From the category archives:

kids & money

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If you are so concerned with the value (in dollars) of a secondary education for your child as to write a blog post about how private schools are not worth how much they cost, then you should send your children to a trade school and be done with it. Because a university education is not meant for people who assess value this way, and there are more expedient and efficient methods of getting your kids a good job than sending them into a four-year university.

Whenever the question of kids’ college educations comes up in the frugalosphere, there seems to be a general consensus that you should be seeing a high return on investment, in dollars, for how much you spend to send your kids to school. This is usually touted as a dollar amount added to the kids’ salary over the course of his or her post-college career. Because of this, the argument is often made that kids should never be sent to private school, when state schools are cheaper and just as valuable. I am a fan of many state school systems, so my beef is not with the championing of these programs, what troubles me about these kinds of arguments, both as a former university instructor and the graduate of a private undergraduate institution, is that they are based upon two fundamental fallacies about university educations: 1) that a university education can be valued strictly in terms of dollars returned on investment; and 2) that the distinction is to be made between all public and all private institutions, rather than evaluating on a school-by-school basis. The pontificating based on these two misconceptions is at the root of what I think is the most egregious problem with American higher education today: the overpopulation of universities and the demise of well-established trade schools.

First, The University Education Is Not a Commodity, Strictly Speaking

To fairly value a university education, you have to look at it in its historical context: the university was originally created to house public intellectuals and academics and to educate a landed class of aristocrats who did not need to worry about income. Though the purpose of the university education has evolved over years and across continents, vestiges of that original purpose of a “gentlemanly education” still exist in its methods and practices. This is why you are expected to take courses in fine arts and literature, even if there does not appear to be an immediate practical, monetary application to this kind of curriculum. In short, there was thought to be a value in encouraging a general intellectualism in the landed class — a value in the concept of a “gentlemanly education” that would produce more well-rounded and responsible citizens. That is the university’s heritage, and it is what it does, still, to this day.

And whether you agree with the concept of paying for a “gentlemanly education” — roughly, an education in broad strokes across a huge range of subjects so as to produce a generally “educated” or culturally literate citizen — that is what the university is designed to do. When you send your child to a university, you are implicitly placing your trust in the university to instill in them the values of this gentlemanly education as it exists today, which is chiefly to teach students how to think critically and to give them a broad base in cultural productions across a variety of subjects. Not all of these topics have a specific application or a likely monetary value. They operate on a completely different type of value system, one which you are free to accept or reject as any other consumer.

People might argue that the concept of a gentlemanly education is outdated, elitist, and ultimately of no use. There are viable arguments to be made here, but it’s not my purpose today to fight that particular fight. What I want to talk about today is that the valuation of education in dollar terms is at the root of the problems I saw first hand in my experience teaching at the university level: viz., that students have been taught to view their education in terms of dollars returned to them, and as such are not getting out of their education what it is designed to do. This kind of thinking that leads one to determine how much each course is costing in dollars and to value a grade over the mastery of the content of a course might make sense if you went to the university to learn a skill, or to apprentice in a trade.

What has happened with the university system as it exists in America today is that there are, quite simply, too many students enrolled. Students have been told that the way to get ahead in life is to go to college, and that is not an accurate portrait of what college offers you. In fact, if your goal is monetary gain, there are far more expeditious and efficient routes to your goal than going to a university. If you doubt this, think of it this way: if your goal is to teach your children how to make money in the workforce, is a bunch of academics the right group to send them to? People who fight tooth and nail for positions that pay at best $60,000 a year? Now who is the dumb one here?

Second, If You’re Going To Say It’s a Commodity, Then Why Not Go All-Out With The Metaphor?

It is my contention that this large-scale educational problem starts begins with the kind of thinking that I see demonstrated in a guest post by Neal Frankel of Wealth Pilgrim on Five Cent Nickel (and then followed up by Nickel with a post regarding the lowest-paying college majors). This post concludes that a “fancy college degree” isn’t “worth it” in terms of the money expended for the amount of value achieved in the form of increased salary in the workplace. Not only does it fail to discuss other forms of value that are gleaned from a university education — it has a confusion in terms because the examples cited of “fancy schools” are hardly what I would consider “fancy” personally. Now if what you mean is “private,” or “expensive,” then I’m sure that these schools do qualify under those headings, but “private” or “expensive” is not the same thing as being ranked the highest or considered the best in any given field. And if you start with that kind of misconception, then it leads to others, like the idea that paying for a private education is never “worth it,” whether your value scale is based upon purely monetary terms or a different system of value.

