Monday, May 14, 2012

The rising cost of education

There was a lot of noise when Pakatan said they want to cancel RM 43 billion PTPTN student loans(, if they win. The main argument: it is better off to forgive the education debt of young generation than sinking the funds into corruption black hole by the current ruling government. The opposing camp is saying we are encouraging moral hazard. Both arguments have valid points, better use of funds vs. moral hazard. Forgiving the debts is only one off issue. The long term  implication, are we going to give free education to everyone?

The reality is free education does not exist around the world.

As parents, we cannot depend on what politicians will do. It's too dangerous to put well being of our children in their hands. We need to prepare for the worst case scenario and waking up to the hard reality. At some point of time, we need to know that there is no one to help us or our children will have to resort themselves to borrow even before they can earn. The education inflation cost is very real. 18 years from today, it is going to cost RM 160 k to study in Malaysia, RM 455 k ~ RM 500 k to study in Australia or Britain. To achieve that, parents need to set aside RM 400/month ~ RM 1,300/month(assuming 6% p.a. return) the moment your child turns one year old. You probably will set aside even more if you start later.

If you are in the late 20s or early 30s, RM 400/month ~ RM 1,300/month can be burdensome if you already have house and car loans. It is even harder if you yourself already have RM 50 ~ 100 k of your own education loan hanging on your neck. 

The solutions are really difficult. If parents and children were take 100% of the responsibility, they will be forced into a corner -- no where to run. On the hand if the government was to give free or minimum tuition fees, that will only lessen half of the burden. Individual will still need to cover the living costs. Parents: please don't overlook this area in your saving plan on top of your retirement planning. 

My personal opinion  is to strike a balance between individual responsibility and better governance from the government. We will save and invest our ass off but the government must do their parts. Stop the bloody leakages and corruptions, raise the quality of education and lead our country out from middle income trap. 

The worst nightmare parents can have is invested a huge sum of money in their kids' education but their children cannot even speak proper English or think for themselves. It is also a nightmare for parents if their children cannot find a decent pay job simply because there are not enough high value added jobs. 

We are not asking what the country can do for us, we certainly will do things for our country. When we do our parts, can the present government do their parts???

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