Have you been planning for your children’s education?
Of course, you have been investing in equity mutual funds for their education. If you fall short, you wouldn’t think twice before dipping into your retirement corpus.
After all, there is no compromise when it comes to your children’s education.
However, before you start planning, you need an estimate about how much the education is going to cost.
You can’t shoot without knowing the target.
And estimating the cost of your children’s education is not so easy. There are so many unknowns.
What do you not know?
You don’t know what your son/daughter will want to study. And you cannot possibly expect a 4-year old to answer this question.
You don’t know which universities they may want to get into (or will manage to get into).
The fee for management and arts education varies significantly at the same university. Similarly, the fee for the same management education varies significantly across business schools in India.
Fee at prestigious Indian Institutes of Management and other Tier-I B-schools may easily cost you north of Rs 15 lacs today.
It does not stop there. Education at a university abroad is also an option. And foreign education comes with a hefty price tag.
If your daughter wants to study at an Ivy League B-school in US, you may need an amount many times over.
What about inflation?
Your daughter is not going for higher education today.
She will go for such education many years later. And inflation will only take the cost higher by the time she is ready for education.
How much should you save per month?
That clearly depends on your target corpus.
If the target amount is Rs 20 lacs in 15 years, you need to invest Rs 21,492 per month (at 10% p.a.)
However, if the target amount is Rs 40 lacs years, you need to invest double the amount per month.
Unless you know the target, what will you aim at?
Hence, it is extremely important to have some idea about how much the education is going to cost.
How does BigDecisions’ Child Education Planning Calculator help?
This is where BigDecisions’ education planning calculator can help.
This calculator helps you get an estimate of how much the education will cost based on following parameters.
- Current Age of the Child
- Tentative age at the start of higher education
- Current savings for child’s education
- Choice of education level (Under-grad or post-grad)
- Country of study (India, US, UK, Australia etc)
- Choice of discipline (engineering, management, medicine, law, arts etc)
Based on the estimated cost of education in present terms, the calculator projects the cost in Indian Rupees by the time your child is ready for education.
For instance, for a 4 year old, post graduate management education in US will cost Rs 2.35 crores in 16 years.
The calculator uses a flat inflation rate of 6% p.a. across disciplines and country of study.
Additionally, a flat rate of return of 6% p.a. has been considered to arrive at monthly investment amount.
Based on the required corpus and the time to goal, it also calculates the monthly amount at an assumed return of 6% p.a.
How does BigDecisions’ Calculator arrive at the cost of education?
As per BigDecisions team, the estimates have been arrived using information from university websites and databases from education planners and counsellors. Their team has further considered upper quartile cost across streams and qualifications for the estimates.
When asked about why difference in education cost inflation in different countries is not considered (and assumed flat at 6% p.a.), the BD team mentioned that the difference in education cost inflation in different currencies shall be subsumed in difference in exchange rates. Sounds fair to me.
How to use this Calculator?
You might feel inflation at 6% is too low.
You might feel you can earn a better return than 6% p.a. Even I think you can do better.
You might think there is no consideration for currency risk, especially in case of foreign education.
You may be right but even the most complex models will not help beyond a point.
Forget about inflation and currency movements, the bigger variable is what your child will opt for.
And no model can figure that out. At least, I am not aware of any such model.
This calculator is very simple and provides a good starting point.
Rather than worrying about currency fluctuation and inflation in education space, start saving for the target.
You will get better idea about your children’s preferences as they grow older. At the time, you can revise your target corpus and monthly investment accordingly.
That you cannot find an accurate answer to education cost does not mean you do not start saving for it. Start investing for your kids’ education.
As with any kind of financial planning, when you are not sure, choose a conservative (higher) number.
If you don’t know whether your child will opt for expensive management degree abroad or a not-so-expensive arts degree in India, prepare for more expensive education.
And don’t worry too much if you fall a bit short of the required corpus. Your daughter/son can always apply for a loan to bridge the shortfall. There is no need to dip into your retirement corpus.
You can try out the calculator on BigDecisions’ website.
Disclosure: I have reviewed this calculator under a commercial arrangement with BigDecisions. Though I have tried to maintain editorial independence, I advise readers to consider this arrangement. This commercial arrangement may have biased my opinion about the calculator.