A Million Dollars of Education

What first got my attention on education was realizing that a month of my daughter’s pre-school was costing more than a semester of my finance degree at McGill University. Digging a little deeper, the long-term cost of education blew me away when I ran the numbers.

Like most parents, we believe our daughter is a gifted genius and we want the best for her. Since I’m the CFO of my family, I’ve been approached to share my thoughts on private education.

What’s the default option with private education?

  • We want the best for our kids
  • Private education costs more so it must be better
  • I can afford it, today
  • Therefore, let’s start down the path

Duscussing education with parents I see the full range of human misjudgement. We all want our kids to succeed so our most-human tendencies manifest. I won’t give specifics as my sources are good friends. Just ask around and you’ll see what I mean.

Similar to our discussion on housing, let’s run some numbers using actual education costs in 2012 dollars. The first figure is Colorado and the second is California. These are figures for the private track:

  • Pre-school: $6,000/$12,000
  • Elementary/Middle: $15,000/$25,000
  • High School: $25,000/$50,000
  • University: $50,000/$62,500

I did a little research on education inflation and it’s been running at 6% per annum. I created a spreadsheet to look at the cost per kid at a 5% inflation rate, which also matches my forecast portfolio return if I don’t spend that money on education. If you want to play with my assumptions then make a copy of the spreadsheet (file/make a copy).

Depending on where you live, the private track has a future value of $875,000 to $1,375,000 per kid.

Knowing that we won’t be rational when we look at our own kids, think about the brothers and sisters of your peers, spouse’s family and your cousins (that’s your reference group). Would it have been a good investment drop a million bucks (each) on all of their educations? 

The questions are worth asking but most of us don’t ask, we default:

  • I love my kids
  • Private is better
  • I can afford today
  • I’ll do it

Stack the education default on top of the housing default and many of my peers are looking at $3-8 million worth of expenditure. That kind of money can make a lasting difference in your city when directed wisely.

Likewise, if you think carefully about your goals (and frame broadly) then you might discover alternative uses for those funds.

…you might enjoy working less and teaching your kids what you know

…you might have superior ethics because you haven’t placed pressure on yourself to earn millions over the next two decades

…you may be a better spouse without all that pressure

…your kids might do better if you back them financially as adults

…if you’re in a weak public school district then your relocation budget might be bigger than you think

A very successful friend of mine always wondered why his father refused to pay for any of his education. My friend got himself through MIT and, as it turned out, didn’t need help from anyone.

Perhaps his Dad ran the numbers.