In early 1986, shortly before I left South Africa for the US, someone close to me invested R75 per month in an endowment policy set to mature after 25 years. Since then, every year, premiums increased by 10 percent to compensate for inflation. This year, that policy matured, and paid out around R118 000.
Is that good?
Assuming she had taken the same investment over the same 25 year period and simply stuffed it into a mattress, in other words, not earning any investment income, she would have accumulated R88 512. So a R30 000 increase after 25 years is almost a 33 percent return.
Now let’s do another exercise. Fees for a first year BSc or BCom or LLB student at Wits University in 2012 will be around R32 ∫000 per year for tuition. If the student lives in residence, add about R28 000 to the bill. That’s R60 000 per year. With academic costs increasing by 10 percent per year, a basic three year degree will cost around R200 000.
Is that good?
If you’re reading these words right now, you are probably South African born and bred, and probably what the apartheid government called Indian, and what the current ANC government calls Indian. Now there are a lot of stereotypes about us. Here’s one of mine: we as a group invest significantly higher amounts of our income in our children’s education than any other population group in this country.
It’s just over 30 years since I wrote my first piece for Post, after having been taught the basics of journalism by then News Editor, Farook Khan. I’ve called this column “View from the top” because there are lessons one learns during that journey from being an upstart reporter to my current position heading up a successful subsidiary of a JSE-listed empowerment behemoth. And one of those lessons is asking that question, over and over again. “Is that good?”
The answer is, nearly always, “it depends”.
In 1986, my salary as a senior journalist with the then Argus Company was around R800 per month. An investment of R75 per month on my part would have translated to more than ten percent of my after tax salary. If I had been the one paying that endowment policy for 25 years, I would have ended up with a good return on my money, but not enough to buy a home, or even a “good” car.
If I had instead taken the same money and invested in selected JSE stocks, I would now be looking at retiring, independently wealthy.
This is something our parents didn’t teach us because they did not know better. They did tell us to become doctors or lawyers or accountants or teachers because those are the safe choices of minorities around the world — study hard, get a steady job, raise your children to study hard, get a steady job…
What is the return on investment on R200 000 sending your child to university?
If the degree is a BA, probably zero unless there is further study followed by a career in academia. If the degree is an LLB, it will depend on whether you can be hard and focussed (in which case you can end up commanding salaries of R50 000 per day), otherwise you end up a wage slave as a prosecutor or working for an NGO. Pharmacist or optometrist? Wage slave at Clicks or SpecSavers.
I’m increasingly of the view that our obsession with university degrees does not make sense. I know of too many intelligent graduates who work 12 hour days and will need to continue doing so with no hope of retiring.
Is that good?
We’re Africa’s most educated, but not very clever. That needs to change.