High cost of education is eating away the savings of most parents and the cost of raising a child does not become any less expensive in any phase of their lives. Here are our findings of a nationwide survey of 1,712 middle-to-upper class parents. They filled out specific segments pertaining to the age-group of their children-up to four years, five to 16 and 17 to 21 in what is probably the first ever survey of its kind

Read Real Cost of Parenting, our cover story.

Around 55% of our sample provided their average annual household income figures. Only 23.9% of these reported an annual household income of below Rs5 lakh; 28.6% were in the Rs5 lakh-Rs10 lakh bracket, another 33.3% earned between Rs10-Rs25 lakh, while as many as 14.3% earned over Rs25 lakh. It indicates that the respondents are mainly upper-income households with above-average awareness about sound financial products and investment choices as well as prudent borrowing habits.

The Baby Years (up to four years)

Starting with maternity, there is never a less expensive phase in a child’s life. In the early years, it is the cost of immunisation, minor illnesses and for middle-class parents, things like diapers, baby food, toys, childcare and birthday celebrations. But one in three respondents had not budgeted for the increase in monthly expenditure on the child.

Estimates of the cost of raising one child to the age of four years vary from 10% of the household income to as high as 25%. As many as 84% of Moneylife survey respondents felt that up to 10% of monthly family salary went towards monthly caretaker/crèche expenses for one child.

Over half the parents were paying off a home loan (52.3%) while 37.8% did not have a mortgage. Only 44.5% of parents have even a basic life insurance.

The School Years (5-16)

As children grow up, 94% of the parents listed children’s education and hobbies as their biggest concern. Clothes, entertainment (vacations, gizmos, pocket money), food, healthcare and housing followed—in that order. Almost one in five respondents has paid 25%-50% of their monthly income towards school entrance fee for each child.

Worries about the high cost of education makes parents in this group easy targets for selling child insurance plans. This set of parents say that they are already saving for higher education (90% list it as their first priority) followed by marriage expenses (50%) and then healthcare (20%). Interestingly, Indian parents do not see their expenses ending with educating their children. Some parents believe it is their duty to set up their children in business, purchase property for them or ensure a decent inheritance.

Depending on their income as well as the size of the family, parents estimate the cost of raising one child at 10% to 25% of household income. Only four out of 10 respondents are confident of having enough funds to pay the fees of a professional course for their child after the 12th class. But 74% of parents said that they would fund their child’s education through savings.

The preferred savings instruments for their own retirement planning are interesting.  Over half (54%) prefer public provident fund and employee provident funds. About 50% claim they invest in equity mutual funds, 46% say its property.

The number of parents paying off a mortgage dropped significantly (to 43%). The good news is that 46% of parents did not have any loan and were probably saving the maximum in this segment. Only 49.6% of parents have even a basic life insurance.

The Higher Education Years (17-21)

These are the years when costs really spiral, on all fronts. Here again, 94% of parents listed education and hobbies as the biggest expense.
 

Costs of private coaching, hobbies, mobiles, gadgets and entertainment (holidays with friends, eating out, movies and hobbies) rise rapidly and it is the time when poor financial planning of earlier years begins to be felt.

Over 45% of our respondents think that they should have planned better for children’s expenses, while 57% of the respondents are worried that their financial responsibilities may not be over even after a child turns 21. A scary 38% of the respondents said that they are tapping into funds they had saved for their own retirement years to pay for the professional education of their children.

Only 8% of the parents had their child take an education loan to pay for their professional courses. This underlines the image of Indian parents being willing to sacrifice almost everything for their children.

A good 57.8% of parents have no mortgage, but as many as 30% were still paying off home loans, in addition to meeting the high cost of education. Only 50.4% of parents have even a basic life insurance.