Note: This post was first published in August 2019 and subsequently updated in September 2021
When I first wrote this post more than two years ago, I had no idea how much of a nerve it would strike with readers.
Perhaps I shouldn’t have been so surprised. We are all genetically wired to get our kids off to the best start in life possible. And naturally, schools have a massive role to play here.
Since the original post, I have long wanted to refresh my thoughts on the topic and now seems like a good time to do so.
Our daughter started school a few weeks ago. We are also thinking through schooling options for our son.
To paraphrase Nassim Taleb, don’t ask me what I think – ask me what I do.
And so, I hope today’s article will be useful to all the parents and future parents out there who are considering private education for their children.
As a side note, I am using the UK school system as an example, but the facts below hold for many other countries with a big private school sector (i.e. the US).
With that in mind, let’s kick off.
The Eternal Private School Argument
As it happens, I have gone through the state school system myself and private education was never an option for me.
Fortunately, I received an undergraduate degree from a solid university and followed that with a top MBA a few years later. It’s fair to say things have worked out well.
Thus, it’s unsurprising that I’ve had an ongoing mental debate on the topic of private education for our children, which usually goes along the following lines:
- Voice of reason: “If I, a first-generation immigrant, have become successful despite having gone to a state school, surely my kids won’t have an issue? They are already light years ahead of where I started!”
- Voice of anxiety: “But what if I’m wrong? What if I just got lucky? What if I’m sabotaging my children’s future?”
- Voice of reason: “Well, if it’s all down to luck, why go to a private school in the first place? There are plenty of Oxbridge graduates out there with the same jobs as kids from state schools.”
- Voice of anxiety: “Well, just wait till your kids grow up and can’t get the jobs they want. Good luck explaining your logic then!”
And on and on it goes.
With decision time approaching, I have finally set out to answer three questions in a structured way:
#1: What are the advantages of private schools?
#2: What is the true cost of private schools?
#3: As a function of #1 and #2 above, is private school education worth it?
The reality is, if you are in a position to even contemplate sending your child to a private school here in the UK (or anywhere else), you are already way better off than 99% of the world’s population.
At the same time, private education is likely to be the second-largest expense you will ever incur.
And if you account for compounding, it is by far the biggest financial decision you will ever make (more on this below)
Is it really the right choice for you?
The Advantages Of Private Schools
To me, this one is a no-brainer. Most people will agree that private schools have multiple advantages vis-à-vis their state equivalents:
#1: Better Facilities
Private schools often boast nicer buildings with better sports amenities, well-equipped libraries, state-of-the-art media centers and nice auditoriums.
#2: Better Teachers
This is a contentious one and surely there are many fantastic state school teachers out there as well as more than a few mediocre private school teachers.
Nonetheless, because of their profit motive and a more effective parental feedback loop, on average private schools do benefit from higher caliber teaching talent.
#3: Smaller Classrooms
Budgetary pressures and difficulties in recruiting teachers (maths is a common one) mean that state school class sizes have been going up.
It’s not unusual for class sizes to exceed 30 or even 35 children.
If you send your child to a private school, there is a very high chance he or she will end up in a much smaller class of 15 or 20 pupils.
This, in turn, means a better teacher/pupil ratio and more attention for your child, leading to better educational outcomes.
#4: A More Supportive Environment
Somewhat related to the better teacher/pupil ratio and a profit motive, there is a thesis that a private school environment is more conducive to stimulating your child’s unique abilities and helping them address their weaknesses.
#5: Narrower Ability Range
Parents who send their children to private schools tend to select schools that will best fit their children’s profile.
In theory, this means that academic-focused children end up in academic-focused schools, while children with a predilection for things like performing arts will end up in a school that better fits their profile.
Teachers can naturally accomplish a lot more in a class where most students have an aptitude and a passion for the subject being taught.
#6: Better Network
Not having gone to a private school, I wouldn’t know what it feels like. I also question the durability of the networks you build in primary or secondary school.
However, many Old Etonians and Old Harrovians wax lyrical about the network their schools have given them.
#7: Admission To Better Universities
This is likely one of the most important factors.
According to the Access to Advantage report published by the Sutton Trust, private school students are seven times more likely to secure a place at Oxford or Cambridge than students at non-selective state schools.
They are also twice as likely to secure a place at a Russell Group University than their non-selective state school counterparts.
#8: Better Job Prospects
I am heavily involved in recruiting junior investment bankers at my firm.
Sadly, first-hand experience suggests that the (perceived) quality of an applicant’s undergraduate degree weighs heavily on their chances of getting an interview.
I would take someone with passion and drive over a lazy Oxbridge graduate any day of the week, but unfortunately, there is a very strong bias towards higher-caliber universities.
Chances are it is just as applicable in other professional services as it is in investment banking.
I’ve picked the most obvious ones, but the list of advantages doesn’t stop here.
The majority of people seem to coalesce around the opinion that the quality and outcomes of private school education will typically trump that of a state school.
What Is The True Cost Of Private Schools?
The cost of private schools is probably the biggest factor that determines whether parents ultimately send their children into the state vs. private education system.
What is surprising is that this is precisely the aspect most folks seem to underestimate. The headline price is important enough – but there are three other critical factors at play here:
- Price increases over time (which have historically exceeded inflation)
- Ancillary fees (school trips, uniforms, sports clubs, etc.)
