In a financial emergency, should you dip into funds saved for child’s education? 

Akshat is an IT professional with 25 years of experience. He has invested for his daughter since her birth. Over the years, he has put aside a sizeable sum held in her name. She will soon turn 18 and will need the money to go abroad for higher education. Akshat’s currently financial condition is not very good. He had switched jobs and moved to a startup. Now, however, he finds himself without a job as the company is facing financial and business difficulties. Akshat might have to turn to the corpus that he had invested for his child’s education. What should he do?

While most investors tend to earmark their long-term savings for a specific financial goal, in reality, the wealth built over the years is a fungible amount that should be used as per the changing priorities of the household. Hence, even though the corpus was earmarked for the child’s education, it was created from the household income and should be available to meet the changing needs. It is an emotionally tough decision for a parent to access funds set aside for children. As circumstances change, prioritising financial goals is a problem many investors face.

If Akshat allows the corpus to be used only for education, he may be left that much poorer in his retirement. Without a job, he will need money for his family’s needs and will not be able to accumulate a corpus for his retirement unless he begins to earn again. Akshat might like to persuade his daughter to take an educational loan, and bear a part of the cost of her education from her own income. He may be able to benefit from the the tax deduction and deferred payment offered by the loan. Having said that, the plan hinges on the hope that the child has sufficient income after education to take care of the loan EMIs. Hence, he must lay his trust in the abilities of his daughter. Self-financing the child’s education and related needs may be a matter of pride for Akshat. However, he must be practical while making a choice, as this will determine his long-term future in these difficult and unforeseen times for the family.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.

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