What it isn't
The Allabout Modeller ™ does not predict the future – if we could do that we wouldn’t need to work at all. It doesn’t predict future inflation rates or future school fees, nor can it predict future returns on savings. The Allabout Modeller ™ doesn’t know anything about you so cannot take into account your personal tax circumstances, therefore the savings rates used in calculations must be assumed to be net of tax. The Allabout Modeller ™ does not offer you any advice about when to start or stop saving (although one of the benefits of using it, is discovering how accessible private education can be if you start saving early enough). The Allabout Modeller ™ doesn’t offer you any advice about which savings products might meet your personal savings targets, nor does it recommend any bank or savings organisation.
What it is
The Allabout Modeller ™ uses compound interest calculations familiar to all of us to estimate the future cost of your child's (children’s) private education based on variables selected and input by you. The variables include the following:
Based on the above information the Allabout Modeller ™ computes an estimate of the total future cost of your child or children’s private education.
- Current age of child (children) today
- Your choice of school(s)
- Your choice of day, weekly boarding or full boarding
- Your choice of future cost inflation
But that's not all
Using iterative calculation process the Allabout Modeller ™ estimates how much you need to save each month based on the following variables selected and input by you:
To some the above might seem daunting – don't worry. The Allabout Modeller ™ takes you through the process of adding children and selecting schools for them in a highly intuitive way. Once these basic data elements have been established in your plan you can see the effect of flexing the variables (basically playing with them) on your savings requirement to your hearts content. Even if you are comfortable with interest, annuity and DCF calculations, why not make life easy for yourself and use the Allabout Modeller ™ anyway. We think you'll find it much easier than doing it yourself, and you might even have some fun with it.
- The date you plan to start saving
- The date you plan to finish saving
- Expected average return on savings
- Savings holidays
- Lump sums
The on screen demo
The on-screen demo takes you through the process step by step. The "Your children" tab shows the results of adding children. Click on the "Proceed to schools" button (or on the "Schools" tab), and you'll see more step-by-step instructions, and examples of school selections made for the children added in the previous tab.
Click on the "Proceed to review plan" button (or on the "Review plan" tab) and you'll find some helpful explanation of what you are looking at under the orange "What's here?" link.
Click on the "View all years" drop down to see the cash flows for a specific period displayed on the graph and in the table.
Click on the "My budget" orange link and you'll see the input box for putting your own budget in (not live in the demo though).
Click on the orange "Change rates and dates" link to see the input fields for changing start and end dates and manipulating either inflation rates or your return on savings (also not live in the demo).
At the top right of the page, click on the orange "View a detailed report" and you can see an example of the full year-by-year breakdown of the plan. The detailed plan can be printed off, but subscribers can also email detailed plans to themselves for filing, review and printing at their leisure.
Click on the "Lump sums" tab to see the help information (under the orange "What to do" link) and to see an example of a lump sum already input.
Click on the "Savings holidays" tab to see the help information (under the orange "What to do" Link), and see an example of a savings holiday already input.
And that's about it. As you can see the tool is very powerful, provides extremely useful information, and makes modelling your education plan not only easy but also fun (at least, we think so).
What does it cost?
Registration for one year costs just £36.00. Renewing the subscription after a year costs only £18.00.
What do I get?
You get unrestricted access to the model for up to 5 children for 5 separate plans using up to 20 schools per plan for one year. Once children and schools have been selected, you can change inflation rates, saving plan start dates, saving plan end dates, savings holidays, savings rates and lump sums to your heart's content.
How does it work?
At the heart of the Allabout Modeller ™ is a database covering practically every independent school in the UK. The database includes key information about each school, most particularly, the fees chargeable for each academic year. With the age of the child known and schools selected, the software calculates when the child's education will start and finish, and calculates when each term's fee payment will be made. Using this information, each future fee payment is adjusted for the effect of inflation using the inflation assumption you chose, and the number of years in the future that it occurs.
The formula is:
Inflation-adjusted fee amount = Current Fees(1 + R) N , where:
Current fees, is latest school fees available in the database
R is the rate of inflation chosen by you
N is the whole number of years counting from the date the latest fees were published by the school to the date of the first term's payment
The inflation-adjusted fees are then summed and presented to you in a table and a graph. If a plan includes school selections for more than one child, the Allabout Modeller ™ adds the inflation-adjusted fees for the two children together to arrive at a consolidated future inflation-adjusted cost for all the children in the plan. To calculate the monthly savings requirement the Allabout Modeller ™ starts with a (very large) notional monthly savings amount, and using the annual savings rate chosen by you, calculates the total amount saved at the end of each month, starting with the month chosen by you, and ending with the month chosen by you. The purpose of the plan is to set the monthly savings amount so that when the final term's school fees are paid, all money saved will have been utilised, and nothing will be left. If the first monthly saving amount selected by the system leaves a positive balance at the end of the plan, the system reduces the savings amount by £50.00, and repeats that above process. This process is repeated until the monthly savings amount results in a residual balance in the plan less than £1. This may seem like a tortuous process but due to the wonders of modern computing power this calculation takes only seconds.
Lump sums input to plans or withdrawn from plans are effectively treated as one off savings or non-school fee disbursements, and adjusted for their impact on savings according to how far in the future they occur. Lump sums and withdrawals have a bigger impact on the savings requirement the earlier in the schedule they occur, due to the compounding effect of the interest.
Savings holidays are periods when you choose not to save. The start date of the savings holiday and the end date will be determined by you. The system will recalculate the monthly savings requirement on the basis that no savings will take place between the dates you have selected. Obviously, the more savings holidays you choose, the longer they are, and the nearer they are to the beginning of the plan the greater the effect they will have on the monthly savings requirement (ie the bigger it will become). Positive and negative lump sums, and savings holidays can be input and deleted as many times as you like during any subscription year. You can also flex the start and end dates of the plan, the savings rate and the inflation rate as many times as you like during a subscription year. This means you can try an almost unlimited range of combinations to see what effect they have on your savings requirement.
Lump sum deposits made toward the end of a savings plan can have the effect of generating negative balances at specific points during the schedule, even though the savings plan overall will cover the total fees. The Allabout Modeller ™ detects when a plan includes negative month end balances at any time during its span, and prepares a further calculation called the "Covered Model". The "Covered Model" calculates the minimum monthly savings amount that would be required to settle all fee payments without ever having a negative month end balance. The covered model generally results in a balance remaining in the plan after the final term's school fees have been paid.
The Allabout Modeller ™ operates according to the following assumptions:
- Inflation rates do not vary during the life of the savings plan.
- Savings rates do not vary during the life of the savings plan.
- School fees are paid on the first of the month, in September, January and May each
- Savings deposits are made on the first day of each month (assuming there is no savings
- Lump sum deposits or withdrawals are made on the first day of the month.
- Interest on the prior month's savings balance is added on the first day of the following
- Interest on negative savings balances is charged at the savings rate (not entirely
realistic but close enough for planning purposes – we might consider introducing
separate overdraft interest rates for a later release).