What's the TRUE cost?

[Anonymous]

Not if you could invest that dollar at a positive return (not so easy these days, I know).

[Anonymous]

Anonymous wrote:Not if you could invest that dollar at a positive return (not so easy these days, I know).

No. The opportunity cost of one dollar today, even if you can invest if with a positive return is still $1 today. If you can invest the dollar at 10%, then the opportunity cost of one dollar today is also $1.10 in one year. But then you are mixing today's dollars with dollars you get in one year, a big no-no. If you did that every dollar today would be worth $1.10 today.

[Anonymous]

Maybe opportunity cost isn't the way to think about it. Maybe cost-benefit is.

So (a) save your money and invest it (at a presumably non-negative return at some point in the future). Net present value (today's value) is the future income stream less investment in tuition costs this year and every year that your kid doesn't go to private school.

or

(b) pay private school tuition and get an investment in terms of tangibles (presumed -- although certainly not proven and maybe not for evey kid -- differential in your kid's human capital, measurable as your kid's future earnings discounted deeply to the present), plus intangible returns like parental networking, presumed (and maybe wrongly assumed) better exmissions results, kid doing sleepovers with the Obamas, et cetera.

Yes, I'm a nerd....

[Anonymous]

Sorry, I was wrong. Parental networking may be quantifiable in terms of better jobs. This also includes the possibility of lower-paid government political appointments

[Anonymous]

Anonymous wrote:

Anonymous wrote:Not if you could invest that dollar at a positive return (not so easy these days, I know).

No. The opportunity cost of one dollar today, even if you can invest if with a positive return is still $1 today. If you can invest the dollar at 10%, then the opportunity cost of one dollar today is also $1.10 in one year. But then you are mixing today's dollars with dollars you get in one year, a big no-no. If you did that every dollar today would be worth $1.10 today.

Depends on whether you are using the same or different rates to grow the investment versus discounting it

[Anonymous]

Anonymous wrote:No. The opportunity cost of one dollar today, even if you can invest if with a positive return is still $1 today. If you can invest the dollar at 10%, then the opportunity cost of one dollar today is also $1.10 in one year. But then you are mixing today's dollars with dollars you get in one year, a big no-no. If you did that every dollar today would be worth $1.10 today.

"Opportunity cost or economic opportunity loss is the value of the next best alternative foregone as the result of making a decision. ...A person who invests $10,000 in a stock denies themselves the interest they could have earned by leaving the $10,000 in a bank account instead. The opportunity cost of the decision to invest in stock is the value of the interest."
http://en.wikipedia.org/wiki/Opportunity_cost

[Anonymous]

Anonymous wrote:Maybe opportunity cost isn't the way to think about it. Maybe cost-benefit is.

So (a) save your money and invest it (at a presumably non-negative return at some point in the future). Net present value (today's value) is the future income stream less investment in tuition costs this year and every year that your kid doesn't go to private school.

....

And if you did that calculation, with proper discounting you would get the PV to be exactly equal to the amount of money that you are investing, unless you have access to proprietary investment opportunities that give you returns not available to other investors (actually, if you want to be a nerd at this point is starts getting quite techinical because it depends on how you discount etc etc.) But your general point that you can look at private school as in investment decision and compare it to other uses of your money makes good sense.

[Anonymous]

Anonymous wrote:

Anonymous wrote:No. The opportunity cost of one dollar today, even if you can invest if with a positive return is still $1 today. If you can invest the dollar at 10%, then the opportunity cost of one dollar today is also $1.10 in one year. But then you are mixing today's dollars with dollars you get in one year, a big no-no. If you did that every dollar today would be worth $1.10 today.

"Opportunity cost or economic opportunity loss is the value of the next best alternative foregone as the result of making a decision. ...A person who invests $10,000 in a stock denies themselves the interest they could have earned by leaving the $10,000 in a bank account instead. The opportunity cost of the decision to invest in stock is the value of the interest."
http://en.wikipedia.org/wiki/Opportunity_cost

Yes, but in equilibrium the stock and the bank interest will be priced so that the opportunituy cost of $1 in each investment is equal to the opportunity cost of consuming your marginal $1. So the marginal $1 you don't invest in order to pay tuition today is going to be worth to you the same as the $1 you spend on ice-cream.

[Anonymous]

Regarding the future percentage increases in tuition, if your school has been increasing at rate of 6 to 9 percent each year ... you should budget accordingly going forward. The schools costs actually go up in this kind of environment, not down, because the gap between what families can afford to pay using the SSS scholarship formula will tend to increase. Also, schools lucky enough to have endowments have seen their value go down just like everyone else's investments ... the endowments will not provide the same level of money to the school as in past years and will need to be rebuilt.

[Anonymous]

Wow, I posted 12:12 and worried that it might be a thread-killer. Instead at least two people have chimed in to elaborate on the point.

Personally, I'd value the return on $1 consumed today at something like the Treasury bond rate. I'd value the return on savings at something like a mixed portfolio of stocks and bonds, with the stocks (hopefully) earning a higher return because of the equity risk premium.

[Anonymous]

and back to the topic at hand, add on the cost of a bus if they have one and you need it, about 2-3K. and don't forget all the extra days off during the year (conferences, teacher learning days, not sure they have many in public if you're comparing). but you either need to hire a babysitter or take off work.

[Anonymous]

Anonymous wrote:Yes, but in equilibrium the stock and the bank interest will be priced so that the opportunituy cost of $1 in each investment is equal to the opportunity cost of consuming your marginal $1. So the marginal $1 you don't invest in order to pay tuition today is going to be worth to you the same as the $1 you spend on ice-cream.

Is this the same equilibrium that brought us the credit crisis?

[Anonymous]

Anonymous wrote:don't forget all the extra days off during the year (conferences, teacher learning days, not sure they have many in public if you're comparing).

Also, our school dismisses at 12:30 for the lower grades once a week. Sigh.