- Most importantly, the opportunity cost
Let’s address these items in turn.
The table below shows the evolution of private school fees assuming you were to place your child into a private school today. The average private school fees now exceed £17,000 per year.
In addition, you can easily budget around 20% of the headline fee to accommodate for the ancillary items I have listed above. Funny how much more expensive that white t-shirt becomes once you put a pretty logo on it!
In total, this brings your total annual fee to c.£20,400 in year 1.
Unhelpfully, you can pretty much count on school fees growing well ahead of inflation every year (wouldn’t it be nice if your pay did the same?)
Yes, there was a bit of a blip throughout Covid where fees have only gone up 1% or so.
However, the relief seems to be temporary, with this year’s price increases well ahead of inflation.
And so, by the time your not-so-little one heads off to university in 14 years, you can expect to be shelling out almost £34,000 in school fees in that last year.
Evolution of Private School Fees
Once you tally everything up, you will have spent about £373k on school fees over the 14 years.
This covers off items #1 and #2 above.
However, it is the opportunity cost point that is most important and can lead to some really sobering conclusions.
The Opportunity Cost of Private Schools
Let’s imagine for a moment that instead of handing your hard-earned money to the headmistress every year, you invested it instead.
Assuming a 7% return in the stock markets (which is well south of what the magic money machine has delivered in the past), that £373k would grow to about £616k by the time your child has graduated school.
Of course, giving your child over half a million pounds when they turn 18 is rarely a good idea. Let’s say you were to leave that money invested until your daughter turns 22.
If you left the money invested for another 4 years, the £616k would increase to £807k.
22-year olds are generally better with money than 18-year olds, but the difference is usually marginal. The lack of judgment is still there to an extent – after all, there is a reason why even Zipcar requires its drivers to be at least 23 years old.
So what if you wanted your child to get a taste for real life and work for a few years while the money continues growing in that investment account?
To the extent you really wanted to test your progeny’s patience and left the pot untouched until your child turns 30, it would grow to £1.4m.
And if you leave it there until they turn 40 and the number becomes £2.7m.
That’s right, £2.7m.
Private School Fees, Reinvested
At this point in time, your child is 40 and has had an ample taste of real life – including the sacrifice it takes to grow wealth.
He or she is hopefully now settled down and has a family. Imagine how far £2.7m could go to improving their quality of life?
Yes, £2.7m in 35 years will be worth far less than today. But even post inflation at 2% per year, it represents £1.4m in today’s money.
The best part, of course, is that your child is much more likely to appreciate the money and put it to good use.
And if they don’t appreciate the chart below at 40, it is unlikely they ever would:
Of course, there are some fundamental assumptions underpinning the analysis above:
- You will save and invest the money you save on private school fees
- You maintain your earnings at the same level (no secret many folks stay in soul-sucking jobs just to fund private education)
- The private school fees would have been funded by you and not by your family or through scholarships/bursaries (i.e. you can actually get your hands on that money)
- You will manage to pass the savings on your kids in a tax-efficient way (see comments below)
Even taking these factors into account, the private school opportunity cost is astounding.
But, life is full of curveballs – and so that’s not where the argument ends.
The Cost Of (Good) Public Schools
Here’s the thing, the alternative option is (rarely) free.
As one of the readers pointed out in the comments section, it comes with a whole bunch of costs as well.
First of all, you need to move into the catchment area of a good school. In our area, that means paying a 20-30% premium on “market” rents (though some folks move back out just a year later).
If you own a house, it gets even more challenging. You sell your house, incur all the transaction fees, and buy a much more expensive one.
Then you’ve got to tick all the other boxes that may be required – apparently, some folks even change their religion. Talk about stress!
And finally, you’ve got to account for the cost of private tutors to make sure your kids don’t fall behind their private school counterparts.
Factor all these expenses in, and the financial case might not be as straightforward anymore.
What We Ended Up Doing
After having laid out the arguments above, it’s only fair to be transparent about the route my wife and I have chosen for our kids.
As it happens, both will go private. Our daughter started in a girls-only school a few weeks ago.
Our son has now been enrolled at a boys-only school for September 2024 (if we are still living in the UK at that time).
At the end of the day, this is one where emotions trumped financial logic.
What also played a role is that I had a couple of good (albeit stressful) years at work, and so did my wife. Yes, sending kids to a private school means both of us will have to work at least 3-5 years longer than we would otherwise.
Then again, both of us come from immigrant families that prioritize education above all. Our parents have literally crossed oceans to give us a better life.
Not doing the same for our children seems irresponsible at best, highly egotistical at worst.
The other aspect that played a role was that our daughter seems to be particularly bright for her age. Now, I know all parents say that, and I am no exception.
However, she was offered places at some of the most competitive schools in London, and it simply felt wrong to send her to the local state school instead.
As for our son, it would be highly unfair to send him to state if his sister is going private, questions of ability notwithstanding.
At the end of the day, choosing the right school “track” for their children is one of the most important decisions a parent will ever make.
We’ve obviously gone full circle on this one, and have zero regrets about the path we have chosen. I hope that today’s article is helpful in making the right decision for you – and your children.
As always, thank you for reading.
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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