**How to Calculate the Lost Opportunity Cost of the Typical way to Educate Kids.**

**A college education that cost $30,000 per year in today’s dollars** with a 6% inflation for a 4 and a 6 year old will remove $2,187,493 from the parents wealth by the time they are 68 years old. How? The actual cost of the school plus the opportunity cost of the money removed from the parents’ estate assuming it was earning 5%. We’ll use a Cash Flow Calculator from www.truthconcepts.com to tell you the whole truth about the cost of college.

**First we see in cash flow column 1** (fourth from the left) the result of $30,000 inflated out at 6% for 12 years since the child is 6 years old. Notice we’ve assumed a 5 year college attendance time frame. Then in column 2, that same $30,000 inflated out at 6% for 14 years since the second child is 4 years old. You get these by putting in the $30,000 at the top, copying the 5 years you want saved, deleting the whole column, then pasting the 5 years back in.

*(Note: these numbers are several years old and the figures are actually extremely conservative… you will pay MUCH more for a private education with room and board now and you may need to adjust figures upward.)*

**The $824,443 shown is the compound cost of 10 tuitions that will start 12 and 14 years from today. **

So, if we wanted to know how much of our current assets would be needed to fund this education, we use the Present Value Calculator which shows we need $342,619 today, assuming we could earn 5% net on the money.

**To confirm that number, copy (don’t type) the $342,619 with all its decimal points from above and paste it into the Present Value box on the top left in the Cash Flow calculator .**

**Then highlight the 5 years of Annual Cash Flow**, right click, Select “Change Sign” and this will confirm your Present Value number is correct because it depletes the account to zero over the 18 years as shown below. Make sure to do this for both columns.

**Or we could use the Payment Calculator** to figure out that we would have to put away $27,914.08 a year for the next 18 years to accomplish the same thing, again assuming a 5% net rate of return.

**This too can be proven** so you know you’ve done the calculations correctly by copying the $27,914.08 and all its decimal places from above and pasting it into a third cash flow column as shown below. Make sure you remove the Present Value number as well.

**Now comes the really hard part (as if putting away $28,000 a year isn’t hard enough)**. Let’s say the parents were 30 years old at the time you looked at this. That means they are 48 when the second child finishes her 5 years of schooling. If they had not paid for college, the $824,554 could have grown to $2,187,493 by the time they were 68 years old.

**That amount of money would kick off a pay down** (spending principle and interest over the next 20 years) of $167,171 per year (only partially taxable due to pay down or spend down strategy) from age 68 to age 88.

**What could you do differently now that you know the whole truth about your money?** You could find a way to get your dollars to do lots of jobs instead of just the job of educating your children. Then the dollars sent to the school don’t create such huge opportunity cost that pulls against your own wealth. See the article entitled “How to Get One Dollar to do Lots of Jobs” for examples and ideas.

Kim would also recommend being honest with yourself and your children about the real cost of college and looking for ways to minimize costs through community college, scholarships, work study programs or otherwise allowing the student to participate in paying for costs or repaying loans, etc.