Does it really pay to spend mega-bucks on a (usually very expensive) college education overseas? It is a tough decision for parents to make.

One of the most important financial goals parents like to have achieved is planning for their children’s education expenses. Regardless of current income levels, parents aspire to give their children the very best. Often, the definition of the ‘very best’ is vague. At BigDecisions, we looked at the data of about 2,000 visitors, who used our child education planner to get a glimpse into what they are thinking. Over 85% of our users have children under 10 years of age and have anywhere between 12 and 16 years to save for their children’s higher education. And while 80% of them queried costs of education in India, 20% seek to save enough to be able to send their children overseas. (Find out how much you need to save for your child’s education using our education calculator)

Looking at how people have gone about planning their children’s education and as a parent needing to do the same myself, I’m trying to answer a fundamental question – are large spends on education, especially undergraduate courses in expensive universities justified? Apart from data-points available from user queries, we looked at a couple of other examples.

1. Consider an undergraduate course in the US like engineering. The four-year programme is likely to cost (and there is a wide range depending on college, lifestyle chosen etc) about $50,000 per annum or Rs 30 lakhs a year, in just course fees and stay. That makes it $200,000 or Rs. 1.2 crores at today’s prices.

2. If you are a parent of an 8 year old and planning to get to a corpus of Rs 1.2 crores, you will need to save (assuming you started today) over Rs 1.5 lakhs per month, every month, for 10 years (assuming an 8% inflation rate and an 8% post-tax return on your savings). Once you put together this sum of money, the next question is the return on this investment. If the student, got a starting salary of say $90,000 per annum in the US and saved, approximately $20,000 per year, you are looking at 10 years just to recover the cost of education.

Of course, this might be a simplistic calculation given that savings per annum will keep rising but the point is, could a cheaper choice, say, an engineering course in India be a more profitable option. For eg. If the four year B-Tech course costs Rs 25 lakhs over four years, then the funds spent might be recovered earlier. (Find out how much you need to save for your child’s education using our education calculator)

I had a very interesting conversation with a parent with a unique perspective to the problem. His son is currently in class 11 and preparing to appear for the various engineering entrance exams. He has the means to send him to the finest universities abroad but has given his son the following options:

Spending the Rs 1.2 crores on an undergraduate degree abroad
Choosing an undergraduate course in India and having the Rs. 1.2 crores deposited in a fixed deposit and having access to that money when he graduates, either to study further or as capital to start his own venture.

Indirectly, he has also provided him the ultimate motivation to work hard for his IIT entrance exams!

Granted, that not everyone has a corpus set aside by the time their child is ready for higher studies but it’s hard to ignore, that approaches like the one described are unique and deserve more attention. Many of us find ourselves being described as an “in-between” generation where we fully own up to providing for our children but are preparing to have zero dependence on them as we age.

What that means, is that we might end up putting a disproportionate allocation of our savings into our children’s goals and too little for ourselves – be it adequate health insurance especially for our post-retirement years or having built up a large enough corpus for retirement itself.

As many an ageing professional has realised a little too late, retirement is the only goal for which no one lends you money (apart from reverse mortgages that seldom come close to giving you as much as you will need). And yet, in our quest to provide the very best for our children, we don’t always objectively view our options available to us. BigDecisions

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