Why you should be financially ready before preparing your child for education abroad

March 3, 2021 1:31 PM

Whether your child chooses to study in India or abroad, educational or university inflation is the real thing – an indicator that will make or break your dreams.

education abroad, education inflation, expenses of studying abroad, Currency Depreciation, Investment Discipline, long-term investment, higher education, ETFThe right plan would not be for a particular duration or only to a particular asset class, it would be tailored to the child’s dreams.

By Eela Dubey, Founder, EduFund

There are many instances where a child is forced to drop out of college or even has unwillingly given up on their dream colleges or universities convert with the fear of drowning in Student debt of an additional $100K. Today many financial advisors also began as an ode to our parents for helping us as much as they could while wondering if they could have done more.

Today many fintech mobile apps that allow parents to create investment accounts for their children’s higher education. But to reduce its identity to one line seems unfair. These fintech calculators (in the app) were built looking at each and every metric that a parent and child must consider for the education journey; metrics that we experienced not too long ago.

Even if you don’t invest through us, here are a few things to consider:

Education Inflation

Whether your child chooses to study in India or abroad, educational or university inflation is the real thing – an indicator that will make or break your dreams. This inflation is an indicator of the rocketing educational expenses calculated over a period of time. Over 30 years ago, the school fees would range from Rs 400-500 per year. Fast-forward to 2021, the average expense per month for one student living in the metro cities would be Rs 12,000 – Rs 18,000 per month including transportation, tuition fees, extracurricular activities, etc. In India, education inflation stands at 11-12 per cent.

A report by the National Sample Survey Office (NSSO), the cost of education burgeoned by 2.75 times in 2014 when compared to 2008, whereas our incomes (indicated by per capita income) increased only by 2.49 times. In a context of university education abroad, the tuition fees have increased by 16 per cent over a period of 2011-21.

Studying abroad? Here is how to find a cost-effective, student-friendly accommodation there

Hence, if your child wants to pursue his/her higher education in a reputed Ivy league college whose fees would be around Rs 1 crore today, would multiply to a much higher amount of over Rs 4-5 crore in the next 15 years. Even in the post-Covid era, where the majority of the learning modules are online where the universities are incurring minimal operating expenditure, there is no sign of relief in terms of the fee structure.

Currency Depreciation

India has made phenomenal progress in terms of the quality of education that is being provided. However, there is a large percentage of parents who would still aspire to send their children abroad. Earning is Rupees and paying the tuition fees in dollars is an added disadvantage for Indian parents coupled with the crippling effect of education inflation.

This is because as our Indian Rupee depreciates with respect to foreign currencies, we would have to spend more Rupees to buy a unit of foreign currency. (1 USD = 75 INR, would mean that we need to pay Rs 75 to buy one US dollar. If this depreciates to 1 USD = 78 INR we would have to burn a larger hole in our pockets in exchange for the same dollar).

This will help you weigh this and allow you to invest in US dollar ETFs. This way you would be investing in the US dollar and would be spending in the US dollar – hence eliminating the disadvantage of your currency exposure.

Investment Discipline

Do not wait until your child is 17 to start saving for his/her education. So, what is the ideal age of the child when a parent should start investing? When the child walks for the first time or says “Mama” for the first time? Well, the ideal time would be when the parents plan on having a child or even during the course of pregnancy

Parents should start saving and investing as soon as possible in order to reap the benefits of compounding. Create a plan for your child and invest small amounts in it regularly. One would not want to miss out on months of compounding returns for the investments by delaying this activity. These apps help you in forming this discipline with its product offerings and aiding your financial strategy.

Education is expensive

There are many parents who have a large dent in their savings or their retirement funds or are drowned in an ocean of debt as a result of their child’s tuition bill. While creating your profile on our platform, we sat down with over 500 Indian parents and were surprised to see that no one knew that the cost of top Indian B-schools exceeded Rs 26 lakh.

Why wait for tomorrow, when you can start it today?

To keep up with the constantly evolving dreams of a child, from being a teacher to an astronaut to being a scientist and finally opting to be a physiologist, as parents it is our duty to keep upgrading and tracking our financial investments to ensure that our child fulfills its aspirations. The right plan would not be for a particular duration or only to a particular asset class, it would be tailored to the child’s dreams. The constant in this ever-changing and evolving process would be having a robust financial strategy.

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