In short, if we’re going to view universities as commodities, let’s really go all out and view them as commodities. This argument reads like you’re saying it’s never worth it to buy a $1500 suit because one time you saw a poorly made, ugly one by Dolce & Gabbana. Which, yeah, OK, maybe that suit isn’t worth the price they were asking. But what about this well-made Hickey Freeman that will last over a decade? Is it never worth it to buy a suit like that, under any circumstances? What if your job is such that people will judge you on what kind of suit you wear? Do you still insist that the cheaper version is better?

The thing about education is that if you are going to view it like a commodity, then view it like any other commodity. It might not be worth it to pay a lot more for a similar product, but if the product is far superior and more expensive, maybe it is worth it. Are there different opportunities offered by elite colleges? And by “elite” I mean, really elite, not just private or expensive. Are there connections that can be made at a school like one of the Ivies that cannot be made as easily at even a very good state school? Will the class size result in a better education for your child? Is your child the type to go seek out extra attention from an instructor? Because if he or she goes to a state school, they will be exposed to an excellent teaching staff, but they may have to do more to get the attention of that staff. How well will your child deal with that? Is it worth it to pay more to make this process easier? These are the kinds of questions you should be asking, not whether or not it’s OK to pay for a private education or not.

I cannot help but wonder if these periodic discussions about how kids can “just go to state school” are being made to make people feel better about the opportunities they are giving their children. Here’s a news flash: you are under no obligation to provide for your kids’ educations. If it bothers you so much, then don’t do it. But if you’re going to do it, then do the best you can — and this includes looking at each school and all the forms of value it offers to your child — rather than just making simplistic arguments about the amount of money it is likely to translate into in terms of salary or a return on your investment.

Photo by shadowtree

Photo by shadowtree

I base my parenting mostly on research, rather than gut response or intuition. Whenever Mini starts doing something new, or if he is about to hit a new stage of development, I crack open my MacBook and start googling to figure out how to handle it. (Oh who am I kidding? The MacBook is pretty much always open anyway. But I do start centering my searches on topics pertaining to Mini, rather than things like “how much does Dooce make,” “clever borders CSS,” or “is it possible to gain 18 pounds in one week?”) My theory is that through comparing and contrasting eight hundred thousand different theories on parenting, I will somehow arrive at the perfect recipe for creating a wonderfully well-adjusted and happy childhood. So far, this method has served me reasonably well. Now that Mini is 2, I wasn’t sure about when and how to start teaching him about work and money, so I decided to stat putting together a list of resources for teaching kids about money. The following are a compilation of resources, but I haven’t tried any of them yet and cannot endorse. Where appropriate, I’ve included the source so you can choose to experiment or disregard as it suits you.

  1. Get Rich Slowly recently had a post with recommendations for various genres of personal finance reading. Among the suggestions for books about kids and money are: Living Simply with Children by Marie Sherlock, Growing Money: A Complete Investing Guide for Kids by Gail Karlitz, and What Color is Your Piggy Bank by Adelia Cellini Linecker. All three of these books seem to be geared towards older kids, though, since they concern learning how to manage money and/or making decisions about money, rather than introducing the whole system to a kid. But these do seem like interesting books to check out for the future.
  2. Simplemom has created a downloadable chore chart for preschoolers to help them understand helping out around the house. The post outlines how the money the preschooler earns is divvied up, including three jars: one for giving, one for saving, and one for spending (influenced, no doubt, by Dave Ramsey’s recommendations). Simplemom supplements her discussion of chores with an introduction to toddler money training here, and it seems like a sane system. Since we are agnostic, we would not be asking Mini to pay tithes or anything like that with a portion saved for giving, but one way to do this for us would be to have that be the kitty out of which he buys presents for people while he’s young, and later on, causes that he believes in. I’m still working on this formulation.
  3. Source: CNN Money

