Beyond the very real human suffering caused by Putin’s war on Ukraine, the worldwide economic shock this has triggered will affect many more millions of people.
While independent schools and their fee-paying families are often sheltered from the worst impacts of economic downturns, this is not the case for our wider communities. This is a moment to pause and reflect on the financial implications of the coming economic turmoil for your school.
The International Monetary Fund (IMF) describes how the impact of the war will flow through three main channels: high inflation, disrupted trade and investor uncertainty. Here we’ll explore how each of these will impact independent schools and how you can prepare for the coming economic downturn.
Inflation is now at 6.2 per cent in the UK, a thirty-year high, and at 7.9 per cent in the US, a forty-year high, and forecasts predict this is going to get worse before it gets better in all global economies. The driving force is increasing energy, food and other commodity prices, all impacted by sanctions on Russia and the devastation on food production and rare-earth metal extraction in Ukraine.
This will impact schools in two ways. Firstly, their running costs will increase, requiring careful cost management. Given many schools were already focused on this during the pandemic it may be time to get more creative. For example, thinking about how you can involve your staff and pupils in behaviour changes which reduces energy usage. As well as reconsidering any available options for renewable energy production on school sites.
“It is essential that schools understand to what extent parents are feeling stretched by fee affordability.”
Secondly, fast-rising prices negatively impact the cost of living for families, which will affect fee affordability for some current and prospective parents. Until now, this has had a limited effect on affluent families paying full school fees, but this may change as we all feel the impact of price rises more.
It is essential that schools understand to what extent their current and potential parents are feeling stretched by fee affordability, including those receiving partial bursaries. Where families are feeling stretched, further cost of living rises will likely impact pupil recruitment and retention. Strategic conversations will then be needed to consider fee minimisation or, where this has already been done, to consider whether changes to the school’s brand positioning in the marketplace might attract families less impacted by fee affordability concerns.
The IMF anticipates acute disruption to trade and supply chains for any business operating in Ukraine, Russia, the Caucasus and Central Asia, with the knock-on impact of suppressed economic growth and business confidence in these regions. From an independent school perspective, this will impact pupil recruitment from these regions.
Any school reliant on pupil recruitment in these regions should be urgently diversifying into new international recruitment markets. In addition, while due diligence on fee acceptance and donations has always been important, this will now become an imperative for reputation protection.
While UK and US investors have historically not heavily bought Russian assets, uncertainty is rarely a good thing in investment markets. Schools with endowments will see more uncertainty and fluctuation in their returns over the coming months, so schools reliant on this income stream should be in close contact with their investment advisors to anticipate the impact.
Uncertainty in investment markets can also impact confidence levels amongst potential major donors. It is, therefore, critical that school fundraisers continue to actively cultivate and steward prospects to better understand their individual outlook and priorities.
“Uncertainty in investment markets can also impact confidence levels amongst potential major donors.”
We saw some major donors respond very generously to the enhanced need for bursary support during the Covid pandemic. Since signs point to this economic crisis also being felt hardest by those most disadvantaged in our society, we may see similar generosity during this economic downturn. This is not a time to shy away from fundraising, assuming you have a compelling vision for the positive impact your fundraising project will have on people.
Preparing for an economic downturn
The key message for school leaders and governors is to fight any complacency and prepare for the coming economic downturn. Make a full assessment of the potential impact on each of your income streams and your costs, and then take focused, strategic action to minimise the risk of significant impact. Get a head start and download this checklist to help you prepare for the choppy waters ahead.