(Photo Credit: h.koppdelaney)
One of my good friends is 35, has a great job, two kids and a lovely wife. He was asking me why he felt like he made good money (over $150K plus bonus) but was running on a treadmill, unable to save much. I sat down with him and his wife to look over their finances and realized they were spending $2K/month for preschool. I asked one simple question: “Why?”
This is where it got heated.
His wife responded, “I know it costs a lot of money, but it’s worth it.” I’m convinced that this phrase was invented by Private School Boards BECAUSE IT’S SIMPLY NOT TRUE FOR EVERYONE. YOU ARE NOT GETTING A BETTER EDUCATION BECAUSE YOU’RE PAYING FOR IT. Here’s a good article by the Center on Education Policy showing that higher education costs don’t correlate to better student performance.
I asked what they thought about public school options, considering you can easily find many of them here. The underlying motivation emerged: “All our friends go to that school so that’s also our social circle. We do everything with them so leaving that would be really hard for us.” I understand friendships lead to happiness, but not if the cost is so great that it makes you resentful.
The first thing I did was run some numbers for them:
1) Total education-related costs: -$785K
- Spending $2K/month for K-12 education plus 5% inflation will cost them $675K.
- They over-extended into an $850K house for the local public school quality, which they were not taking advantage of.
- This decision will add 12 to 14 percent to housing costs, in their case $110K.
2) Investing the K-12 education costs over the same time period: +$969K(1)
3) Net cost to family: -$1.75 Million
- Cannot fully fund both kids’ college educations
- Cannot retire early
- Cannot do more as a family that brings them happiness
The result was telling. They hadn’t considered implications to their happiness and long-term goals, and it surfaced that they had differences in how long he should work. His wife said, “My parents sent me to Catholic school growing up and they somehow made it. My father still works at 75 and I’m sure you will too. I can’t imagine you not wanting to work.”
I could tell this didn’t sit well with him because it meant more years having to work, not working because he enjoyed it or loved the purpose it gave him. After a 30-minute back-and-forth discussion, this subject uncovered deeper stresses – ones that mounted due to differences in spending vs. saving.
I asked them what they were going to do for next steps and he replied, “I think we may have to talk some more.” I could hear Jack Johnson signing in the background, “it seems to me that maybe… it pretty much always means no… so don’t tell me, you might just let it go.”
After further conversations with other families, I realized there are a few reasons why sending children to private schools is appealing to so many:
- That’s how they were brought up and they turned out fine.
- They want to be friends with people who send their kids to that school.
- Society rewards them (just think about how people react – do they get impressed?).
- They don’t know how to select the right school, so they default to what their friends do.
- They have been ignoring the fact that THEY NEED A LOT OF MONEY IN ORDER TO PROVIDE COLLEGE EDUCATIONS, PAY FOR WEDDINGS, BUY A HOUSE, GO TO NICE PLACES, BUY NICE THINGS, AND RETIRE WITH DIGNITY… and incomes can hardly keep up.
Is This a Problem Worth Solving?
Raising happy and healthy children is every parent’s dream. I’m not saying that sending your kids to private school is a bad idea. I am saying that it is a HUGE decision and a lot of research should be done on your own values, the school choices and the financial implications. You can review a write-up of our recent seminar on school choice held in Denver: “How to Select the Right School for Your Children”.
Some questions to think about:
- Do you feel confident that your child is, or will be, going to the right school?
- Do you know how many more years you will work to support private costs?
- Is there friction in your marriage around these costs, and is it getting you down?
- Are there better uses of your money that would enhance your family’s happiness?
Understanding educational costs is not just an economic decision; it’s also an emotional one. Figuring out how to afford a lifestyle you want for your family is serious business and one that requires experience, thorough understanding and analysis.
Getting this decision right is going to have a huge impact on your children’s future – getting it wrong can hurt them, cause stress in your marriage and make you work many years longer.
Whether you call us for help, figure it out solo, or take your wealthy grandparents skydiving, I believe you can make the switch from passively hoping things turn out all right, to actively making sure they happen.
Note: (1) Assuming a conservative 7.4% return with appropriate investor behavior.
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Let us know what you think: how do you decide if something is “worth it”? Please leave your comments below.