Tuesday, February 01, 2005

The CAP brouhaha

I know this was going to happen. That's why I never got an educational plan for my children. One is now in college. Imagine my heartaches had I obtained a CAP plan for her.

When my eldest was born in 1987 I was immediately approached by well-meaning friends, who were moonlighting as CAP counsellors, to get a plan for her. But my mind was already made up then that I would have nothing to do with anything that smacks of pyramiding. For that is what all educational plans are.

Ponzi schemes, they call them in economics. The first enrollee gets paid out of the payment of the succeeding ones. Time comes when the pyramid's base stops expanding. Perhaps because competition has appeared on the scene. So instead of a pyramid the leading company has begun to look like the Empire State building; growing taller and taller until it topples over.

Educational plan companies usually claim that they can pay matured plans out of profits from their investments. This is pure hogwash.

There is no investment that would earn 25% profit. But that is what a plan holder would appear to earn if he compares his premium payments to the company and what the company pays to the school.

Bovine dropping, as Hilarion Henares would say. So kiss your money goodbye, my friends.