by Mr. Lovaii Navlakhi,
International Money Matters
My daughter first
went abroad for her undergraduate studies in 2006. The exchange rate then was
about Rs.85 to the British pound, and for the first couple of years trended
lower to Rs.77.
I was happy as the
inflation in fees in local cost was offset by a strengthening rupee. In her
final year, the trend reversed and I recall transferring fees for the first
semester at more than Rs.90. The fluctuations were too wild to be covered in
the calculations a typical financial planner like me would make.
Culturally,
children’s education goals rank high up, if not first for Indian parents. It is
not unusual to find clients prioritizing children’s goals over their own
retirement.
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| Mr. Lovaii Navlakhi, International Money Matters |
Planning for this
goal is in itself quite a task. Add to it the stress of planning the
expenditure in another country and another currency, and the issues multiply
manifold. Here is a primer to the factors to be considered when you are in or / likely to be - in such a situation.
Research about
costs..
The cost of education
overseas varies largely within the country of selection depending upon the
ranking of the college, location (city or suburbs or university town), the type
of course (medicine will cost much more than a liberal arts course),
accommodation, food plans, local transportation costs and so on.
An undergraduate
degree (tuition alone) could set you back by $ 20,000 to $ 55,000 (Rs.12 lakh
to Rs. 33 lakh) a year for a four-year course in the US.
As you can see, the
range is wide; and sometimes, the other costs may end up being marginally
higher than the tuition costs. You may be forced to consider a college which
offers higher scholarship.
Provide for
additional costs..
Mobile phones, local
travel in the country and visits back home need to be budgeted for. Some
colleges have a trimester system and children are returning home at the end of
every term, or / within 10 weeks.
Invariably, vacations
will coincide with peak travel and full-fare tickets are the only option.
Consider inflation..
On average, inflation
is higher for education, especially when it comes to developed nations like the
US, the UK & Australia. The college itself will share the rate at which it
expects its tuition fee to rise yearly.
Consider an education
loan..
Apart from helping to
get over a financial difficulty or / a
cash flow hardship, an education loan may instill a sense of commitment to the
course, and to work later.
If the student has
relatives abroad, it may be possible to obtain a foreign currency loan at a
lower rate, but this may involve a commitment to work abroad. Issues regarding
work visa also need to be considered.
Start saving early..
This is easier said
than done, as the decision to consider an overseas option is suggested by your
child fairly late. Parents today do want to provide the best for their
children, which today will mean greater flexibility in selecting academic
combinations which are difficult to pursue in India.
Hence, it may be prudent
to start saving as soon as your child enters school. If you expect overseas
education to cost Rs.35 lakh per year and expect inflation to be 10 % per
annum, the future requirement for a four-year course starting 18 years later
will be Rs.9 crore.
If you were to invest
Rs.1.5 lakh per month from the time your child was three years and earned 12 %
a year on your investments, you would meet the goal.
Currency
consideration..
The savings figure
itself seems stiff, but the assumption that the currency will not depreciate
may seem foolhardy. If the currency was to depreciate by 5% per annum, the
monthly savings will need to be ramped up to Rs.2.5 lakh per month in the above
example. One of the ways to cut risks is to invest part of these funds in the currency
it is intended to be spent in.
However, not too many
children know in advance exactly which country they intend to study. One
solution could be to invest in US dollars, as it is not only the most accepted
currency, but also easily convertible and arguably the safest. You could have a
portfolio built systematically over years in multiple currencies - dollar,
pound and euro.
A simple way to
achieve this could be through international feeder funds available for
investing in rupees. In fact, in the past two years, US funds have returned 27
% per annum in rupee terms.
My son followed my
daughter a few years after she completed her education. The pound had fallen to
Rs.63. Considering the multiplicity of variables affecting the funding of
overseas education goals, it is best that you do not leave things to chance and
start planning today towards achieving that “international experience” for your
child.
Mr. Lovaii Navlakhi
is founder and chief executive officer, International Money Matters Pvt. Ltd.
International
Money Matters offices
Bangalore
International Money Matters Pvt. Ltd. Phoenix Primus, 1st Floor,
No
590, 12th main,
HAL 2nd stage, Indira Nagar, Bangalore 560038 Tele: 080 4049 3939
http://www.immpl.com/
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Mumbai
International Money Matters Pvt. Ltd. 202/203, Silver Square,
Dattatray
Road, Off. S.V. Road,
Near Vijay Sales, Mumbai 400054 Tele: 022 6166 9925 |
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New Delhi
International Money Matters Pvt. Ltd.
Office No: 1212, 12th Floor,
89
Hemkunt Chambers,
Nehru Place,
New
Delhi 110019
Tele: 011 4650 6732 |
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