Should you fund your children’s education or should they fund it themselves?

Like a true economist / CA I have to start by saying “It depends”.

If your child has always been a good student and a responsible kid, you should wonder whether to fund the kid. Well if the kid is not so great at studies, but gets admission in a good MBA school or a higher learning Engineering degree should you fund it?

Well in the USA today it is easy to get admission in a decent college – especially if you are willing to pay full fees. So parents do succumb for it.

Anyway that is a different post. So let’s ask…’should parents pay for children’s 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 my emphasis is on why a child should borrow for their own education.

  1. Let them take ownership in the financials: If your net worth is Rs. 5 crores and you are headed for retirement in 5/7 years time, and your child has no clue its time they knew your financial position. Stop saying “I am a Vee Pee in SN Smith world renowned bankers 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 education. Taking loans gives students a reality check, even if the loans are small. It shows them how loan documents are done, the paper work, the hassles, etc. Let them do it for themselves. There is likely to be a grace period of six months after a student graduates for bank loans. This means they will need their degree to translate into employment that pays them well enough to run their lives including the loan repayment. Work with your children to research the current employment climate and determine which careers will help them get jobs to repay the loans.The money lesson: Return on investment.Students need to consider return on investment when allocating significant resources to any investment! This is YOUR biggest investment EVER – YOUR lifelong income earning provider!
  2. Learn to live on a budget: I know students who have got US $ 700 a month from their college as Freeship. Indian kids being Indian kids they have lived well withing that and saved enough money to pay for their younger siblings fees!! Many Indian kids learn to live on less and this frugal living helps them in their difficult times!
  3. They will learn to manage their cash flow – very useful skill in later life too!!
  4. Learn to finish your education as soon as possible! or work as soon as they finish their education!

 

 

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