[Fin Talk] Reimagining College Education Planning
By Arlyn Tan
In the Filipino culture, education is the prized gift of parents to children. It is believed to be a means of escaping poverty and climbing the ladder for a better life. College can be the key to attractive job prospects and new income streams. Education is also a possible route to enable intergenerational mobility which refers to the change in social status for different generations in the same family.
The pandemic did not change this belief but left parents asking if their investment decisions on education are still relevant. Virtual graduations, online classes, and synchronous and asynchronous classes dominated the school activities. The parents need to accept that quality and cost are not relatively proportionate in the past academic year because of the learning delivery methods and lack of student interactions. Parents may be hoping for a tuition fee cut given the obvious shift from a total experience to a bias towards completion of the school year.
As a wealth consultant, I had helped parents prepare for the traditional four-year undergraduate degree. With the VUCA world, I compute the future cost of the tuition fees of local universities, while considering the contribution adjustments of parents. The changes in work structures and take- home pay proved to test the resilience of parents to raise education funds. In 10 out of 10 parents that I talked to, education is still a priority over retirement.
Here are 4 tips and perspectives on college education planning:
1. Check the trends in the job market. Technology has been changing the nature of work models from face to face, remote to hybrid set-ups. Some industries took a pause while others experienced trajectory growth. Due to the shifts in the requirements of the workplace, demand for higher skills will be high. According to “The Learning Generation” Report, up to half of the world’s jobs – around 2 billion – are at high risk of disappearing due to automation in the coming decades.
Parents have always wanted to make sure that their children will be able to find jobs after graduation. Jobs in technology, financial services, logistics, engineering, and creatives are taking front seats. Companies prefer to hire people with the following skills: adaptability, creativity, resilience, flexibility, growth mindset, collaboration, and soft skills.
2. Find ways as a family to generate new income streams. The pandemic requires extraordinary strategies for breadwinners to have 2 or 3 sources of income. Selling products and services online will not only produce profits but motivate the family to learn entrepreneurship together. In the gig economy where freelancing is also trending, individuals compete through branding and marketing. Knowledge on profitability, customer service, and accounting can lead the way to self-employment in case the job market becomes tight.
3. Check the assumptions in coming up with the future amounts of the education fund. The pandemic had shifted the budget of parents from extracurricular activities, transportation and meal allowances to internet connection, gadgets and study area set-ups. Future costs depend on the education inflation or tuition fee increases that can range from 5%-7%. Since education is an investment, the ROI or return on investments of parents is usually based on salary ranges in the market multiplied by 12 months and considered over the working years of the individuals.
4. Continue to plan and prepare for college education even if there are bumps. According to Sallie Mae, (Higher Ambitions: How America Plans for the Post-Secondary Education, 2020, families with a college plan have 2x more funding when a child reaches college. To have excess funds diminishes mental stress and unnecessary debts.
Parents and students are in different stages of preparation and education. For young parents whose children are 5 years and below, they can invest in aggressive instruments to achieve capital appreciation. For children who will be studying in college in 2 -3 years, a mix of bond and equities can be a safer allocation. College planning can be more manageable when you break them down in monthly investments. The discipline allows parents to cost average and also stay ahead of inflation.
With the ongoing pandemic, the financial plans of families primarily focused on health and emergency funding. It is about time to reimagine your college funding strategies with your advisor. The new adjustments in college planning will help your child not only experience college education but equip him to conquer the world and reach the pinnacles of success.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan