The High Cost of Education in China [ 5 min read ]

In 2021, China’s government banned the multi-billion-dollar private tutoring industry, ostensibly to reduce education costs for families. Despite the attention these policy changes have received, little is known about how much families actually spend on education in China. Researchers used a nationally representative dataset to quantify household education expenditures across China, assess what proportion of household income goes to education, and explore how the financial burdens of education vary across different income levels.  

The data. Researchers employ data from the longitudinal China Family Panel Studies survey conducted by the Institute of Social Science Survey at Peking University in 2010, 2012, 2014, 2016, and 2018, that includes detailed information on household income and expenditures. They then constructed a nationally representative sample consisting of 23,786 households with 30,953 children aged 25 or younger who are currently attending school, and their parents.  

Researchers then isolated education expenses from other household expenses and divided them into three categories: in-school expenses (e.g., tuition, school fees, books, and food), extra-curricular activities and tutoring expenses (e.g., arts, sports, and academic-related activities), and other education-related expenses (e.g., transportation, software, and stationery). Finally, they explored the relationship between education expenses and household income. 

 Percent of household expenditure spent on education by country

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Highest household education expenditures in the world. The researchers find that families average RMB 8,464 (USD 1,207) per year in education expenditures, which accounts for 17.1% of their annual income. Education expenditures increase with the number of children within the household regardless of the child’s gender, indicating that larger families allocate more resources to education. Urban families spend 14.8% more of their income on their child’s education than rural families.    

China’s families spend 7.9% of  their total annual household expenditures on education, surpassing any other country. Japan, Mexico, and the U.S., for example, typically allocate 1–2% of household expenditures toward education. While Korea’s share of 5.3% ranks second, it still falls significantly short of China’s share.

In-school expenses constitute majority of expenditures. In contrast to the focus on the private tutoring ban, only 12% of households’ education expenditures is dedicated to extra-curricular activities and tutoring, while 73% is allocated to in-school expenses. The total education expenditure also increases as children advance in their education, ranging from RMB 3,594 in preschool or primary school to RMB 20,192 in regular college or higher education. As students get older, a larger proportion of expenses are attributed to in-school costs, while a smaller proportion is allocated to extra-curricular activities and tutoring. The first 9 years of students’ education is compulsory, so earlier in-school expenses are more likely to be covered by government funding. Families of school-aged children in their compulsory education years are thus more likely to put a larger proportion of education expenditures toward extra-curricular activities and tutoring to prepare their children for the more advanced stages of education, like high school and college, where enrollment opportunities are limited.  

The burden of education expenses is highest for poorer families. Lower-income households allocate a larger proportion of their income toward their children’s education, despite spending less in absolute terms. This is partially due to the significant income disparity across sampled families: the highest-earning quartile of individuals made 13.6 times the income of those in the bottom quartile. Families in the highest quartile of earners allocate 10.6% of their income to their child’s education, while families in the bottom quartile spend a significantly larger proportion of their income on education at 56.8%.    

Percent of household income spent on education in China 

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China’s families treat education as a necessity. Researchers next estimated the income elasticity of education expenditure in China to be 0.306 (i.e., for every 1% rise in income, families spend only 0.306% more on education). This low elasticity suggests that education expenditure is a priority for families in China regardless of their income level, because (like groceries) people will buy education regardless of changes in income and not comparably more is consumed when income increases.  

The level of elasticity for education in China is similar only to India’s (0.28) and is significantly lower than that of other countries. In the U.S., the income elasticity for education ranges from 1.63 to 1.88, while in Latin American countries, it ranges from 0.80 to 3.90. Such ranges indicate that in these countries, private expenditure on education is more commonly seen as a luxury good. Households in the lowest quartile of China’s earners exhibit an elasticity of 0.09, indicating that education is an absolute necessity for them. 

Education expenses a burden for China’s families. Taken together, these findings highlight the significant challenges that households in China face regarding education, particularly those with lower incomes. The researchers attribute the substantial private expenditure on education in China to an insufficient supply of high-quality educational opportunities coupled with a high demand for such education. The intense competition for better educational prospects associated with social mobility and economic opportunity has compelled Chinese families to allocate an outsized portion of their budgets to education to prepare their children for the fierce competition in the education market. The researchers point out that such expenses not only exacerbate inequality by disproportionately burdening lower-income families, but also lead to increased living costs, declining fertility rates, and low consumption, which could potentially hamper China’s future growth.