Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are You Among The 35% Parents Who Will Not Be Able To Finance Their Child's Future? - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Are You Among The 35% Parents Who Will Not Be Able To Finance Their Child's Future?
Nov 1, 2018

Every parent wants the very best for their child, from the best lifestyle to the best infrastructure to Ivy League schools, nothing short of the absolute best.

But the "best" costs money and an Ivy League education costs the moon.

A survey by HSBC titled, "The value of education: price of success", revealed some scary and startling facts about the preparedness of the average Indian parent. For instance, did you know that...

  • 49% of parents have taken a second job to fund their child's higher education; or
  • 60% of parents have foregone annual vacations; or
  • 35% of the parents are concerned that there is a high probability that they will not be able to fund their child's higher education.

These statistics, scary as they may seem, are unfortunately a sad truth for a vast majority of parents. In fact, Parents are worried and rightly so, because the average household inflation in India over the last 10 years has been 6.52%, whereas the education inflation during this timeframe has been a staggering 11%.

To provide some perspective of our changing times, the table below depicts the future value of top courses at different points in time, domestically.

Table 1: Changing time: How inflation can play a spoilsport
Course Engineering Medicine Arts MBA
Current Fees (2018) 10 lakhs 25 lakhs 2 Lakhs 20 lakhs
Future Value (after 5 years in Rs) 16.85 Lakhs 42.12 Lakhs 3.37 Lakhs 33.70 Lakhs
Future Value (after 10 years in Rs) 28.39 Lakhs 70.98 Lakhs 5.67 Lakhs 56.78 Lakhs
Future Value (after 20 years in Rs) 47.84 Lakhs 1.19 Crores 9.56 Lakhs 95.69 Lakhs
*assumed inflation rate 11%.

Just to reiterate, a medical degree costing Rs 25 Lakhs today will cost you Rs 42.12 lakhs in the next 5 years!

While the cost and demand for domestic Ivy League schools and colleges have doubled in the past decade, the cost of international education has quadrupled.

--- Advertisement ---
Tanushree Banerjee's 7 STOCKS To Turn This Market Crash Into a Money Spinner

7 Stocks To Profit From This Market Crash
What if one could potentially make double, triple or four digit gains without taking on a lot of risk?

Sounds unreal, right?

But it's TRUE, we have found 7 stocks which could potentially help one buy that dream home, support your children's education or build a retirement nest-egg.

Click here for full details on these stocks.

These 7 companies have withstood the test of time, and proven their mettle over the years…

And now the market has pushed their price down to incredible valuations!

This may not last very long…

So before the word is out, here is your CHANCE to access the special report with full details on these 7 stocks.

International degrees have garnered a lot of steam in the last decade, as it gives your child a global platform to learn, develop, and compete, not to mention the chance of securing that big 7-figure pay-check with a big corporation.

While a 7-figure pay-check may seem lucrative, any international course costs a 7-figure amount as well.

Table 2: The average cost of education of most sought-after courses internationally
Course Engineering Medicine MBA
Current Fees (2018) (in Rs) 30 lakhs 75 lakhs 40 Lakhs
Future Value (after 5 years in Rs) 50.55 Lakhs 1.26 Crores 67.40 Lakhs
Future Value (after 10 years in Rs) 85.18 Lakhs 2.12 Crores 1.13 Crores
Future Value (after 20 years in Rs) 1.43 Crores 3.58 Crores 1.91 Crores
*The above figures are inclusive of stay and food and travel.
**assumed inflation@11%p.a.

While one option to combat this bourgeoning inflation on education can be to enrol in government-run school and colleges. However, the quota system and bureaucratic hurdles could get in the way of your plans.

Therefore, the best way to combat this growing education inflation is to simply "plan".

Let's look at a simple case study to understand how you can go about planning for your child's future.

Mr Ram (40), a chemistry teacher lives in Mumbai with his spouse and a one-year-old daughter, Sia. Being a teacher himself, Ram is well-aware of the rising cost of education and hence his main priority is to plan for his daughters' higher education. So, once his daughter is 18, she can pursue a career of her choice without any compromise and financial burden.

Let's ascertain how Mr Ram can achieve his goal.

Table 3: The plan details
Daughter’s current age 1 Year
Average current cost of an international course (tuition + stay + food) Rs 50,00,000
Years to the goal 17 Years
Inflation Rate 11%
Future cost of an International course (tuition + lifestyle) Rs 2.94 Crores
Monthly Investment to be required to achieve the goal Rs 31,353
*assumed return on investment@15%.

Today's Rs 50 Lakhs will become Rs 2.94 Crore by the time Sia is 18 years old, keeping in mind an education inflation of 11%.

While Rs 2.94 Crore may seem to be a daunting task, a simple disciplined monthly investment of Rs 31,353 will make sure that Sia has enough corpus to pursue her passion without monetary hurdles. A small disciplined decision by her father has secured Sia's future.

While, Mr Ram was a prudent and prepared parent, his friend Mr Shyam proved to be an unprepared parent. Let's now look at Mr Shyam's story.

