Top 5 Financial Gifts for Children

Your child deserves the right financial push to start off his/her life after coming off age. Creating a comprehensive financial backing for your child can be the best financial gift you can give them. This will enable your children to foresee any crisis and accomplish any goal at different stages of their lives without struggling for finances. As a parent, if you manage to secure them at least till their education along with your emotional support, you will have given the best gift any child could ask.

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Let’s look at the top 5 financial gifts you can give your children to give wings to their aspirations and ensure their complete financial security in the future. 

  1. Savings Account For Higher Education 

    Savings accounts for children let you deposit regular amounts and then earn interest on the same. These accounts are popular because of the returns being tax free and the deposits exempt from tax deductions under Section 80C up to a certain limit. Examples of such accounts are PPF (public provident fund), Sukanya Samriddhi Yojana (only for girl children), FD (fixed deposit), Post Office savings schemes for children, etc. These accounts can be opened in the name of the child or the parent/guardian and then transferred in the name of the child once he/she comes off age. 

    Other benefits that come with savings accounts for children include annual deposits up to Rs. 1.5 lakhs in the case of PPF and Sukanya Samriddhi Yojana. There is no limit to the maximum amount in the case of most popular post office savings accounts. The interest earned on your deposits ensure that your child gets guaranteed returns on your savings. With features such as 5-year lock-in period to partial withdrawals, these savings schemes are the perfect gift for your children to fund their education or marriage in the future. 

    ** Tax benefit is subject to changes in tax laws

  2. Opt for Market-linked Investment Schemes

    Investments in financial instruments that generate returns should be on everybody’s priority. Mutual funds are touted as potent income generators with high returns, despite the market-related risks. These are excellent avenues for wealth creation and more so if you involve your children in financial discussions about the same. For a start, you can invest in stocks of their favourite companies to generate some form of interest in them and then gradually, inculcate the practice of savings in their lives. Experts suggest parents to go easy on the investments initially as the market risks are borne by the investors. 

    A great financial gift for your child to help them meet their goals would be to invest in mutual fund SIPs (systematic investment plans). SIPs allow parents to invest a small amount in mutual fund equities on a regular basis. With the power of compounding, you can create a sizeable corpus through these diversified investment avenues. However, note that compounding needs time to take effect and you’ll see good returns only after, say, about 10-15 years. 

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  3. Term Insurance for Income Replacement

    While savings and investments are good financial gifts to secure your child’s future, you also have to factor in the unpredictability of life. As dependents, your children need you to look after their daily financial needs, be it their tuition fees, pursuing extracurricular activities, etc. However, in the event of your unfortunate demise, your children shouldn’t find themselves in a capital fix. A term insurance plan can help you offset the risk of income loss on your death, thereby eliminating any potential financial strain on your family. Make sure that the sum assured on your death is enough to cover for the loss of income and future inflation. 

    Experts often suggest investing in term insurance along with a separate investment avenue such as in equities and debts to gift your children comprehensive financial protection. This ensures income replacement in addition to funding unwarranted financial emergencies. There are a number of child plans in the insurance space today that offers periodic benefits to the child, among other features, on the death of the policyholder. 

  4. Design a Will to Distribute Need-based Funds

    Now that you have created multiple avenues for wealth creation, you should make it a priority to distribute your assets among your loved ones. This will most definitely be the most appreciated financial gift for your children. After your death, your wealth should serve the goals they were meant to. You should assign separate funds for each of your children to ensure that there are no disputes among them at the time of claiming the amount. Creating this will is important to ensure that only the right heirs get their dues and no other members. 

    A will that is registered by the court of law is binding and members cannot legally challenge the legitimacy of it. Note that you are allowed to make as many changes to your will in terms of beneficiaries and distribution of assets as you deem fit. 

  5. Financial Legacy Devoid of Debt Obligations 

    Parents should always strive to leave behind a debt-free legacy for their children. There can be no better gift than that. The primary focus area in your parenting should be their education and well-being, and debts involve the exact opposite. If you have outstanding loans to pay off, make sure to purchase insurance that pays off the debt amount on your death. You could make other financial provisions to ensure that the stress of paying off your loan does not fall on the children. In fact, if you feel like you are taking on a debt that substantially overleverages your capital reserves and income, you should most definitely avoid it. 

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Summing Up!

In addition to the aforementioned financial gifts for your children, you can also alleviate a lot of their concerns by simply involving them in regular financial decisions. Most aspects of insurance and investments aren’t taught in schools and children only start learning about these concepts much later. Teaching them about the advantages of financial instruments in a language that they understand can pave the way for smart decision making on their part. Try to instill the habit of regular savings by offering them incentives. Once you feel that they have reached an age where they can sustain information about your financial standing, assets, debts, etc. you should educate them about the same.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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