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Educational Alternatives
Something to think about
By
ALEXANDRIA, VA (August 27, 1999) -- "The best school is a log with a student on one end and a teacher on the other." I don't remember where that quote came from, but I just loved it when I was in high school. And I still believe it's true, if only there were enough good teachers to go around.
My sister home-schooled three kids very successfully, and they all still speak to her, so I know it can be done. However, I suspect that for most of today's parents, that kind of educational ideal is beyond their ability to provide. We're stuck with schools.
On Wednesday we reprinted an article Ethan Haskel wrote several years ago about the Opportunity Cost of a private education. The idea that one could invest the cost of a private school education (K-12) in the Foolish Four and hand over $3.6 million to one's 30-year-old child gives a parent pause.
(Numbers note: That $3.6 million is based on an investment of $10,000 in the Foolish Four each year for 13 years, after which the annual contribution is stopped and the account is left to compound at 20% per year. It ignores annual trading costs since they are trivial nowadays, but assumes that the account pays taxes of 20% on each year's capital gains.)
I am not suggesting that one hand over millions of dollars to anyone at any time. Certainly a parent would have to make sure that his/her child was well-educated financially (not to mention emotionally stable, endowed with excellent common sense, and very mature) before even considering such a thing. I am simply suggesting that one might want to read with a grain of salt those studies that show how acceptance into a prestigious university (one goal of a private school education) ensures greater earning power after graduation.
Of course, for many people the value of an education is not something that can be measured in dollars and cents. The ability to fulfill one's personal goals and develop one's talents may be the most valuable part of an education. But when prestigious schools tout their value in terms of the lifetime earning power of their graduates, one is certainly justified in looking for alternative ways to boost earning power.
Let's consider the incremental cost of a state university education at, say, $10,000 per year, vs. $25,000 at an exclusive school. Invest the $15,000 per year difference in the Foolish Four for 4 years, then let it ride. By the time the student turns 40, the account could be in the neighborhood of $1.8 million assuming the parameters we used above.
Teaching your child about investing, and investing with your child, might prove to be a far more powerful way to boost your child's lifetime earning potential than sending them to the most exclusive university they can get into. And it has the advantage of being something that even average students, those who don't stand a chance at Prestige U., can learn and put into practice.
In fact, I suggest that a child who is taught about investing from an early age, and encouraged to invest on his own, maybe even given some seed money and allowed to make some mistakes (hey, that's the way most of us learned!) can develop the skills to do as well financially as most of those Ivy League graduates.
Of course, one has to learn how to obtain the money to invest -- that's the other side of financial education. Learning to avoid the credit card trap, staying out of debt (including student loans!), and living below one's means are the ways to turn one's marketable skills into financial freedom.
In this job, I've heard from folks with wonderful educations, highly marketable skills, and dream jobs who are facing bankruptcy; I've also heard from people with high school educations who have put five kids through college, own their own house, and plan to retire early. To a great extent, it is not how much you earn but how you manage what you earn that makes the difference between financial misery and financial freedom.
And the lessons that one needs to learn to be a successful and Foolish investor come in handy for other aspects of life. Focusing on the long term and ignoring short-term ups and downs makes a pretty good philosophy for marriage as well as investing. Doing your own research and making your own decisions is important when it comes to any kind of decision, from buying a refrigerator to choosing your friends. Dealing openly and honestly in one's personal life is at least as important as dealing honestly in your financial affairs.
All of these lessons are the kind that aren't taught in schools, but are admirably suited for a lesson from one end of a log.
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