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Rs. 42 million - The real cost of your child's education

Written by: Mahesh Peri

Rs. 42 million - Cost of your child's education

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:

  1. Return on capital employed is assumed at 11%.
  2. School Fees for past years is actuals. For 2015, it is as of today.
  3. 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.
  4. 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.
  5. The period of education from pre-school to PG is assumed as 21 years + one year for job placement.
  6. A fees inflation of 7% is assumed. In reality, it is more than 10%.
  7. 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%).
  8. 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
12015 140,000
 1,390,700
 Play School
22016 149,800
 1,340,585
 Nursery
3

2017

 160,286
 1,292,276
 Prep
42018 171,506
 1,245,707
 1st Class
52019 183,511
 1,200,817
 2nd Class
62020 196,357
 1,157,544
 3rd Class
72021 210,102
 1,115,831
 4th Class
82022 224,809
 1,075,621
 5th Class
92023 240,546
 1,036,860
 6th Class
102024 257,384 999,495
 7th Class
112025 275,401 963,477
 8th Class
122026 294,679
 928,758
 9th Class
132027 565,307
 1,605,144
 10th Class + Tuitions
142028 904,878
 2,314,712
 11th Class + Tuitions
152029 1,318,220
 3,037,887
 12th Class + Tuitions
162030 600,000
 1,245,696
 Engineering
172031 700,000
 1,309,290
 Engineering
182032 800,000
 1,348,047
 Engineering
192033 1,400,000
 2,125,299
 Engineering + Coaching
202034 1,500,000
 2,051,447
 MBA
212035 1,500,000
 1,848,150
 MBA
222036 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.

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