Private School Fees and Inflation

Another year, another hearty rise in private school fees (to a maximum of $22,000 p.a.) and a chorus of complaint as it is observed that the price hikes exceed inflation. Ditto health funds. A classic example of economic ignorance.

Inflation is the measure of average price increases, not a driver of price increases. Do you expect to pay 2% more now for the same computer you bought last year? No. All sorts of things drive prices up and down. In the case of school fees, it's almost certainly a matter of supply and demand. Increasing teachers' salaries (thank goodness) come into it, as do expanding executive staff, and of course new facilities, but basically, it's a matter of "we can get away with it".

Inflation is measured by tracking the price of "basket of goods" including basic foods and other necessities, but not health funds or school fees. Like many other things in economics, it sounds like a really crappy measure – more a thumb-suck – but it gets burrowed into people's heads as some kind of powerful force. I'm not saying it's not important; your savings will certainly be eaten up by the rising cost of living if you're not careful. But it's good to know what it actually is.

Further on the matter of private school fees, I read this week that teachers' salaries typically account for around 60% of such schools' expenditure, though the figure varies widely. This was a pleasant surprise. To the best of my knowledge, private school teachers are typically paid only slightly better than public school teachers. This means that the cash flowing into private schools is mostly going to a good cause, from a parent's point of view. The fine facilities on display at many private schools give the false impression of easy money. In my limited experience, such expenditure is enabled only by long-term money management and energetic fundraising.