Catholic or Private School

This was written in 2014....

A friend is trying to decide whether to send their child to the local Catholic School or the local Private School. They have a choice and have asked me to do a few numbers.

Here’s the benefit of having the Lord by your side:

If you assume that all other costs are the same (Music Lessons, Camps, Buses etc) and the discounts are the same (no scholarships, no sibling discounts, no upfront payments discount) the flat out difference in fees from year 7 to 12 is $126,100.

So you could save $126,100 per child over the six years. That’s post tax so depending on your tax rate it will cost more. For a 45% tax rate payer it could cost around $160,000 in extra pretax earnings not to send a kid to a Catholic School if you had the choice. For someone earning $80,000 it’s basically two year’s salary…per child..before you eat.

Now let’s make a more realistic assumption that you either borrow or invest the money that you save and those savings or costs roll up each year. This (table below) is the result using a variety of post-tax costs of the debt or the returns on the money saved.

This shows you that if you invested the saved money each year and rolled it along in term deposits at 4% you would actually save $144,989 by year 12, an extra ‘saving’ of $18,889 on the flat difference in cost of the fees. More depending on the return you assume you could get.

This table also suggests that if you have a mortgage and are paying say 7% on your debt and all the fees are coming at the expense of an increased mortgage debt then your mortgage would be  $160,879 smaller over the six years sending your kid to a Catholic school. If you then compound this saving for another 10 years at 7% before you pay it off your mortgage it’s a saving of $316,473, over 20 years it saves you $622,550.

For the flip side, just flip it over. Sending your kid to the non-Catholic school is going to cost you an extra $622,550 over 20 years if you have a mortgage that you don't pay off for 20 years.

And all this is before those fee schedules change, in other words before they put the fees up from the current stated levels…and they usually go up 5% per annum or so.

The bottom line is that if you have a choice between a fee paying Catholic school or a private school there had better be a pretty good non-financial reason for you to pay the extra because although most parents see it as a saving of $20,000 per annum, if you have a mortgage and are not going to pay it off for 10 or 20 years it’s going to cost you $316,473 to $622,550 in pretax earnings...per child.

Even if you don’t have a mortgage. The average return from the All Ord Accumulation Index is about 7% as well and you are losing the opportunity to invest this money. Your Super will be $316,473 to $622,550 smaller pretax after 10 or 20 years after deciding not to send your kid to Catholic School.

So you have to ask…if you have a choice of sending your kid to one or the other, is it worth it? Is the more expensive school that much better.

The other big argument is what could you do with the saved $20,000 a year in terms of giving your child a more Worldly education (travel) or sport or hobby (horses, go-karts) or other education and training beyond the bounds of the school walls. If you are engaged in their education rather than just working flat out to pay it then this is a huge amount of money with which to provide your kid with an ex-school education. 

The numbers suggest that if you are lucky enough to have the option of a Catholic education that is as good as the non-Catholic education…take it, because some people don't have the choice.

The bottom line is that it is a lot more expensive paying private school fees without a Catholic discount...parents have to decide...for what? In this case the argument is tradition, contacts and the old boy network. Is that worth $316,473 to $622,550 in pretax earnings...per child. Its a choice.

Any response to this article please email me but please note that this is not a religious article, it’s a financial article.

FEEDBACK COMMENTS SO FAR:

• In the SMH May 3 article you wrote that a friend asked you to do the sums between a Catholic School and a private school. I did those numbers three years ago when my wife asked to send my children to a private school. There is no doubt that the right financial decision for the parent is to send the child to the Catholic School or a government school and place the $200,000 in a fixed interest account or CBA shares .At the end of their school life they could then use the money to enter the course of their choice as a full fee paying student at a private university. The right answer however is to chose the school, Catholic, government or private that is most suited to the personality of your child. We initially sent our eldest to a Catholic school. With an aptitude for maths, music and the arts but a shy timid and quirky personality he was somewhat pushed around in the smaller but more physical environment. Seeing his struggles we moved him to the local private school. He thrives in a school where values, friendships and spirit is nurtured far more than academic success. You once wrote that the greatest thing you could give your kids was to spend time teaching them a skill that they would treasure for the the rest of their lives. Nothing complicated, social sports and creative arts the most obvious. Private schools recognise this. Hence the before school band practice, after school recitals, weekend band camps and the interstate and overseas tours. Add to this the voluntary afternoon activities like robotics club, computer programming, track and field, future problem solving, debating, chess club etc and you have an environment that is an extension of you. Choosing a private school has never been about academic success or history, reputations or connections. It’s as you said about parenting, give your child skills that they will possess for life ,remember the school for and value as testament to the time spent there and the profound bond. If it were about running a few numbers, no one would admit to owning a greyhound or dreaming of riding a Ducati 1098s.
• Research suggests scholarly performance regards state schooling and private ignoring extraneous situations - geographic, special needs etc does suggest there's little academic advantage in privately paid schooling (presuming that's the intended outcome).
• There are the anticipated downstream networking opportunities but if the children are boys, better have them play rugby.
• I've had far better professional and social benefits being an ex Catholic than an ex-private school chap.
• If your member wants academic performance from his/her issue....then the best thing he/r and his/her spouse(s) can do is actively engage in their education. It works wonders.
• Catholic schools have their contacts and old boy network too.  Just look at the current federal government - an observation, not politics.
• Maybe one day there will be a more active old girl network.
• Interesting comparison of Catholic vs private school. What about the other provider of school education…public schools? There are many public schools that do relatively very well in terms of NAPLAN scores that have been posted on the My School website.
• I would have liked to see those fees stacked up against public education (a lot people bought in Killara just to get their kids into the public school).
• I think it is a religious question. The word “Catholic” gives it away. For the privilege of paying reduced fees, one has to accept that your child will receive 12 years of religious indoctrination. Some parents of other religious beliefs or non-believers may consider this too much of a price to pay. You can gather from this, I do!
• Fortunately (or maybe unfortunately) most of life’s big decisions  are not purely financial; if they were we would not be having this discussion at all because we would have chosen not to have children – far too expensive. In regard to school choice, not all schools are the same and most definitely no two children are the same. My kids have been to low fee paying religious schools, public schools and high fee private schools. We are not ‘rich’, not part of any ‘old boy’ network, have no tradition to follow and are not chasing any contacts; the choice was difficult to eventually pay the high fees. As Accountants, my husband and I attempt to make ‘rational financial decisions’, and would not have forked out the big money unless the school offered much more than simply academic results, contacts or networks. After 3 years, we can honestly say our family has definitely received better ‘value’ from the high fee paying school as to the low/no fee schools.
• While I am well past having to provide for children, I am trying to aid the education of four grandchildren, in UK. This following comment may well become an additional factor for Parents to consider in Australia in the future. In UK, all political parties are trying to make entry to Oxbridge ( Oxford and Cambridge Universities ), easier for state educated students. Oxbridge, with their huge endowments and long history have seemed to give preference to students from particular private schools, Eton, Harrow, Winchester, etc. These government implemented schemes attempt to make Oxbridge colleges give preference to students from state schools. So much so that some children refuse scholarships to private schools to enhance their chances of Oxbridge entry later. There are schemes in NSW which enhance the scores of students from remote areas, I would suggest that the UK scheme may come into favour here for socio economic enhanced entry to "top Universities (maybe Sydney, Melbourne, RMIT etc.) Probably not something you would want to discuss in Marcus Today, but in the ever changing field of education, parents need to be aware that things can change very quickly.
• There are many great state schools especially primary - anyone who sends their kids to private primary is either rich, nuts, or try inveigle past waiting lists. But the high school location has created a land/home rush akin to the gold rush - it will all end in tears. Paying $25,000 + just, as you point out, stack up as a financial decision, coupled with Uni fees and tax repayment both parents and kids are likely to make financial commitments that can't be funded, and this will not become apparent for some years, when the reverse mortgage is seen as the only way out. I worked at top of the list for near 20 years, and even with a very, very generous fee discount, it was just very difficult - but the kids seemed happy. One has nothing to do with her school friends (their all up themselves Dad) whilst the other has a network any spider would be proud of. The input in Uni is worse than ever, 70% come from the top 30% socio economic strata, but what is more interesting are the outcomes - notice nobody ever talks about this. I did a thesis on equity in education in the early 90's - Educational Economics (is that a double oxymoron?), anyway as far as I could determine students from State schools - in Victoria think McRob and Melb High in particular - do extremely well, if like private school students they actually graduate, the above % split is probably more likely to be reversed in fact.
• Just in relation to your article on school fees, I heard an interesting podcast on ABC Conversations with a fellow named David Gillespie who has done a detailed study and written a book called Free Schools on the benefits, costs etc of the private, catholic and public school systems. Well worth checking out when considering a school for your child.
• The reason people send their kids to private schools is that they can afford it. Therefore their children do not have to mix with the offspring of poorly paid riff raff. On the other hand Catholic schools prosthelytise their faith. We would be all far better off having the one school system rather that an elite system for those that can afford it, a religious one and a government one that ill-informed people wrongly look down upon. Many government schools value add to student performance far more that the elites with all their social and financial advantages. Some of the worst classes I ever taught were from catholic schools and private schools.
• No reference to state schools! In NSW the best academic performing schools are the state selective schools. Two studies in Australia have both found that at university, all other things being equal, state school pupils perform better than private school pupils. Most of our friends sent their children to private schools, and overall I think the parents got more out of it (self satisfaction) than the children. I get the distinct impression that Australians are desperate to create a class system in the hope of protecting their children. I believe that international figures would show we have a larger proportion of pupils in non state schools than almost any other OECD nation, but our educational achievements are certainly not top of the pile.