16 Feb Abhenav Khettry
The thought behind the education planner came due two reasons:
- About eight months ago, one of my clients came to me with a unique problem. She wanted to me counsel her son, who was in class twelve at the time and wanted to continue his studies abroad in the United States. She didn’t want me to help him decide a college, but to convince him that they couldn’t financially afford to send him to a university of his choice. I had to explain them their financial situation and that it would create an enormous drain on their investments to afford it.He came and met me and in fact he was able to convince me, that he wanted to go to the US, against all odds, he was willing to compromise on a lesser known college, he would apply for maximum scholarship possible and he would work his way at college to pay for his course. All he needed was some initial support to help him reach there and pay a small share of the tuition.Though finally he made it there despite all odds, due to all his sincere efforts. It was emotionally straining not only on the family but also on me individually. This actually thought me a very valuable lesson in goal based planning and why it is important.Apart from not knowing how much it would cost, to send their child there, they had no idea how to evaluate between different universities, courses, costs and other variables. Though there are professionals who provide such counselling, there was no ready source on the comparative financials, especially with future predictions taken into account.
- The second instance, was taking into account the fees of my own Alma matter: The Doon School. Despite being the best boarding school in India, it has become quite expensive. The fees has risen from about Rs 80,000 in 1997 to about Rs 10 Lakhs now in 2017. A rise of 13.5% annually.Education inflation is on the rise and at a much higher than the normal rate of inflation. It forces us as advisors and also parents to keep this in mind that we need to plan early to provide a better quality of education for our children. We always feel, that we can pay for it as we earn, but sometimes, it’s better to plan for it.Gone are the days when good quality education was subsidised and cheap, now it’s not and it won’t be in the coming years either.We collected past tuition fees, living and travelling costs data and extrapolated that with their individual inflation and also took into account the rate of currency depreciation and prepared calculations that how much it would cost parents to send their children to good colleges in the future.We have some of the most renowned colleges in the world on the list like Harvard, Stanford, MIT, Oxford, Cambridge, LSE and Imperial College London amongst others.We created the presentation in the form of a two year calendar, where every month is a different college. We collected interesting trivia about the colleges like who founded it, its best courses, its noted alumni and what the college is known for.Our calculations are based on the following parameters:
Returns have been assumed at 15% CAGR, inflation has been taken separately for separate countries and currency depreciation has been taken at 1.50% per annum.
The reason we have taken 15% returns, is that the mean returns of diversified equity funds have been around 17% over the last 15 years. It has also been assumed that the fees payment will be done half yearly after the 18th birthday of the child, thus the residual corpus will remain invested till the last year of the course.
We provide the information on a monthly basis, with current cost of education per year and the SIP amount needed, depending on which age group the child fell in as explained above.
The feedback of this calendar has been encouraging. We have been able to open the minds of investors that doing 5-10,000 rupee SIPs won’t fund the goals and aspirations that they have for their children. They need to start investing more to be able to dream about these colleges. We are getting a much larger wallet share of the investor’s monthly savings.
It is also opening the minds of the clients as how starting early is better.
Another client who had almost college going age children, felt that it was late in the day to start SIPs for his children, but at least he got an idea with the information we provided, that how much the education would cost him and what were the options for his children. He also decided to start an SIP for his own retirement, as he would be able to cover the cost of the education at this point for his children.
We ran out of over 500 copies in less than a week!