people tend to focus on education. In our survey almost 60% organised sector employees can’t meet their monthly expense regularly. Also we can’t tell them to compromise on child’s education. It is a social problem because it is so personal, people tend to not take an objective call,” said Nitin B. Vyakaranam, founder and CEO, Artha Yantra. Parents are unable to maintain the balance of income and expense. “If you are spending a large sum of the money towards school fees, it will also bring down your savings for other goals. It is going to eat into your retirement kitty and other emergency funds. If the school fee is a large part of your salary and you are spending beyond what you should, then it has a big impact on your overall finances. You need to know how to strike the right balance,” said Agarwal.

How to strike the balance

According to financial planners, there are two things that you can do—start planning for your child’s education early and factor in your ability to pay. “It is not about how much you should spend on your child’s education, but how much you can afford to spend. When you prioritise something, you sacrifice something else in your life. Considering that your child’s education is your top priority, you need to plan early. You also need to see what the total education expense means for the family,” said Vyakaranam.

If you can’t afford it, you have to take the tough decision. “School fee is just one part of the expense. There are other related expenses such as field trips and cost of extra-curricular activities. You have to take a tough decision of sending your child to a school that you can afford. The last thing you should be doing is taking loans to fund your child’s school expenses. You have to come to terms with reality,” said Agarwal.

But then how much is spending too much? “The cost of the child’s education should fall in the 30% of your expenses from your overall income which includes your rent and other expenses. If it exceeds the 30% limit, you are overspending, which means you have to either earn more or cut down the expense,” said Agarwal.

Impact on your retirement

Usually children’s education expenses tend to eat into the retirement kitty of parents. Many are willing to let go of a comfortable old age life for their child’s education. Remember that retirement is not an option; it will happen and you need to be prepared for it. Hence, don’t dip into your retirement kitty. Instead, work on build it from an early age itself.