[FOUNTAIN]Educational investments can pay off

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[FOUNTAIN]Educational investments can pay off

We often say spending on education is an investment. From an economic point of view, an investment aims to generate a profit in the future. If it is uncertain whether the investment decision would lead to a profit, it is better not to invest.
Investing in education is also a risky business. There is no guarantee that a kid who takes extra tutoring will get into a top school. It is hard for parents to have unbiased eyes for their children’s abilities. If parents spend loads of money for education but the kid fails to get into a good school, the earnings rate of the investment drastically falls.
A company would avoid making such investments. However, parents are different. They might invest more aggressively because of the uncertainty. So the demand for private education is always high.
Because of these characteristics, some argue that education cannot be considered an investment. Italian economist Alessandro Cigno, an expert in “family economics,” considers education not an investment but consumption. He created a quality-quantity model of education. The quality is the educational level of the kids and the quantity is the number of children. Within a limited budget, the parents determine the most satisfying combination of the quantity and the quality of education for their children. Some parents prefer providing better education for fewer children while others choose to have more kids even if they have to compromise on education.
When education can change the future of a child, the parents would choose quality over quantity. They would have fewer kids and concentrate the resources. In contrast, when there are other options to succeed other than studying, the spending on education per child would decrease and the parents can afford to have more kids.
The model suggests that parents can lavishly spend on education in order to show off. In some extreme cases, education could become consumption for the parents, not the kids. Parents could force the children to study hard and get into a top school in order to satisfy their vanity.
In this situation, it becomes hard to control the supply and demand of education according to market principles. That might be the reason why education cannot be treated like economy. The entangled educational chaos in Korea might originate from crooked consumption patterns.

by Nahm Yoon-ho

The writer is head of the family affairs team at the JoongAng Ilbo.
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