Parents should stop funding the expensive educational pursuits of entitled children

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About 20 years ago, when formal financial planning was just taking root in India, we did a household survey to find out about personal financial aspirations. Families were still not talking about financial goals per se. However, children and their future featured almost unanimously in every conversation. Twenty years later, when everyone and his uncle is telling me about their goals—listed, estimated and timelined on a worksheet with jazzy math— not much has changed. Children’s education and wedding still drive the long term saving decisions. Higher education now means going abroad and weddings have become jamborees.Retirement planning has fortunately begun to get the importance it deserves. What strikes me as odd though is how warped some of these stories are. So what has been going wrong in these? Many young parents of today must have their children in international schools. Kids go to fancy play schools at age two, iPads in hand, to play in sanitised sand, supervised by uniformed and trained staff. Financial goals are not about higher education 18 years later anymore. There is an annual expense from year one, equal to or more than one parent’s monthly income to spend on the child’s “education”. Classes and activities are extra. Very expensive education is the single largest recurring expense in many households, across social strata, I dare say.

Then there are households with children in high school, preparing to study literature and history in the US. If they need to be protected from the competitive admission processes, they go to Australia, UK or any other place that will take them. The hefty international student fee their parents pay is tough to ignore for the fund starved colleges. They must study abroad and parents feed that demand. Competitive exams for engineering and medicine are now the aspiration of the rising middle and upper middle class. Parents pay for coaching from class III onwards. Some parents save to get management quota in private colleges. Many send kids to destinations abroad to become doctors and engineers in colleges there. No prize for guessing that these are colleges begun by our own desi edupreueners who have tied up collaborations.

It is not as if these are urban middle class aspirations. My house help’s daughter has enrolled in a grooming school and aspires to be an air hostess. The mother has borrowed from her employers to pay the hefty tuition fees. Only 10 years ago I was paying the diploma fee for my earlier house help’s son, who worked part time along with studies and found himself a job in the Middle East. I worry if I am being old fashioned or narrow minded when I hear about the private school aspirations of some of these children.

They must study what they fancy. And they may or may not get a job. We have children of farmers and rural folks selling and pledging land and gold to study at nondescript private colleges. They earn a useless degree and remain either jobless or become salesmen in the retail or financial sectors. A friend asked me to speak to one of these engineers who has been jobless for three years since graduation. He is too proud to return to his village to tend his land. But he cannot find a job, much as he tries. Parents funding these educational pursuits and children feeling entitled are the common underlying factors.

So much household wealth is drained into worthless educational pursuits, even as we flaunt the demographic dividend of the nation. I would love to bury my head behind the many successful stories of entrepreneurship that I read everyday. But that seems like denial. One would then assume that parents have turned into extremely astute savers and investors during the time that all this happened. Ever since personal finance magazines began featuring stories of families and their finances, we have seen those asset allocation pies. And read about how goal based systematic long term investing in diversified equity funds has lifted the wealth and goal funding capabilities of many simple families. Call me a mutual fund stooge, but those stories are real. And comforting.

But I promised to write about what went wrong. Just as children have messed up higher education with an entitlement orientation, parents have also done their bit of misallocation of savings and investments. Social symbols of wealth and asset rich stature are still associated with property and gold. Unfortunately, a disproportionate amount of household wealth is still held in these forms. Despite all the good intentions to fund the major life goals, including children’s education, many households remain loathe to liquidate these assets. Every admission season I unfailingly hear stories about parents taking loans, liquidating financial assets, borrowing from friends, even while they have money locked into properties they can’t sell. They don’t want me to tell these stories, since they don’t see it as failures. The property will go right back up, they assure me.Worse, many parents squirm and shudder at funding a masters program in an international college, settling for educational loans and a barebone student accommodation in a strange cold place for their child, even while flaunting the two bedroom flat they booked fondly for their child. That wealth won’t be used when it is most needed, but kept for the future. Yes, I somewhat dramatise. But ill informed asset allocation is the bane of many households. I can pull out a dozen true stories from my bag, but let’s complete this story first.

There is a confused dichotomy between indulgence and holding back. Parents say that they live for the child and still misallocate funds into property. Even as I was making notes for this story, a friend who has been living abroad for 30 years called to tell me that her accomplished son has admissions in two universities. One within their home state, which means she almost pays no tuition. And the other is a better ranked university in another state. How will he live in the cold? And what will he eat so far from home, she rued. As we spoke she confessed to not willing to letting go of the low cost local school option. Why is it that households won’t be transparent about their finances to children? Why won’t they be realistic and responsible about long term goals? And why oh why does a simple tool of systematic long term equity investing not appeal to so many people?


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