Parenting is a fantastic experience but to many parents it is a big financial worry as well. The Indian government may publish inflation at 5-6% but when it comes to expenses on kids, the actual figures are actually in multiples of the published inflation data. In reality, what we as a student used to spend the whole year on our education is what is been spent on kids today for a month. From food to clothing, from education to entertainment, from school to college, parenting involves more than just love and affection and that can only be done by huge financial outlays. We have started seeing one very important change at least in urban India which is having lesser number of kids. Hum do hamare do to many urban middle class families is getting unaffordable now-a-days. Having more than 2 kids is just not evident and in fact has become quite a rare family picture. The cost of kids has gone up dramatically and with higher inflation especially in education for many parents raising kids have become a nightmare.
In one of the surveys done in US and UK, the cost of raising a kid till 21 is almost more than Rs. 1.5 crores, though in India we don’t have such formal data or any statistics. Unfortunately not many of us write our monthly expenses and hence we just do not know; how much are we spending on various heads. In this article we will talk about the various expenses which are associated with parenting.
Upto 4 years (pre-school age)
From diapers to frequent dresses, from special food to healthcare, from toys to other entertainment, from doctor’s fees for minor illness to cost of immunization and not to forget birthday celebration to badhai to relatives, in all a middle class family would be spending a sizable amount for kids. Now these expenses could be anywhere between Rs. 60000 to Rs. 2 lac per year and even more.
Various studies show that such expenses could be 10% to 20% of household income. For the clarity of readers, we are not adding any pre-school or crèche charges here which would jack up the cost further.
The Schooling age (5-16 years)
First of all, one of the biggest worry is to get admission in a decent good school. Many schools have started demanding huge amount of money as donation which is mind boggling. Many schools in Delhi and Mumbai demand such donation in a very different way – they don’t straightaway ask for donation in cash; but ask for it in kind like sponsoring a school mini-bus or water filter etc.
Now the cost is just not schooling but also to spend on special hobbies of kids – may be any sport or music or art. Apart from schooling, another trend that has emerged; which is a must for today’s young generation is TUTIONS. Wonder why a student need to study again from the same teacher who taught in the school. It is like government doctor asking you to visit him in his clinic even after he has seen you in hospital.
Kids have started demanding electronic gadgets, multiplex pictures, frequent outings and what not. With just one or two kids, parents also like to support it in whatsoever capacity they can.
As you grow higher the age in schooling life, the cost only goes up. Many household says that their internet cost itself is now more than the total cost of other communication like cell phone or landline.
To sum it all, the yearly cost in this age group could be anywhere between 1 lac to 3 Lacs.
The College Time (17-21 years)
The most expensive zone for parents and it is for this they take child plan from insurance company and get duped. The cost is not all about higher studies but involves expenses for private coaching, mobiles, gadgets, outings, hobbies etc. It is this time zone where many parents who did not plan for such expenses dig out money from their retirement kitty, though it is quite dangerous. Now-a-days, we don’t have only traditional courses like doctor engineers, accounts etc but have many varieties ofspecialization. One could go in media or airline industry or join as sports person. The opportunities are everywhere.
Also one can study in India or study abroad. The only place where the cost is manageable is the colleges run by government, rest all others are highly expensive.
The cost could range from 10 lacs to 70-80 lacs depending on where your kid wants to study.
21 to 25 years (marriage age)
If we talk about this age expenses to any parent in the western country, they will be surprised as most of them don’t really think of beyond higher education but as the song goes “IT HAPPENS ONLY IN INDIA”. At this age of parenting, many
Parents not only plan for kids marriage but also about setting up kids venture, if he or she wants to go in for self-employment. For the sake of simplicity, we will ignore that aspect. But marriage is a big time expenditure in India. Whether you have a girl child or boy, it is no different now a days. A decade back, the cost used to be in single digit lacs but now it has spiralled to high double digit lacs and in many high end families, it is crossing the crore mark.
Let us now try to sum up all the expected expenditures in raising a kid. We will also inflate the cost of the same for 5-10-15-20 years so that different readers can relate their expected cost for their kids which are at different age groups.
|Total Expenses at Current Cost||Inflation impact @ 8% on future years|
|5 years||10 years||15 years||20 years|
|0-4 yrs.||4||₹ 1,00,000||₹ 4,00,000||₹ 5,87,731||₹ 8,63,570||₹ 12,68,868||₹ 18,64,383|
|5-16 yrs.||12||₹ 2,00,000||₹ 24,00,000||₹ 35,26,387||₹ 51,81,420||₹ 76,13,206||₹ 111,86,297|
|17-21 yrs.||4||₹ 5,00,000||₹ 20,00,000||₹ 29,38,656||₹ 43,17,850||₹ 63,44,338||₹ 93,21,914|
|22-25 yrs.||1 time expense||₹ 50,00,000||₹ 50,00,000||₹ 73,46,640||₹ 107,94,625||₹ 158,60,846||₹ 233,04,786|
How do we plan for such expenses?At today’s cost, the total cost of parenting comes down to nearly Rs. 1 crore!! That’s a mind boggling figure and one may discount the figure to whatever level one wants but still it is a figure which is quite a huge. No wonder any business to do with kids is so very successful in India. Now we have also taken the inflation impact of the cost we incur at current level and their figures are just unbelievable. Again, the importance should not be given to exact figures but the idea was to give tentative cost. Imagine a marriage of Rs. 50 lacs today would cost over 2 crores 20 years down the line.
As said in last article, many parents have started thinking of bearing only one kid so that at least they can do justice to his/her upbringing. It is very critical for us to plan as soon as possible so that we give enough time to ourselves.
Do’s and Dont’s
- All young parents and parents whose liabilities are not yet over, one must have a good insurance plan for any future contingencies. A good term insurance and accidental policy for an earning parent is a must. A medical cover for the entire family is a must. These would be handy in case of any unforeseen contingency.
- Avoid kid’s oriented policy which are offered by insurance companies. They are meant for emotional atyachaar and are fit for nothing.
- For those who are young parents, one should take SIP route and invest heavily in plain vanilla diversified equity fund and should not bother about markets too much in the near term.
- For parents whose kids are little grown up, a PPF account would be another good option but one must not go overboard.
- For parents whose kids are over 16 years, they must not give weight age to equity and stick most of the portfolio in Debt oriented products. Do remember to choose debt option keeping in mind the tax liability.
- Real estate is a good option for those who are young. But the cost of real estate is so high that it is beyond affordability levels. Also investment in real estate demands huge one time outflow which may not be possible for every parent.
Please do remember that these are general guidelines and one should take specific decision only after consulting a financial planner so that he/she takes the overall view of financial situation before giving a concrete answer.