Right now students up and down the country are studying away and taking their final A-Level exams. Mrs YFG and I have carefully observed the mortal panic of colleagues and friends as their kids sit their exams. Good results and the fruits of all the schooling will have paid off. Bad results and it will be back to the drawing board for their future university and career plans.
The stakes are high. Not only because these results will determine what universities and jobs these children will be able to get. But also because Mums & Dads all over the country have spent hundreds of thousands of pounds putting their children through private education. Will it all be worth it?
Giving your children the best possible start
Almost all parents want to give their children the best possible start in life. They want to see their children succeed in the world and enjoy happy lives. For many people, private school is a way of ‘ensuring’ that their children have the best possible chance to succeed.
Both Mrs YFG and I went to pretty dodgy comprehensive schools. Going through state education didn’t hold either of us back. We both got good grades, went to a top Uni and nabbed high paying jobs. Likewise, we know people who went to the best and most expensive private schools only to tumble out with little to show for the huge sums of money spent on their education.
So giving your child an expensive private education is no guarantee of success. Not having a private education is not a guarantee of a life of mediocrity.
It’s all about the money
Unfortunately for Jessie J, when it comes to private schooling it very much comes down to the price-tag.
In doing some research for the article I came across a few estimates for the cost of private schooling your children from nursery through to college.
According to Killik & Co, an investment advisor company, the cost to put a child through private school between 2002 and 2015 was £174,000 to £236,000. They estimate that the cost has ballooned and from 2015-2028 the cost will be £286,000 to £468,000.
I also did some calculations using data from the Independent Schools Council and it could cost between £160,000 and £350,000 to put a child through private schooling from 2004 to 2018 (more on this in a bit).
These are, without being Cpt. Obvious, huge sums of money! Many of Mrs YFG’s colleagues still live pay-check to pay-check despite earning 6-figure salaries. In part, because they are forking out massive sums to keep Tarquin and Octavia in private schooling.
Is it worth it?
One of the biggest factors in me reaching FI was that age 16 my father passed away and I inherited a small 6-figure sum. Rather than blowing it all away, I invested it, with aim of retiring early (having seen how fleeting life is) by saving over 50% of my salary I was able to quickly multiply my stash to the point that working is now optional. In that respect, I was massively lucky (even if that fortune arose through tragic circumstances).
Having money behind me at a young age has given me an enormous advantage in life (along with many other leg ups). This got me thinking. Instead of spending that money on a private education, what if you invested it? Surely a huge stash of money at a young age is as big of an advantage as you could ever hope for in life?
*WARNING MATHS AHEAD*
Without further ado, I am proud to present Young FI Guy’s Super Private Un-education Numerical Kalculator.
I ran some numbers based on the following scenario:
- Tarquin Jr. was born in 2000.
- Since 2004 (nursery) he’s been put through private education (through to Sixth Form).
- Now it’s 2018, he’s about to finish his A-Levels and his schooling.
The questions are:
- How much would it have cost to put Tarquin through his schooling? and
- If instead of private schooling you invested that money instead what lump-sum could you have given him today?
Here is the summary:
I came up with 7 different cost scenarios, these are:
- You could fill up your stocks and shares ISA each year from 2000 to 2018. The limit in 2000 was £7,000 up to £20,000 this year. This has a total cost of about £190,000.
- If you are a high-roller you could fill up two(!) stocks and shares ISAs, for a total of c.£370,000.
- I took the high and low estimates from the Killik & Co research (these refer to an education cycle of 14 years from 2002 to 2015, so pretty close to Tarquin’s 2004 to 2018) and divided them evenly across 14 school years (Reception to Upper Sixth). The cost for these is c.£170,000 to £240,000.
- I also went through the annual ISC survey data adding up the costs for each year according to the survey. Tarquin was in Junior school from 2004 to 2011, Senior school from 2012 to 2016 and Sixth Form from 2017 to 2018 for a total of 15 years of schooling. There are three estimates: Boarding School (the highest cost), Day-Fee at a Boarding School (the middle) and Day-only School (the lowest). The costs totalled between £160,000 and £350,000.
In summary, the total cost of the various options ranged from £160,000 to £370,000 with the ISA subscriptions matching the costs pretty nicely. Both in total and by stepping up over time, commensurate with school fees increasing.
The next thing I did was to say that instead of spending that money on the school fees what if on each January 1st you put that money into an index fund tracking one of three indices: FTSE-All Share Total Return; S&P500 Total Return; or MSCI All Country World Index Gross. I then deducted 0.5% fee lump sum per annum at year-end to roughly simulate investment costs.
The figures are staggering and speak for themselves. In the “lowest-case” scenarios Tarquin Jr. would have over £250,000 to spend on
cocaine and strippers his future. With the “best-case” scenarios he’d have over three-quarters of a million!
Investing in the FTSE-All Share, you would have increased your money by only 60-70%. However, investing in the S&P500 or the MSCI ACWI you would have roughly doubled your money.
What’s most impressive
There are two things particularly impressive about these figures:
- This was one of the worst times to have invested: you hit both the dot-com bubble and the financial recession, yet your stash still increased enormously.
- These returns are back-loaded as the costs of schooling are highest in most recent years (and the ISA limits are highest in the most recent years). You made stacks of cash on your investment despite putting most of your money in relatively late.
If you want to play around with the numbers, you can! I’ve uploaded the spreadsheet which you can access here!
It’s not a fully fledged model (as it’s fixed to cover 2000 to 2018) but I’ve left space to change the cost assumptions, fee assumptions and you can tinker with the market returns.
[p.s. I can’t guarantee it’s fully accurate or doesn’t have any mistakes, if you spot an error let me know!]
Over to you…
I’m pretty against private schooling, but I think that even the most fervent supporters of private schooling might think twice if they could give their child a £780,000 leg-up.
If you had the decision to make, would you rather your child had a private education or a lump of between £260,000 to £780,000 on their 18th birthday?
All the best,
Young FI Guy
[p.s. I’ve stuck purely to numbers here without taking in to account the non-numerical aspects. I’m not a crazy numbers-sociopath (or am I?) It’s hard for me to talk about some of the qualitative aspects of parental education choices as I’m not a parent! Many parents will strongly (and perhaps rightly?) argue that private schooling confers many non-educational benefits such as developing discipline, ethos etc. Likewise, none of this takes into account that the most important thing (in my view) is spending time with your children!]