What financial decisions should be taken after a child is born?

Subodh, 32, has just become a father. Assets owned by him and his wife include investments in fixed deposits, mutual funds and a house. Subodh has a life insurance cover of Rs 50 lakh and health cover provided by his employer. He now has to provide for immediate rise in expenses and plan for additional future expenses. How should he go about securing his child’s future?

As new parents, Subodh and his wife are bound to be excited about the arrival of their little one. They may end up buying a lot of things which might be of little use beyond a few days/months as babies/toddlers tend to outgrow clothes, gadgets and toys pretty fast. So little things, such as spending wisely on toys and clothes could go a long way. It might help to become a part of a group and be open about sharing and rotating standard items, especially during the initial years.

To start with, Subodh must ensure that his life insurance cover is increased. If something unfortunate were to happen to him, his life insurance should be enough to provide for all the additional expenses. Both he and his wife might want to add the baby as the nominee in the financial products they own, including their house. He might also want to take up additional health insurance cover or add critical illness insurance to his existing health cover. School and education expenses will start in 2-3 years’ time. It is important to ensure that he is ready to provide for this additional expenditure. A simple way to save for this short term goal is to either open a recurring deposit or start an SIP in a debt fund.

He should open a bank account in the child’s name, to park all the cash gifts from the grandparents and other relatives. He may start dedicated long term investments such as PPF, equity shares or equity mutual funds, for the child’s future. He should be wary of advisers trying to sell him complex children’s plans with low returns.

He must ensure he understands the frequency and extent of payouts, the penalties for any slippages on his part, the benefits that will accrue to him at the end of the tenure and the risks to the potential returns.

Beyond the emotional joy lies the additional responsibility that surfaces with the commencement of this new phase. So it is important for new parents to refrain from initial splurging, list down the financial goals related to the child and save accordingly.



This article is courtesy Centre for Investment Education and Learning (CIEL).