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Our online survey shows that many Moneylife readers have not systematically done financial planning for their children. But they are smart enough to consider a mutual fund + term plan as a better option than child ULIPs
Our survey on financial planning for children shows that one in three readers have done child financial planning in detail—a good sign. The Moneylife online survey received responses from 624 readers.
Financial planning for children is an important step parents can take even if they are not clear about the career goals of their offspring. It is encouraging to see that only 19% of the respondents think that child financial planning is not of much use due to uncertainty of career choice. Child ULIPs are hard-sold by agents backed by advertisements on TV and print media, yet only 19% of the respondents have purchased a child ULIP. Some 50% of the respondents have come across insurance agents who are actively selling child ULIPs. As expected, 37% of the respondents find child ULIPs difficult to understand.
Ten percent of the respondents think that a child ULIP is the best option for children’s financial planning. This is in line with the low number of respondents who have purchased a child ULIP and a high number of respondents who find child ULIPs difficult to understand. Only 11% of the respondents think that child ULIPs are a better option than child mutual fund + term plan. Clearly, they see unit-linked insurance as a negative option even if it is a child ULIP and perceive mutual funds as a better avenue for long-term wealth creation. Only 11% of the respondents find child ULIPs to be a better option than regular mutual fund + term plan or index mutual fund/index ETF (exchange-traded fund) + term plan.
Surprisingly, 31% of respondents think traditional insurance is better than a child ULIP—which points to a willingness to settle for lower returns as long as they are assured. Shockingly, 47% of the respondents think it is better to go with PPF (public provident fund), FDs (fixed deposits), debt mutual funds, MIPs (monthly income plans) and FMPs (fixed maturity plans) backed by a term plan instead of child ULIPs even if the money for education is required after a decade.
Only 15% of the respondents are considering student loans; they would rather save for the child’s education. The Western trend of educational loans has not caught on in India, although it may not be long before it becomes acceptable in India too. Only 19% of the respondents have written a Will. This is because even though people are convinced about the importance of writing a Will, there is a reluctance to do it in reality. This may be the first step people can take in securing their child’s financial future. In many families, dependents don’t even know the finances of the earning member and, without a Will, there can be tragic financial consequences in case of the untimely death of the breadwinner.