Education Needs Analysis

Question 1

To determine how much a client should save on a current monthly basis, what is the three-step method breakdown that should be used?

Answer 1

Step 1: First year cost—Use the education inflation rate only.

Step 2: PV of total cost—Use both the inflation rate and the rate of return. This is an annuity due problem.

Step 3: Current cost to the client (how much they need to be saving)—Use the rate of return only.

Question 2

What are the three steps in the method to calculate education funding?

Answer 2

Step 1: Determine the cost of the first year of college.

Step 2: Determine the present value of the total cost of college the year the child begins school.

Step 3: Determine the necessary savings.