Eidiya – Gift for a successful future

When your child gets eidi, what does s/he do with it? Perhaps the question should be what you, as a parent, do with it. After all, in many cases, it is the parents who decide what to do with all that cash their children get on Eid. And in all probability, it could simply be spent on something or the other that won’t even be of lasting value. 

Well, it is time to shake things up a bit and think of some innovative ways to utilize the eidi. But it is important, beforehand, to establish what eidi means, so the uninitiated can put it to good use: Eidi, or eidiya, is a cash gift given to children by elders to mark the completion of Ramadan and reward them for their reverence and piety. And as new-age parents, you can use the eidi intelligently to secure your child’s future by investing it in the right kind of conventional (endowment fund, fixed deposits (FDs), Public Provident Fund (PPF) or gold), market-linked mutual or shariah-compliant financial instruments. In the process, you can teach your child the value of money and the importance of saving/investing from an early age.  

A majority of parents in the UAE allocate a significant portion of their long-term savings towards their child’s education, according to a report by National Bonds⁽¹⁾. While parents in the UAE consider their children’s education as an essential investment for their future, many do not have a strategic plan to go with it. According to an HSBC report⁽²⁾, on average, parents in the UAE spend about $99,378 on their child’s primary, secondary and tertiary education up to the undergraduate level. If this expense is met through a timely investment, it can benefit the parents, and the child, tremendously. 

The sooner you start investing in a child plan, the better it is, as the power of compounding will then work in favour of your child. If you add a little amount to the eidi that your children get and invest it all in a good scheme, you will be surprised at how much it can add up to in the long-term. In 15-20 years, your children will be adults, and it will help them immensely if they have a corpus of funds to support their higher education, a small business, or even marriage. Involve your children in the investment process as soon as they are old enough to understand the meaning of delayed gratification. This will go a long way in how they manage money. 

How to invest the eidi of your children

When it comes to investing the eidi of your children, there are multiple options. In fact, some financial services providers have specific Shariah-compliant investments options for eidi. The best way to go about it is to put it the amount in a diversified portfolio through a reputed, trusted and regulated company. Depending on your risk appetite, you can opt for low-risk instruments that yield pre-determined returns or high-risk instruments that can generate significantly higher returns but are subject to market risks. A good financial advisor can also offer other market-linked investments, where you can invest in the currency of your choice – be it USD / AED / INR etc. 

Before investing in any financial instruments, parents should check out its features: Is it investor-friendly? Is the portfolio diverse and actively managed? Additionally, the investment option should be flexible and offer an age-based portfolio management strategy, based on the age of the child at the entry point. The plan should also allow parents to choose from balanced, aggressive and conservative investment strategies, depending upon their risk profile.

Investing the eidi of your children in an education savings plan is the best use you can make of the cash gift. What is important is that you start as early as possible. Even small amounts invested each month will be enough to pay for a good college education and other ancillary cost.  You can start by saving as little as AED 500 a month. Depending on the premium amount, maturity period and the child’s (beneficiary) age, your investments will grow between 4%-7% per annum. For example, if you can rake in AED 1,000 per month for 15 years, you have a substantial principal amount of AED 180,000. Even with the most conservative interest growth rate of, say, 4%, you stand to receive AED 245,000 — a sizable sum, available at the right time when kids are gearing up for higher education. 

Whichever plan you decide upon, it is important that you stick to it. And inform your children that you have not taken away their eidi – you are merely safekeeping so that it benefits them when they need it the most. So, this Ramadan, when your children receive eidi, and before you splurge it on short-term indulgences, give investment a thought. This could be a meaningful beginning of your child’s financial future. Please write to us at Clientservice@cfsgroup.com for extensive and free consultation on what your options are and what your children stand to gain down the road.

 References  

1. https://www.nationalbonds.ae/press-details?item=b77ef49a-ca2f-6f76-bc2c-ff00005d5b89
2. https://www.hsbc.com/-/files/hsbc/media/media-release/2017/170628-the-value-of-education-higher-and-higher-global-report.pdf