r/Internationalteachers • u/Automatic_Extent2855 • 15h ago
Benefits/Packages Financial literacy amongst International teachers: How much is a 'good' amount of savings?
I browse this forum but rarely post, however I wanted to make a comment on something that I feel is overlooked by many colleagues. I don’t believe many colleagues are making sound financial choices based on true comparisons. I am a UK trained teacher, currently teaching in China with no dependents. I will use specific examples below to illustrate my general point, but I believe these same issues apply regardless of where you qualified or currently teach and I would encourage you to investigate and find the correct comparison figures for your own situation. This post became longer than I wanted; If numbers, or the length, make you glaze over, I have highlighted the key statements in bold throughout the post so you could just read those.
To start, lets look at my current financial position. I work in China and earn 46,000 RMB per month (excluding housing, flight and medical allowances) as a subject teacher only. Many on this forum will tell you that this is towards the higher end of the market, although I am aware of a handful of schools that pay more. Post tax, this is 37,000 RMB per month, in my account. I am not an extravagant spender, but I do eat out regularly. My monthly food, utilities and essentials spending probably comes to about 7000 RMB per month. I pay for my travel out of UK funds and would estimate I spend about £10,000 per year on travel. That’s not simply travel around China, or holidays, but also includes going back to see friends & family in my home country and paying for accommodation etc when I am there.
So, all in, this gives 30,000 * 12 = 360,000 RMB = £40,000. Subtract the 10k and this gives an annual savings figure of £30,000 GBP in China. Sounds great? Ok, let’s compare it to teaching in my home country, the UK.
The highest standard point in the UK for a teacher with no responsibilities is £51,048 (outside London). Post tax, this gives a net monthly income of £3023. Now, I’m not going to break down monthly living expenses here, I am just going to assume you spend the entirety of that sum on living. So, is there zero saving potential? Well, this is where I think the usual analysis on this subreddit goes awry… It is hard to reduce the subsequent analysis to a single number, but what I would instead focus on is the range of possible answers we are getting.
Firstly, that tax deduction I made earlier already included 9.9% of pension contributions that UK teachers make from their (pre-tax) salary. At a deduction of £421 per month, this comes to £5,000 per year. Additionally, your employer will contribute 28.68% of your (pre-tax) salary as pension contributions. This would be £14,640. I know many may quibble with this, but the reason you save money as an international teacher is to provide for your retirement, so I think it is reasonable to compare pension savings in this way. Combined, these would give contributions, or savings, of approximately £19,640 per year.
However, this undersells the actual value of the teachers pension scheme in the UK. Pension accrues at 1/57th of yearly income, so the salary indicated gives a yearly pension of £895. This is government backed, inflation linked and provides additional benefits. I undertook a cursory search and found annuity rates for inflation linked pension pots of 3.5% – 3.8%, which would mean this £895/yr pension benefit would be worth just under £25,000 on the open market. I think that is somewhat underselling the real value of the defined benefit pension scheme, but this is enough to make my point.
Further, the post tax salary included NI deductions of just over £250 per month, or £3,000 per year of ‘savings.’ This ‘buys’ the right to a UK pension, with a value of £12,500 per annum, after 35 years of contributions. This is again inflation linked and government backed. With an annuity rate of 3.8%, which was the highest current market rate I found, it would equate to a pension pot of £330,000, which for 35 years of contributions would require approximately £9400 per year. The present net value needed to build this pension pot, if invested over a working career, would be somewhere between the two values of £3k and £9.4k. Now, state pension analysis is tricky for a whole host of reasons, not least is the fact that NI is not strictly a pension ‘pot,’ plus the government’s own projections indicate the current pension system will run out of cash in the early 2030’s. However, I don’t believe that a civilized society can exist by reneging on its pension promises to previous generations, so I think they will have to exist into the future, even in a modified form (for example, means testing). Its also fair to point out that assets gained from investments would be passed on in the event of your death, whereas not all of accrued pension would be, which would reduce some of the values below.
To summarise, our lower bound of NI + employee + employer contributions comes to £23,000 per annum. The upper bound, considering current open market rates, gives a figure of nearly £35,000 per year. I haven’t even added in the ‘savings’ you would be accruing each year if you owned a house in your home country and were paying off a mortgage, or the possibility to save out of your salary, or the fact that the UK system doesn’t require you to manage any money or take on liability personally. Thus, the savings potential per year of teaching in the UK, even if you were to spend 100% of your post tax salary each month, probably lies in the £30,000 region just from pensions alone.
Why did I make this post?
I saw a post recently discussing salaries in the ME, with many commenting that salaries have not gone up over the last decade or so, or in line with an increasing CoL. Many comments were complaining about salaries without being explicit about the need for why these salaries were ‘low.’ I saw this comment which piqued my interest:
“If you’re making 16k AED with private health insurance, annual flights and accommodation then I’m not sure where you’d get a similar package in the UK.”
16k AED is £3200 per month. My understanding is that the CoL in the ME is higher than China so I’m going to assume one might be reasonably saving £2,000 per month from that salary, or £24,000 per year. As I have shown above, I believe that this is (probably) less real annual savings than a standard teaching post, in any standard UK state school.
My opinion is that a combination of for-profit chain schools and poor working conditions in home countries have driven down salaries of international teachers. However, I wanted to make this thread because I think it is important to counter the general financial illiteracy I see in many colleagues when considering salary offers. I am not saying that teaching internationally can not be a sound financial decision. For example, a person may go abroad to gain experience of teaching high ability students which might be harder to come by in a run of the mill state school which pays dividends later on. One could see genuine reasons as to why the present value of capital would exceed the future value of capital, for example if you wish to build up a house deposit in your twenties. And I think you can argue that teaching internationally offers other advantages beyond the financial; it represents a great opportunity to travel and see the world or immerse yourself in a culture you are interested in. For example, if you loved Latin America, then rather than taking 6 months off to travel there, you can do a contract or two and travel whilst maintaining your career. I knew a married colleague who came to international teaching because he and his wife wanted one of them to raise their children in their early years rather than trust childcare, and they could do this with one of them teaching internationally.
But both the ME and China examples I have used in this thread come from the higher end of the market. Move the monthly numbers down to mid-market values of 12k AED or say 32k RMB gross, and your yearly savings start to look more like £10k-£14k per year. I think that many would consider $15k USD a reasonable amount of savings per year, but it is approximately half of the value you ‘save’ every year without even realising it in the UK. It might be enough; I don’t know the pension contribution rates, the CoL and other factors in your home country. But I think it is important to be aware of what you might be giving up in your home country and make accurate comparisons to make better financial choices for your future.
Standard disclaimer: There are a lot of factors I could not include here for the sake of brevity, although some have been hinted at. You can augment values provided appropriately as personal circumstances will always be unique.