{"id":5488,"date":"2018-02-28T22:40:31","date_gmt":"2018-02-28T22:40:31","guid":{"rendered":"https:\/\/www.prosolution.com.au\/?p=2782"},"modified":"2018-03-08T17:17:11","modified_gmt":"2018-03-08T07:17:11","slug":"opportunity-cost-private-education-alternative-consider","status":"publish","type":"post","link":"https:\/\/wealthcoach.com.au\/stage\/opportunity-cost-private-education-alternative-consider\/","title":{"rendered":"The \u2018opportunity\u2019 cost of private education and an alternative to consider"},"content":{"rendered":"

\"Podcast\"<\/a><\/p>\n

Parents always want their children to have the best education. For some people, that means sending their kids to a private school. Of course, private schooling can be expensive and can have a big impact on your cash flow. But I\u2019d like to suggest that the \u2018cost\u2019 is a lot more than the initial cash flow impact which parents should take into account.<\/p>\n

My commentary is purely financial<\/em><\/strong><\/h3>\n

I can only comment from a financial perspective. However, I appreciate that schooling decisions are not made on financial considerations alone. In fact, I appreciate that it might be so important to you that your kids attend a certain school that you will do it irrespective of the financial implications.<\/p>\n

It is not my intention to cast judgement about whether private schooling is a good idea or not. This blog merely considers the long term financial impact that private education can have on your personal wealth.<\/p>\n

What is the true cost? <\/em><\/strong><\/h3>\n

Let\u2019s assume private school fees cost $25,000 per year. So, 6 years of tuition fees therefore add up to $150,000. However, that is not the true impact because it doesn\u2019t take into account the opportunity cost. That is, if you hadn\u2019t had sent your kids to private school, you could have done other things with that money.<\/p>\n

You could have made extra repayments into your home loan<\/em><\/strong><\/h3>\n

If your home loan balance was say $500,000 and you made additional repayments of $25,000 per year for 6 years, you would save a staggering $426,000 in interest (assuming a 7% interest rate) Therefore, it could be argued that the opportunity cost of 6 years of private education is $576,000 ($150k + $426k).<\/p>\n

You could have purchased an investment property<\/em><\/strong><\/h3>\n

You could have purchased an investment property for $550,000 and deposited the $25,000 in the offset account. Some of this money would be absorbed by the negative cash flow that the property will generate but not all of it. In fact, after 6 years I project that you will have $95,000 accumulated in the offset \u2013 enough funds to look after the property\u2019s cash flow from thereon in.<\/p>\n

In 20 years\u2019 time, I project that you\u2019ll have over $1 million in equity in the property in today\u2019s dollars. Therefore, when considering the opportunity cost, the cost of 6 years of education could be over $1 million!<\/p>\n

But double it<\/em><\/strong><\/h3>\n

I have only considered the impact of 6 years of private school fees. However, if you send your kids to private primary and secondary schooling, you will have to more than double the above opportunity cost. I note that primary school fees are usually cheaper however the compounding impact of 12 years of fees (compared to 6) will more than offset this.<\/p>\n

An alternative to consider <\/em><\/strong><\/h3>\n

An alternative solution that is worth considering is moving into the school zone of a well-regarded public school. Some things to consider with this strategy include:<\/p>\n