Here’s How to Calculate Your Child’s Education Costs Through College – How do you calculate your child’s education costs? Education is the most important investment we can give our children. Every parent wants their children to have access to the best education, from elementary school through college.
However, achieving this vision is not an easy task. It requires careful financial planning and precise calculations, given that education costs in Indonesia continue to rise each year.
Parents also need to address the “hidden issue” in the financial world, namely the ongoing rise in inflation rates. In this article, we will provide a step-by-step guide on calculating your child’s education costs up to university level, taking into account this hidden issue.
Tips and Ways to Calculate Children’s Education Funds with Inflation Considerations
The calculation of education funding requirements must use the Future Value (FV) principle. This value can provide an estimate of future education costs based on projected inflation rates. According to Investopedia, there are several steps that can be taken to calculate education funding:
1. Determine Current Costs and Time Frame
First, check the Present Value (PV), which is the initial fee to the current tuition fees at the target school or campus. For example, to calculate the initial fee for a quality private school, you need Rp20 million for elementary school, Rp30 million for junior high school, and Rp40 million for high school. Meanwhile, college admission fees (S1) range from IDR 7,000,000 to tens of millions of rupiah. As an illustration, let’s take the PV of S1 tuition fees at IDR 70,000,000.
Next, determine the Time Horizon (n), which is the number of years remaining until the funds are needed. For example, if the child is currently a newborn, then n=6 for elementary school, and n=18 for undergraduate college.
2. Set the Education Inflation Rate (i)
Next, consider the prevailing inflation rate. To ensure that your funds are sufficient, it is a good idea to calculate the inflation rate conservatively and on the high side. For example, 8% per year.
3. Calculate Future Value (FV)
After PV, n, and i are determined, we use the following Future Value formula:
FV=PV×(1+i)n
Case Illustration: Undergraduate Tuition Fees
Let’s calculate the tuition fees (undergraduate) if the child is currently a newborn (n=18 years):
PV = Rp70,000,000
i = 8% (0.08)
n = 18 years
FV = Rp70,000,000 × (1.08)18
FV = Rp279,799,000
The following is a summary table for calculating children’s education costs.
Apply the above method of calculating education funding requirements to the costs of elementary school, junior high school, high school, and college.
| Level of Education | Time (n) | PV Initial Fee | FV (Estimate 8%) |
|---|---|---|---|
| Elementary | 6 | Rp20.000.000 | Rp31,74 juta |
| Junior High School | 12 | Rp30.000.000 | Rp75,55 juta |
| Senior High School | 15 | Rp40.000.000 | Rp126,89 juta. |
| Bachelor | 18 | Rp70.000.000 | Rp 279.800.000 |
4. Calculate the Required Monthly Deposit
Once the FV target has been determined, the next step is to determine the monthly deposit that parents must invest. However, this must be adjusted to each family’s financial condition.
Read Also: Which to Choose: Education Insurance or Regular Savings?
How to Deal with Inflation and Achieve Your FV Target
The key to overcoming high education inflation is to choose investment instruments that can generate returns greater than the rate of inflation. The strategy parents choose must be in line with their respective time frames:
- Short Term (< 5 Years): Prioritize security and liquidity for funds that will be needed soon (such as for elementary school enrollment). Suitable instruments include Education Savings Accounts and Money Market Mutual Funds. These instruments generally generate annual returns of 4–6%.
- Long Term (> 10 Years): For undergraduate degree targets that are far in the future, parents must pursue high growth. More potential instruments such as Stock Mutual Funds, Stocks, or Bonds can provide the growth potential that parents need for their children.
