Education Calculator Vs. Cash Flow—Which Should You Use?

The Truth Concepts suite is designed to be versatile, and some demonstrations can be done on multiple calculators. One of the primary reasons is because sometimes the work you do behind the scenes isn’t the best way for a client to visualize. For starters, you want to avoid overwhelming clients when you’re building a Prosperity Economics foundation. After all, typical financial planning is a much different approach. 

Secondly, some clients are more analytical than others. While a number-heavy chart may be ideal for one client, another client might find the information more difficult to digest with rows upon rows of numbers. It’s important that we understand our clients to give them the best experience possible, and meet them where they are as we educate them. 

The Education calculator is one such example. The calculations can be done in the Cash Flow calculator, however the Education calculator is designed to be more streamlined for visual learners. It can also be a simple tool for advisors to use and double check their work, because Education does the heavy lifting.

Education costs will continue to be a big part of financial advising, and we want to help you find what works best for you and your clients. Let's compare the the two calculators.

Step 1: Inputting information

As with any calculator, you’ll want to start by adding relevant information. In Cash Flow calculator, you’ll start by adding in the parent’s existing savings in the Present Value column. Pretend that this client has $100,000 of savings, and hopes to add $10,000 annually, until both children are through school. You'll input the $10,000 in Cash Flow 1.

Secondly, you can add the children's tuition costs. Let’s say your client currently has an eight year old and a ten year old, and they want to set aside enough for both of them to attend a 4-year program if they choose. In Cash Flow, you’ll have to do some more legwork.  Turn on Cash Flow column 2 and 3. And instead of adding the tuition cost in the top, you’ll actually add it straight to the column. Assuming both children will start college at 18, they’ll start their first year in year 9 and year 11. Add (-30,000) as your value, and zero out the column after 4 years. 

In Education, you can actually let the calculator do most of the legwork for you. All you need to do is input how many children they have, their ages, what age they’ll start school, how many years of school they will attend, and some information about their tuition and funding. The calculator will then auto-populate that information and turn it into a graph, showing how much each student will owe in tuition. 

Step 2: Parent Information

From here, you’ll want to include information about the parents and their assets, such as age information, savings, and their available assets. 

In Cash Flow, you’ve already done this. 

In education, the fields are labeled, making it easy for a client to follow and understand. Click the button that says “Future Student Ages” and you’ll be allowed to input parent info. We’ll include that same $100,000 starting point, with the annual $10,000 contribution. You can also include their starting age. 

Since they’re only saving until their children are through school, they’ll stop saving at age 48. You can also include distribution age and mortality age, if the asset they’re funding is also meant to be retirement income. In this scenario, we’ll leave that element out.

Step 3: Analysis

From here, you should be able to see the results of the clients’ education funding. 

In Cash Flow, you can see that with the parent’s current contributions, their account will be depleted. This is okay if the savings is meant purely for tuition funding, but often this isn’t the case. And if you adjust for a 4% inflation of tuition, which we’ve done below, you can see that the parent’s aren’t actually saving enough. You can find this value by using your future value calculator and plugging in the values.

In Education, you’ll see the same results, however you can toggle between the pure cost of each students’ tuition, the impact on the parents’ assets, or you can view a chart similar to Cash Flow. To see this chart, you’ll click the “Detail” button to the left of the “Title” button.

And if you add the 4% inflation, you can see the impact in all three of the charts below:

Which Is Better? You Decide.

Ultimately, the tool you use behind the scenes is entirely up to you. It’s best to do what you’re comfortable with, so you can be informed when you’re showing your client. However it’s important to consider what will be best for their understanding.

Regardless of what you choose, the values and principles behind the illustration that the client learns are at the heart of this. Helping them understand the value of good savings habits, scholarships and grants, better ways to fund school, and even more affordable alternatives (like in-state schools, trade schools, or owning rental property) are of great importance.