Education costs are increasing; are you doing your math right?

On a laid-back evening, you sit in a comfortable place and sift through some old family photos. As you glance at one of the photos of your child, an overwhelming realisation grips you: How fast children grow up. You are not alone in harbouring that thought because parents, caught up in the humdrum of their lives, don’t often keep abreast of their children’s day-to-day growth. Change happens in a continuum, and one day the child is ready for college. But the question is: Are you, financially?

As it turns out, while we focussed mainly on retail inflation, education costs continued to rise at a higher rate. Today, if you have to finance your child’s higher education in the US, you are looking at anywhere from $25,000–$55,000 in fees, depending on the college's reputation, subject choice, etc. So, it is unsurprising that many cannot plan for it effectively. A survey delving deeper into the rising higher education costs found that the top reason why recent school graduates aren’t attending college in the academic year 2021-22 is they “couldn’t afford it”.

In fact, multiple studies suggest that college fees across disciplines and continents are increasing by at least 15 per cent annually. However, the earnings of parents aren’t increasing at the same rate. With economic cycles creating job scares, the financial outlook becomes bleak. Parents who did not provision for their child’s higher education fees from the early years often helplessly borrow loans at disadvantageous rates and conditions to fund college. That, in turn, erodes their savings and lifestyles, hampering plans for early retirement and other indulgences.

Starting strong and early

In today’s hyper-inflation reality, it is a no-brainer that parents who aspire to empower their kids with good higher education need to start saving and planning for it early on. It is never too soon or too late to start planning and saving. The idea is to start somewhere because, without savings, one could be deprived of opportunities as evident from stats pertaining to high schoolers increasingly sidestepping college. Even if you plan to have children later in life — a common practice among young adults today — you will benefit significantly by saving for a probable college fund early on.

Saving is like exercising — almost everyone wants to do it but can’t initiate it. But once you muster some motivation and start, you become habituated to it, and it is plain sailing thereon. When I was at Alico, a portion of the paycheck I received — $200 per month initially — was deducted and directed to savings plans, disabling me from spending it. Soon, I learnt that disciplined regular savings grow significantly over a period of time. That is to say, starting early and sticking to a strategic plan can help safeguard your child’s future education. There are a number of sophisticated solutions attuned to a variety of savings goals. Check out what options are available, feasible, and suit your risk profile and requirements before starting.

But before you dive into it, there are several considerations to reconcile with. For starters, depending on the time you have before the child is ready for college, you must calculate, factoring in the inflation, the amount you need to save. As often as not, that number could be disheartening. But it isn’t until you start the process that it begins to feel achievable.

Ashok Sardana is Founder & MD, the Continental Group