Intangibility of education and finance

We are in the middle of the results season— for schools and colleges— and I am pretty intrigued by the gravity defying marks scored by the toppers. I never featured anywhere close to those high marks and I always felt that those in that league really don’t know what they are missing out by being up there! On a lighter note, parents do some serious amount of groundwork to locate the best schools in the city and then do everything possible to get their kids admitted into them. If not the best, one of the best is the phrase you hear from those who could not manage the best of colleges.

In a lot of ways, education and financial products are similar—they are both intangible to start with. Financial products are mostly issued and sold with the purpose of being held at the expectation of income generation. Education, on the other hand, is imparted with the hope that the student will learn to one day be financially independent and self sufficient. When it comes to education, parents will not flinch to spend to get the best for their child, and there is nothing wrong with it given the emotional quotient.

I wonder why no parent ever seriously thinks about questioning the school or college on why their child did not score as well as the topper, despite both being exposed to the same teachers, curriculum and even the same books? Yet, when it comes to the second best performing fund, which, say, earns 0.01 per cent less than the best performer, an investor will give his piece of mind to the poor advisor or agent who sold the fund to him. It is a different matter that the advisor plays no role that may augment the fund’s performance. The same holds good for insurance policies, stocks or any other kind of investment.

Parents pay through their nose on education, sometimes to the extent of even borrowing from relatives or taking loan for it. No questions asked on the fees or any other costs that may be levied on them in the name of education. Rarely have I come across anyone mention return on education investment or getting a desired outcome with education. My intention is not to deride the education system, but to drive home the point that the benefits of financial instruments are no different—the outcomes may not always be what you desire.

Seasoned investors will agree that instead of getting too much into the cost structures of a financial instrument, the focus should be more towards how close the performance of the instrument is to your desired outcome. By analysing the details of what your agent gets paid or how much the CEO of a company gets paid, you are more likely to defer consuming financial products or worse, try doing it on your own, which you may not necessarily always be competent with. Think of the success rate of self studying students over those who have undergone formal education and you will have your answer.

nk@outlookindia.com