Child Education Plan vs Child Saving Plan: What Should Parents Choose?

As parents, one of the most important choices we make for our children’s future is how to ensure their financial security. Two of the most sought-after financial products available for this purpose are the child saving plan and the child education plan. Both are utilised to build a financial nest egg for your child, but they work differently and focus on different aspects. If you are a parent wanting to learn what would be best suitable for your family, this blog is going to disassemble the contrast and lead you towards making a smart decision. 

Understanding Child Education Plan

A child education plan is designed particularly to ensure your child’s education is paid for, no matter what. Plans typically have the additional benefit of offering both insurance and investment protection. Most plans offer flexible features, where you can choose the amount to invest, and most are designed to pay out at a certain age when your child is ready, say, to attend college or university.

Features of a Child Education Plan:

• Purpose-oriented: As the name itself suggests, the plan is particularly for funding the educational costs of your child, whether it is school fees or the cost of higher studies. It’s a long-term financial solution which best suits your study goals.
• Insurance Coverage: Life insurance usually forms a part of the majority of child education schemes. Thus, if something happens to the parent (policyholder), then the education of the child will be taken care of even after death. With the insurance payout, the education fund of the child is safe.
• Periodic Payments: These policies usually pay out in installments, which align with the schedule of your child’s school progress. The funds are disbursed to you at the moment when your child needs them most, usually when your child is preparing to enter a school, progressing to a higher class, or even college.
• Flexibility in Payment: According to the scheme, you can either pay a premium in a lump sum or pay at periodic intervals. The majority of these plans give the flexibility of choosing a premium as per your affordability.
• Tax Benefits: Some of the child education plans give tax-saving benefits, where parents can reduce their tax payable. This is an added advantage for those who would like to establish a tax-effective savings plan.

Understanding Child Saving Plan

A child savings plan, on the other hand, is a general savings plan to save for your child’s future spending, including education but extending to other goals like marriage, business, or even down payment on their first home. It does not have the specific educational orientation of a child education plan. It is a flexible financial tool that can help you save and invest in the long run.

Features of a Child Saving Plan:

• Higher Purpose: The primary purpose of a child saving plan is to create wealth in the long term for your child’s future needs. Although it can actually be used to fund education, it is not specifically designed for that purpose only. It can be used for other purposes such as the setting up of a business, buying property, or even paying for health-related expenses.
• Investment Focus: A savings plan for a child is inclined to focus more on money making via investment. It may take the shape of mutual funds, shares, fixed income securities like bonds, or other investment options that will get back money within some duration of time. Your money’s value depends a great deal on how the underlying investment performs.
• No Insurance Coverage: While the child education plan usually features a built-in insurance policy, most child saving plans do not. That is, if you were to pass away, there is no definite payment for the benefit of your child unless you buy a life insurance policy individually.
• Flexibility of Use: At a child saving plan, the funds that are saved can be used for whatever reason the child will require them in the future. It is much more flexible than a child education plan, which is only meant for education-related expenses.
• Tax Benefits: Some child saving schemes also offer tax-saving benefits. These are usually, however, subject to the type of investment and the local tax laws prevailing. It’s important to know the tax benefits in your area.

Major Differences Between Child Education Plan and Child Saving Plan

Purpose and Focus:

• A child education plan is meant to fund your child’s studies. It provides a financial guarantee that the funds will be applied towards this very purpose.
• A child saving plan, on the other hand, is not rigid. Even though it can be used for schooling, it may also be availed of to cover numerous other future costs such as wedding expenses or a starter fund.

Insurance Coverage:

• Child education plans typically have an insurance component, meaning even if something happens to the parent, the education of the child will be financially covered.
• Child saving plans do not typically include insurance cover, and therefore parents would need to purchase a stand-alone life insurance cover.

Investment Options:

• A child education plan is usually less flexible in investment. It usually offers fixed returns or pre-defined plans that align with your child’s educational milestones.
• A child saving plan is more flexible and has a wider range of investments, but this also means that the returns can vary depending on the market conditions.

Payout Timeline:

• With a child education plan, the payments are based on your child’s educational advancement and are made at various stages of education.
• A child saving plan provides greater flexibility in terms of payment, and the money may be withdrawn whenever necessary, not necessarily according to educational schedules.

What Should Parents Opt For?

It all depends on your goals and your child’s needs for the future.

• If your highest concern is to make sure that your child’s education is fully paid for, and you’d prefer to have the reassurance that education expenses are covered no matter what could happen to you, then a child education plan is most likely ideal. It offers a distinct and specific pathway to financing education and comes with the advantage of insurance cover as well.
• If you require more flexibility and want to save for a series of potential future costs, and not necessarily education alone, then a child saving plan will be the better choice. It offers you more flexibility in how you invest according to your risk appetite and the possibility of spending the money on various life goals, including but not limited to education.

Conclusion

Finally, the decision to use either a child saving plan or a child education plan is one of personal need and budget considerations. If you feel that the primary concern for your child should be securing his educational future, a child education plan provides the professional solutions. But if flexibility and more comprehensive financial growth potential appeal to you, a child saving plan can turn out to be more suitable.

Remember that for the majority of situations, parents do decide to combine both approaches to invest in a child saving plan for other future needs and invest in a child education plan for secure educational funding. This blend approach can provide security as well as flexibility to your child’s future. /Last of all, the earlier you begin, the better. The earlier, the more equipped you will be to deal with the challenges of providing your child with a good future.