    Source: CNN Money

    CNN Money in its article about “How to Unspoil Your Kids,” offers a chart with recommendations about when to introduce different financial concepts to your children. According to Jon and Eileen Gallo, authors of The Financially Intelligent Parent, you should start giving chores and allowance in the ages 5-9, as well as introduce the concept of charity. This seems like it’s a little late to me: maybe toddlers won’t totally get the concept of saving and everything, but if they’re trained from age two to put money in a savings jar, that cannot be bad, right? Frugal Dad, on whose recommendation I reviewed the article, offers his insight here. His spin on the Gallo’s recommendation is insightful and is definitely worth a look.
  4. Dave Ramsey introduced a line of personal finance products for children several years ago called Life Lessons With Junior. A sample story is available on his website, and there are also interactive games available on the Junior’s Clubhouse section of the website. I like the fact that there are picture books with stories that model budgeting in terms that kids can understand. I am a little hesitant about the series as a whole because I’m not sure how heavily–if at all–Christianity comes into play in the stories. But the money part seems good so far.
  5. The Frugal Duchess segment on “How to Unspoil Your Kids” was featured on ABC News, but you can watch a recap on WiseBread.
  6. A whole line of products designed to teach kids about money is available at TeachingKidsMoney.com, including a storybook (Mama Money & The Three Little Pigs), a piggy bank, an allowance chart, and other assorted products. Read Frugal Dad’s review of the program here; though it is not clear that Frugal Dad was directly paid for his review, he states that he was provided with a free kit from TeachingKidsMoney.com, so you can let that influence you or not as you look over his comments. [Edit: As Frugal Dad indicates below, he was not paid for his review, and though he did receive free materials he was also instructed to give an honest review by the manufacturers. Sound like it might just be as awesome as he states!]

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Photo by CFSparta

Hi Anna,

I love your financial advice/information, so I came up with a question for you–and no surprise, it’s baby related! If you feel so inclined to share your wisdom…

We’re starting to look into the idea of a 529 [education savings account] for the little one–something I believe you’ve got Mini hooked up with?–but we both keep questioning whether now is a good time to START an investment such as the 529, given the uncertainty in the market.

Basically, the question for me comes down to should we start a 529 and hope that time balances out the current market, or should we put the same money into a savings account until some later date (at which point we would probably start the 529).

Thoughts from the financial whiz?

. . . And here’s my response:

Thanks for the question, I will try to answer it in more detail on the blog, after doing some research about what other people think, but the short answer is, yes, I do think it’s a good time, and I’ll tell you why we continue to invest every month for Mini:

Mini has 16 years until college, and your baby has over 18. That’s a long time for the stock market to recover, and in most cases the stock market goes up over that amount of time. The market will be volatile for a long while, but if you invest in stuff that’s reasonably diverse, I still think you’ll end up way ahead over the course of 18 years. If you put money in a savings account, it will not even keep up with the inflation rate, and if you then decide to put money in the market in a few years, the chances are that prices will have gone up and you’ll be buying less shares in mutual funds for more money. Plus, you won’t have as many years to “buffer” yourself from market fluctuations.

Mini’s 529 has lost money (on paper) in line with the market. It sucks, but I don’t really check the statements very often, because unless it goes down like 50% or something totally out of sync, I know it’s just the crappy state of the market. We continue to invest every month, though we might start breaking it up over a weekly basis, just to dollar cost average as much as possible.

+++++++++++++++

After looking around the web for more information, I’ve determined that whether or not you choose to use the 529 right now has a lot to do with how much time you have before your child is due to start college. So for young kids and unborn babies, I think the 529 is still a good option, even if the market is volatile for many years to come. [Insert disclaimer here about how you are taking financial advice from somebody who has a PhD in English literature, and absolutely no financial training whatsoever--not even an Econ class, mind you--other than the School of Hard Knocks and Bad Debt Balances and several readings of Capital, so your mileage may vary, and take my advice at your own risk.]

Additionally, the Federal government’s financial aid page seems to agree with my rationale for the long time frame afforded by starting early on college savings via 529 accounts:

If the stock market plummets when the child is young, the percentage losses might be high, but the dollar losses are relatively small. That’s because the family most likely has not yet saved a lot of money in the college savings plan. On the other hand, when the student is about to enroll in college or is already in college, there is much more money at risk and much less time to recover from losses. You should plan for the possibility of losses, since the stock market has historically had a big drop at least once a decade. Even so, overall returns on investment tend to higher than other savings vehicles if you have long enough of an investment timeframe.

There are many people, of course, who have been putting money in 529 accounts for years, and saw their balances drop significantly in recent years, when their child is within a few years of attending college. I would have to say that these people are more or less in the same position as those people near retirement who had too much of their money still in the market and not removed to more conservative investments. If you are thinking of starting an educational savings account now for your child who has less than ten years to go before college, you may want to think carefully before investing in a savings account that invests in the market. For information on how 529s are handled in your state, see SavingForCollege.com, which also has recommendations about age-based allocations, etc.

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