Saving for child education is the priority for Indian families without considering the impact of education inflation. Most parents start saving with the low-interest bearing product or making investments on an ad-hoc basis. Rather than creating ad-hoc savings, it would be best if you implemented a plan to meet a child’s higher education needs.
The education expenses in India are increasing at a fast pace. Every parent increasingly finds it challenging to meet the growing fee structure and other educational costs from primary to secondary to higher education in India.
Most parents can’t visualize the impact of education inflation on their child’s education plan due to low financial literacy in India. Their main objective is to save some money for future education needs. Their saving mentality for child education is one part. Still, the other part is whether the prospective amount will be sufficient. That is the biggest question you must ask yourself when planning child education.
“Education costs are increasing at an above normal rate in our country. The returns on your child’s higher education fund need to outpace inflation,” I explain to my clients during the discussion.
What’s the first thing that comes to mind when discussing inflation? Yes, Prices of fruits and vegetables? Perhaps fuel costs as well in today’s scenario. While most people are talking about the cost of lemons, tomatoes, potatoes, etc., there are other areas like education where inflation has been hurting consistently over time. Unfortunately, unlike lemons and other food items, no one talks about rising education costs.
Yes, It’s education inflation which we didn’t discuss much.
Let’s understand inflation first.
Inflation means a rise in the prices of goods and services over a given period.
For example, In India, a movie ticket cost was Rs. 2.94 in 1980.
In 2000, the exact ticket cost was Rs. 24.07.
By 2015, the average price of a movie ticket had risen to Rs. 125.97. You can check the same ticket price in 2022 to understand how India’s cost of goods and services is increasing.
But here, we will discuss education inflation.
In simple, Education inflation means a rise in the education fees over a given period.
Let’s discuss this with a practical example.
From 2004-2006, IIM-Ahmedabad used to charge a fee of approximately Rs. 1,50,000/- per year (Three Lakh for two years). This course is for the two-year Post-graduate Programme in Management (PGP), equivalent to an MBA.
In 2022-24, IIM- Ahmedabad is charging a fee of approximately Rs. 23,00,000/- lakh for two years of a full-time PGP residential course.
In 18 years, the PGP course fees have increased 7.6 times. But what about the education inflation rate for IIM-A PGP courses?
Suppose you will calculate the education inflation rate for the IIM-A PGP course for the said 18 years. In that case, it comes to around 11.98% pa.
KIIT University- Bhubaneswar
From 2012, KIIT University used to charge a fee of approximately Rs. 50,000/- per semester for B.Tech. Course. This course was for the four-year B.Tech program (eight semesters), which cost around Rs. 4,00,000/- in 2012.
In 2022-23, KIIT University, Bhubaneswar, is charging a fee of approximately Rs. 1,75,000/- per semester for a four-years B.Tech Program. The total course fee for the B.Tech program (Eight semesters) is Rs. 14,00,000/-.
In 12 years, the B.Tech course fees have increased 3.5 times. But what about the education inflation rate for KIIT University B-Tech program?
Suppose you will calculate the education inflation rate for the KIIT University B.Tech. for the said 12 years. It comes to around 13.34% pa.
Education inflation is rising more than 10% pa. in India. Is education inflation a silent risk to every parent and student? Yes, It is the one crucial risk when planning for child education. Suppose you have not considered it during the child’s education planning or taken it lightly. In that case, it can disrupt the dreams of a bright future for a child to enter college for higher education.
In the above two examples, we have not considered other expenses like hostel fees, development fees, study tours, etc. The government education institute’s costs are also increasing.
Remember that if you have not planned it correctly, this will be a big hole in your financial life.
Yes, it’s a piece of good information. Suppose your child is about to join for a degree or wants to pursue higher education in India or abroad but is short of funds. In that case, banks are providing education loans to come to their rescue. Moreover, depending on loans to fill the gap between the actual requirement and your savings may be possible.
Unfortunately, education inflation doesn’t hit you until you pay the child’s higher education college fees or the actual admission time. You have only two choices if you are short of funds or have no child education funds.
The 1st option is to compromise on your dream to provide the best higher education for your child, which means compromising on the quality of education. Or to take the 2nd option for a bank education loan with a higher interest rate.
Suppose your child is still small and has a few years, say 15 years or 18 years, before the funds will be needed for higher education; you can make the plan and start saving for it.
Make a Child Education Plan:
Your child’s education plan should be ready before starting the investment with a target amount for the child’s higher education. In today’s world, many new courses are coming, and it might be difficult for you to choose the right career option for your child might decide to pursue. Yes, it’s difficult to determine now but to make an informed decision, identify two-three career options and find the current cost of the same degree.
You can find out the future cost of higher education with an inflation rate of 10% p.a. for the period (the number of years after which the child would require funds).
Suppose you have estimated the required future amount, then find out how much you would invest each month to achieve it.
Let’s calculate with an example:
Suppose an education inflation rate of 10% pa. (we have figured it out with the above IIM-A PGP Program and KIIT University B.Tech Degree example) and you want to spend Rs. 15,00,000/- (Today’s education cost) for, say engineering course for your child after 17 years.
You need to create a higher education fund of Rs. 75,81,705/- in 17 years with a 10% pa inflation rate for the engineering course your child will pursue after 17 years.
If the investment return is 12% pa, you must invest Rs. 11,351/- per month to accumulate Rs. Rs. 75,81,705/- of engineering education cost.
There are various options available to create a child education fund like Mutual Funds (SIP or Lump sum investment), Child Unit Linked Insurance Plans (ULIPs), Child Insurance Plans, Public Provident Fund (PPF), Sukanya Samridhi Yojana (SSY), etc. You should check the scheme features, benefits, interest rates, tax benefits, etc., as per your risk profile and choose the suitable scheme.
It is for illustration purposes only, not final advice for you. Suppose you want to do a customized child education plan. In that case, you may take the help of financial planners or online calculators to arrive at the figure.
The sooner you begin investing in your child’s higher education expenses, the more time you give your savings to grow and accumulate the targeted corpus.
“Education is the most powerful weapon which you can use to change the world.” ~Nelson Mandela
Child education funding is, in fact, the one dream you, as proud parents have cherished from the day your kid has come into this world. Yes, we Indians are more focused on providing the best education to our children. Make a child education plan that helps you achieve the child education goal and realize your dream.
Education inflation plays a significant role when planning for child education in India. Make a plan that financially protects your child’s future and helps you save your hard-earned money. It ensures that you face no financial hassle.
In my opinion, “If saving for higher education is the top priority, making a plan and saving is the most obvious choice,”
I am a CERTIFIED FINANCIAL PLANNERCM, CHARTERED WEALTH MANAGER®. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do. If you have a question about your financial situation, please connect me. I’d be delighted to try to be of service.
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