Are you planning for your child's education? If your 3 year baby is getting into a play school in 2015 (which has become necessary for admission in schools), you will be spending close to Rs. 42 million on education alone. This is when he/she will study in government funded/aided schools and colleges. The fees component alone is Rs. 31 million and another 11 million would be incidental costs (transportation, books etc.) on education alone. To know how, read on.
The ROI for investment in a student in India is abysmal. As a prudent financial practice, it is no longer viable to fund your education with loans. Successful examples are like a lottery with odds of better ROI heavily loaded against you. Costs of education have galloped to catch up with west while the output measured as salaries, employability and knowledge haven't kept pace. Most MBAs are placed at a salary of less than 4 lacs (if at all they are placed). Three quarters of engineers don't get a job after passing out.
So, in pure arithmetic terms, are you better off saving that money and handing over a fixed deposit to your child after 22 years? Imagine a Rs. 42 Million FD to secure your child's future. In the interim, he can study in a good government school (as many of us did), understand real world, devoid of protection and enjoys his childhood and maybe pursue dreams and his passion instead of competing in the rat race.
Does it make sense? No tensions of marks, grades, courses, coaching, tuition, placements, interviews. Live your childhood, get tougher, pursue your dreams and save close to Rs. 42 million. IMAGINE.
The major assumptions are:
- Return on capital employed is assumed at 11%.
- School Fees for past years is actuals. For 2015, it is as of today.
- The fees are of a school built on government grants and where fees is decided by parents and school together. Pure private education is 100% more.
- For higher education, the fees are twice of what they are today in IITs and IIMs; that means doubling in 15 years and good Private engineering colleges fees are typically 2.5 times of IITs.
- The period of education from pre-school to PG is assumed as 21 years + one year for job placement.
- A fees inflation of 7% is assumed. In reality, it is more than 10%.
- Other costs are assumed at 35% of fees (transportation, books other fees etc). In many places, the other costs are as much as the total fees (100%).
- Tuition assumed for 3 years only of the 22 years. No coaching is assumed for UG entry while one year coaching is assumed for PG admission tests (CAT etc). Many students have tuitions through the life cycle. And most students go through coaching at UG level too.
Now decide. The financial planner in me has a definite reply, but the parent in me is uncertain. How about you?
|Number||Year||Investment (INR)||Future Value (INR)||Description|
|1||2015|| 140,000|| 1,390,700|| Play School|
|2||2016|| 149,800|| 1,340,585||Nursery|
| 160,286|| 1,292,276||Prep|
|4||2018|| 171,506|| 1,245,707|| 1st Class |
|5||2019|| 183,511|| 1,200,817|| 2nd Class|
|6||2020|| 196,357|| 1,157,544|| 3rd Class|
|7||2021|| 210,102|| 1,115,831|| 4th Class|
|8||2022|| 224,809|| 1,075,621|| 5th Class|
|9||2023|| 240,546|| 1,036,860||6th Class|
|10||2024||257,384|| 999,495|| 7th Class|
|11||2025||275,401|| 963,477|| 8th Class|
|12||2026|| 294,679|| 928,758|| 9th Class|
|13||2027|| 565,307|| 1,605,144|| 10th Class + Tuitions|
|14||2028|| 904,878|| 2,314,712|| 11th Class + Tuitions|
|15||2029|| 1,318,220|| 3,037,887|| 12th Class + Tuitions|
|16||2030|| 600,000|| 1,245,696||Engineering|
|17||2031|| 700,000|| 1,309,290||Engineering|
|18||2032|| 800,000|| 1,348,047||Engineering|
|19||2033|| 1,400,000|| 2,125,299|| Engineering + Coaching|
|20||2034|| 1,500,000|| 2,051,447||MBA|
|21||2035|| 1,500,000|| 1,848,150||MBA|
|22||2036|| 300,000|| 333,000|| Job Placement|
| Total|| 12,092,788|| 30,966,342|
In the next 22 years, with the interest of 0.11% and with an approximate inflation of 7% the future value of the total investment will be Rs. 41,804,561 (Rs. 42 million). Hence, this is the amount you may have to invest in your child's education.