Financial Planning for kids by Taherreh Jalali-Dashti

Financial Planning for your children
Now that you consider making a financial commitment to your child's future, make sure of four things:

1. Early investment
2. Informed investment
3. Liquidity and receivability of the funds when you/your child needs them the most.
4. Teach your children to be intelligent about their money

1. Early Investment :
   According to most people early investments for children mean investing within the year of birth of the child.
   However, in my books it means as early as you have the funds to do so. It really doesnt matter how much or how little the investment kitty is, its just good to invest as soon as you can afford to.
   
   
2. Informed Investment :
   
   There are loads of investments in the markets for children and it is not necessary that best investments be those that have the word CHILD or CHILDREN or any of the other synonyms in them.
   The best investments have government backing, for example the public provident funds (PPF), Life Insurance Corperation (LIC), UTI bonds, post office investments (especially kisan vikas patr). All great trust worthy, and you can be sure that you will get your money when they say they will give it.

• LIC needs another blog dedicated to it. The point I would like to make here is Unit Linked Insurance Policy (ULIPs) are not great investments for children. And as far as you can an individual should buy insurance for the literal use of insurance, that is to protect life. LIC has policies that require a one time payment, and other policies that you can pay premiums, once a year, quarterly or monthly. Sums can be assured so that you can plan to receive money at times when your children will need the money the most, for example, for college, marriage, to buy a house, set up a business, or travel around the world.
• Mutual funds can also be a great buy, and you can choose to buy them as systemic investments (SIP), choose the growth or dividend options. Contrary to popular belief (popular belief encourages growth options in mutual funds), I prefer the dividend options so that you can use the dividends you get, to reinvest in newer and cheaper funds or other instruments of your choice later.
• Fixed deposits are extremely good investments if you are confused about the various investing options and would rather park your money somewhere safe before you decide what you wish to do with it.
• If you are courageous you can wet you financial appetite in the stock market, but you would have to dedicate time and effort to study the market trends and place your bets. If you are lucky you can get very very lucky and if you aren't you should leave immediately.

• Real estate is another great investment, but requires a large capital, maintainence and a lot of your attention. Real estate should be purchased cheap so you can expect great returns. You may not be able to sell your property when you need the money. But you can give the property on rent and make some pocket money, while the investment grows.
• Gold in the form of jewelery is a great investment, because its on the spot cash when u need it, be it a saturday or a sunday or any public holiday, or jewelery can stay as jewelery and be given as gifts to your child when they are more mature. Gold Exchange Traded Funds are also available but I dont recommend them as they have the same hassles of buying and selling as mutual funds and equity stocks.
  3.     Liquidity and Receivability :
  The most important for Children's financial planning is Liquidity and recievablity at the time when you might/would need the money for your children. Therefore, while studying the various investment instruments, make sure you know how you can receive the funds at maturity. Make sure the process of liquidity and recievablity of the sum assured is stress free and has limted paper work and red tape 
  4.    Teach your children to be Intelligent with money :

• You can start with candy, whenever you give your child candy give them also a box to keep it in. Tell them they can have some candy and save some candy in the box for the next day. You can also ask your child to share some candy with siblings or with you and their father. So, basically you are teaching them spending, saving and sharing of wealth.
• For older kids you can give them pocket money once a week and make a box with four compartments, label them as spending, saving, tax, and sharing. Get your child to put some of their pocket money in each compartment.
• You could buy a piggy bank get your child to fill it up then break it together and take your child to the toy store to splurge so that your child can understand the concept of saving. You can convince your child to share the toys he/she buys by giving away to a toy library, daycare center, playschool or orphanage, so he/she undertsands the concept of sharing.

Most people advise you not to put all your money in one basket while investing, but Warren Buffet didnt become a billionaire because he diversified. Invest early, consistently and at low prices for highest returns.

by Taherreh Jalali-Dashti of Sunburnt Adeventures N Many More