|
Goal based planning is the mantra for all IFAs and Vyana is no exception. Planning for children's education is one of the most important goals for young families, and we at Vyana have been focusing on this quite sharply.
Two events gave me a new perspective
Two recent events however led us to completely re-look at the way we approach child plans, and catalysed the transformation of our client engagement on this aspect.
About eight months ago, one of my clients came to me with a unique problem. She wanted to me counsel her son, who was in class twelve at the time and wanted to continue his studies abroad in the United States. She didn't want me to help him decide a college, but to convince him that they couldn't financially afford to send him to a university of his choice. I had to explain to him their financial situation and that it would create an enormous drain on their investments to afford it. He came and met me and in fact he was able to convince me, that he wanted to go to the US, against all odds, he was willing to compromise on a lesser known college, he would apply for maximum scholarship possible and he would work his way at college to pay for his course. All he needed was some initial support to help him reach there and pay a small share of the tuition.
Though finally he made it there despite all odds, due to all his sincere efforts, it was emotionally straining not only on the family but also on me individually. This actually taught me a very valuable lesson in goal based planning and why it is important.
There is so much more to planning for a child's higher education than just plucking out a number to help us arrive at a SIP amount! There is so much more that we can contribute as advisors in guiding families and helping them make the right decisions, before we get down to the number crunching aspect of the decision. And, when it comes to number crunching, there is so much we can add to help them estimate a reasonable number rather than a casual random guess.
The second instance, was taking into account the fees of my own Alma matter: The Doon School. It is one of the best boarding schools in India, but has progressively become increasingly expensive. The fees have risen from about Rs 80,000 in 1997 to about Rs 10 Lakhs now in 2017. A rise of 13.5% annually. It struck me that education inflation is perhaps on a different tangent from CPI. We need to understand education inflation better if we are to forecast future expenses with any degree of confidence. Again, plucking a random number for inflation is not doing the best you can for your clients. And, with education inflation rising so rapidly, there is an even greater need for parents to plan appropriately to meet these financial goals.
Time to go beyond the ordinary
We decided that its time to go beyond the ordinary, and take that extra effort to meaningfully support our clients in their endeavour to ensure the best education their children aspire for. We made a representative list of colleges and universities from around the world, including US, UK, Singapore and Australia, and picked some of the most popular student destinations including Harvard, Stanford, MIT, Oxford, Cambridge, LSE and Imperial College London amongst others.
For each of these universities, we collected past tuition fees, living and travelling costs data and extrapolated that with their individual inflation and also took into account the rate of currency depreciation and prepared calculations that how much it would cost parents to send their children to good colleges in the future.
How to present this mass of data in a simple yet effective manner?
Then came the task of finding a simple yet effective way to present this, to build recall for this, and yet not throw so many numbers at our clients that they get put off. After some deliberations, we settled on a two year desktop calendar format, where every month is a different college. We collected interesting trivia about the colleges like who founded it, its best courses, its noted alumni and what the college is known for.
Rather than presenting a mass of data, we decided to keep it simple and present only 3 pieces of data for each college: current cost of education, SIP amount required for a 7 year SIP and a 12 year SIP. The gap between the amounts of the 7 and 12 year SIPs speaks volumes of the need to start early and avoid procrastinating. For each college, we have backup data which we can share with interested parents - but these topline numbers drive home the message quite effectively without adding any clutter.
Our calculations are based on the following parameters:
Returns have been assumed at 15% CAGR, inflation has been taken separately for separate countries and currency depreciation has been taken at 1.50% per annum.
The reason we have taken 15% returns, is that the mean returns of diversified equity funds have been around 17% over the last 15 years. It has also been assumed that the fees payment will be done half yearly after the 18th birthday of the child, thus the residual corpus will remain invested till the last year of the course.
We provide the information on a monthly basis, with current cost of education per year and the SIP amount needed, depending on which age group the child fell in as explained above.
First print run runs out within a week!
The feedback of this calendar has been encouraging. We have been able to open the minds of investors that doing 5-10,000 rupee SIPs won't fund the goals and aspirations that they have for their children. They need to start investing more to be able to dream about these colleges. We are getting a much larger wallet share of the investor's monthly savings. It is also opening the minds of the clients as how starting early is better.
Another client who had almost college going age children, felt that it was late in the day to start SIPs for his children, but at least he got an idea with the information we provided, that how much the education would cost him and what were the options for his children. He also decided to start an SIP for his own retirement, as he would be able to cover the cost of the education at this point for his children.
We ran out of over 500 copies in less than a week!
All content in Marketing Wiz is created by Wealth Forum and should not be construed as views of Kotak MF.
Share this article
|
Marketing Wiz