Mr Shyam, 35 is an accountant in an MNC and lives in Mumbai with his spouse and 10-year old son, Arjun. Arjun wants to pursue a doctorate in mathematics from MIT, USA.

Let us see, how an un-prepared approach to investing will hamper Mr Shyam's chances of sending Arjun abroad to pursue his academic interests.

Table 4: The plan details
Son’s current age 10 Year
Average current cost of an international course (tuition + lifestyle) Rs 50,00,000
Years to the goal 8 Years
Inflation Rate 11%
Future cost of an International course (tuition + lifestyle) Rs 1.15 Crores
Monthly Investment to be required to achieve the goal Rs 61,971
Assumed rate of return 15%.

Today's Rs 50 Lakh will become Rs 1.15 crore in the next 8 years, at an inflation rate of 11%. To achieve Rs 1.15 crore in 8 years, Mr Shyam has to make a monthly investment of Rs 61,971.

Mr Shyam can unfortunately invest only Rs 40,000 per month, meaning the maximum corpus that he will be able to create will be Rs. 74.37 Lakhs, leaving a steep shortfall Rs 40.85 Lakhs.

This sadly means that Mr Shyam will either have to take up a second job, or curb his expenses drastically, or become a part of the 35% parents who cannot fund their child's dreams.

We can give you all the statistics you want, but the underlying truth is simply this: "The cost of education is on the rise, and if you fail to plan, you are planning to fail".

Hence make sure you take the following steps in the right way and take complete control of your personal finances.

  1. Start early - Don't procrastinate: The first step in achieving even the most daunting of goals, is to start -and start early! Like Mr Shyam, don't wait 8-10 years to start the planning, start as soon as your child is born. This will give you enough time to accumulate a corpus systematically without any stress on your budget and other financial plans.
  2. Invest in sound, ethical, and unbiased advice: While creating a corpus amounting to crores, don't cheap out on paying an advisory fee. Every good advice has a cost, be prepared to bear it and every bad advice has a price, be prepared to pay it.
  3. Choose wisely: Choose your advisor wisely, choose your investment avenues wisely, and most importantly be disciplined. After all, kids pick up a lot from their parents.
  4. Disciplined Investing: Once you start saving for a particular goal, never dip into these savings to fund any other wants or necessities. A small leak (withdrawal) may prove to be detrimental in achieving your financial goals.
  5. Be patient: Remember that you are investing for the long haul and therefore don't lose your sleep over a six-month bad phase in the market. Invest in a systematic disciplined manner and let compounding work its magic.

We sincerely hope that you are not in the 35% demographic of parents who are unsure about funding their child's future. But if you are, relax, step back, and get in touch with PersonalFN's financial guardian on 022-61361200 or write to info@personalfn.com. You may also fill in this form, and soon our experienced financial planners will reach out to you. Remember the first learning, don't procrastinate.

As a parent, you can either be prepared or unprepared.

The choice is yours.

Author: Deepika Khude

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Are You Among The 35% Parents Who Will Not Be Able To Finance Their Child's Future?". Click here!


More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

Turbulence Ahead! Here's an Investment Strategy You Need To Follow (Outside View)

Dec 17, 2018

PersonalFn explains that going ahead, why the markets may face turbulence.

Small Cap Bargains Amid the Great Correction (Profit Hunter)

Dec 17, 2018

These 4 safe small caps offer a once-in-a-lifetime opportunity to build significant lasting wealth - but the index is turning up so this opportunity won't last long...

What's Your Investment Strategy for General Elections 2019? (The 5 Minute Wrapup)

Dec 17, 2018

With the general elections approaching in a few months, there could be heightened volatility in the markets.

These Are the Stocks to Buy Before the Market Goes Up (The 5 Minute Wrapup)

Dec 14, 2018

The state election results and the resignation of RBI governor, Urjit Patel, has made the market nervous. It is exactly in times like these, you can get to buy the best quality safe stocks at the right prices.

More Views on News

Most Popular

It's Almost the Perfect Time to Buy This Safe Stock(The 5 Minute Wrapup)

Dec 6, 2018

My latest StockSelect recommendation ticks all the boxes of a great safe stock.

Patel's Exit, Election Results, and 4 'Must Have' Small Caps in These Exceptional Times(Profit Hunter)

Dec 11, 2018

RBI Governor's resignation is a statement of dissent with the way government is handling the economy's affairs and could lead to some serious market correction. Here's how to make the most of it.

Players in an Oligopoly Should Have Financials Like This(Chart Of The Day)

Dec 7, 2018

This stock has corrected 30% from peak and looks attractive at these valuations.

Looking For Higher Interest Rates on Bank FDs? Read This!(Outside View)

Dec 5, 2018

Credit disbursement to the productive sectors of the economy such as infrastructure, engineering, food processing, textiles, and chemicals, among others is rising.

DSP Mutual Fund's Sale of DHFL Bonds: Here's What You Need to Know(Outside View)

Dec 5, 2018

PersonalFN explains the probable reason as to why the capital market regulator has initiated DSP Mutual Fund's bond sale that caused DHFL stock to crash.


Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 17, 2018 (Close)