Zurich Life Ireland have just released their research into the cost of sending a child through Primary, Secondary and 3rd level. Given we are a country that claims to offer free education, people may be surprised to learn that Zurich’s findings suggest that, assuming costs remain as they are today, it will cost a total of €49,902 to educate one child.
This is broken down with Primary school costing €830 per year, secondary costing €1495 per year and college coming in at a whopping €9011 per year (assuming your child lives outside of the home for college).
The reality is however that these costs are based on what it costs this year. You don’t get to pay for your 1st class students college education today so unfortunately these prices will go up over time.
In Prosperous we believe that the cost of educating your child will increase by more than the price of inflation, in fact we assume that each year it will increase by 2% more than inflation.
Let’s look at an example, Colleen our practice manager in Prosperous has just had a baby, he is 12 weeks old. If we use Zurich’s figures, by the time he hits Junior infants at age 4 it won’t be costing €830 per year, it will be costing €970 per year to put her pride and joy through a year of school. (assuming 2% inflation + 2% price increase = 4% growth)
When Colleens son reaches secondary school the cost per year will have gone up from €1495 to €2393 and the college cost will have doubled in 18 years to a whopping €18,254.
When we look at what poor Colleen is facing in terms of costs for her pride and joy, the actual cost of educating her son over his lifetime is actually €95,000.
But even these figures don’t reflect the reality, that’s because we took the simple approach of assuming once he starts in primary, secondary or college the cost doesn’t increase while he is there. So, it is easy to suggest that the real figure is over €100,000.
When you start to look at the numbers in this light you realise very quickly why the Zurich research found that 42 percent of parents found the cost of primary school to be higher than they expected.
Looking at where the money is spent you find in primary the big things are extracurricular (€191), Books (€88), Uniforms (€71) and footwear (€64).
However, in secondary school it is slightly different. Not surprisingly for anybody who has a teenager in their house, feeding them is well up there with lunches costing €177 per year. But grinds is the biggest expenditure at €279.
Knowing how much education costs and realising that you are in the 42% of people who underestimate what it will cost, doesn’t help when it comes to paying for it.
The first thing to realise is that sending your child to school and it costing money should not come as a surprise to a parent.
Hopefully you have been expecting from the time they were born that around 4 or 5 years of age they will, all things going well, be attending some sort of school and therefore you will be incurring some sort of costs associated with that.
Regardless of whether you underestimated those costs or not, it is not fair to say that it is an emergency and therefore you should not be dipping into your emergency fund for it and you definitely should be trying to avoid borrowing money for it.
Having said all that, and if I pop down off my high horse for a minute, according to the Zurich research twice as many people borrowed money this year as did last year for the purposes of paying for education.
Almost 1 in 5 people now have to take out a loan to cover the cost of our so calledfree education.
Not surprisingly, average debts are relative to the costs, €794 for secondary school and €385 for primary schools.There are two things I would think when I see those figures. Firstly, this has to be an underestimate of the actual loan amounts.
For example, how many people used the money they were going to use to do up the house/go on holiday/ change the car for back to school instead and then got a loan to cover the other thing.
But secondly looking at the €794 loan, in simple terms, assuming that it was borrowed from the standard lender that will cost, again in simple terms, about €80 in interest over a year, if it is one of those payday loans it will be closer to €200 and if it is an online shopping catalogue it will be close to €320 in interest over a year.
If you get caught out borrowing this year for primary or secondary make sure this is the last year you do, put a plan place.
Try clear the loan in 6 months and then save the loan repayment for the second six months so you are ahead when the time comes around next year. Do this for each of your children.
College being more expensive needs longer planning. We often have new clients come to us admitting what we see in Prosperous as a “mortal money mistake”.
They are putting the children’s allowance in a bank account!!
Think about this for a minute, a bank account is a short-term vehicle for your money. 18 years is not a short period of time. The problem is most people don’t actual know what a long-term vehicle is.
Let’s talk about Colleen again, if Colleen puts her sons €140 per month children’s allowance into a bank account getting even 1% interest per annum it will accumulate, ignoring taxes, €33,117 over 18 years.
She will be able to pay for just over 1.5 years of her sons 4 year college course.In fact, Colleen will have to save a total of €308 per month from now until her son turns 18 to cover his 4 years in college, if she does it in a bank account.
But what if she did it in a well-constructed, well diversified portfolio, again ignoring taxes, let’s assume she got a 6% growth rate over the 18 years.
Instead of having to save €308 per month she would have to save €188 per month.
That is a huge saving per month with just a slight change ofbehaviour.
That is what getting your money do the hard work is about.
The reality is times are still tough for a lot of us, but 49% of people in the survey feel that educating their children is their main savings goal.
Whatever way you look at it educating your child is probably something that need to and want to pay for.
Accepting it is going to be paid for one way or the other, you can do it the hard way and start saving today for these bills whenever they are going to fall due.
Or you can do it the absolutely impossible way and borrow for them at the time you need the money. Your choice.