Parents, Where’s Your Money Going? image

Parents, Where’s Your Money Going?

Rethink the way you spend money on your kids

It’s summertime, and all across the country, proud parents are attending graduation ceremonies. Some are watching kids graduate from college; others are getting ready to send them off to university.

For most parents, the cost required to provide a college education is or will be the biggest, most-expensive “investment” they’ll ever make. Many will pull out second mortgages, drain retirement accounts, or take on heavy loan burdens in order to provide a higher education and a competitive advantage for their kids.

But, they’ll probably assume, it’s always been this way. Hasn’t it?

The answer is, “No.”

The rising cost of raising kids

Life for parents is more expensive. According to a new study by the USDA, raising a child in 2011 was 23% more expensive than it was in 1960. Over the course of a lifetime, parents can expect to pay about $234,900 to raise a child vs. $191,723 in 1960—an increase of $40,000.

What may be surprising to many parents, however, is where that money is going in contrast to where it used to go.

1960 vs 2011 household spending pie charts

As The Atlantic, reports, “These simple charts tell a couple interesting stories, including (1) the decline of food and clothing as a share of the typical family budget -- from 35% to 22% of the pie; (2) the explosion of child care, education, and health care costs -- from 6% to 24%; and (3) the consistent prominence of transportation and housing spending -- from 47% to 44%.”

What kids are losing

In most people’s budgets, when the cost of one thing rises, choices have to be made. Do you cut back on the item that is rising in cost or do you cut back in other areas? The graphs above tell the story of how parents are prioritizing their spending.

Today, parents are spending 18% more on education, health care, and childcare than they were a few decades ago.

The cost to their kids? A 13% decline in food and clothing, and a 4% decline in miscellaneous (most likely fun things like vacations and important things like investments). Today’s kids are facing the reality of less food, less clothes, and less fun.

Life is only going to get more expensive

Unfortunately, for most parents, the cost of health care and education are only going to rise. This necessitates that both parents work, which will also necessitate the use of childcare, also a rising cost. Unfortunately, this means life will only get more expensive for parents.

Most parents will simply suck it up and think, “I guess I have to work harder.” So, they’ll put in more hours, save more money, cut back more, pay more in daycare costs, grin and bear it, and sock away more money for the college fund so their kids can “have a better life.”

Ironically, this is the heart of the problem. This type of thinking assumes paying for daycare and saving for college is worth it and that they’ll provide a better life.

Invest in financial education

The reality is that working harder and spending more on education will not give children a better life. Rather, it will send them into the same spiral their parents are facing.

Most people go to college to get a good job—to become employees. As they work, they must also put their kids in daycare and save for college, costs that are rising, requiring working even harder.

In short, most parents teach their kids how to work for money rather than to have money work for them.

To break the cycle, parents need to invest in financial education, which is often cheaper than traditional education and provides a much higher return.

By raising kids that know how money works, how to make it work for them, and who understand the principles of investing and business, parents will raise kids who can break out of the high costs of child care, education, and health care and spend more money on buying assets, building wealth, and having fun as a result.

Everyone wants the best for their kids, and people are willing to spend a lot of money to achieve that. The question should always be: are you spending your money wisely?

Parents, I encourage you today to rethink the way you spend your money on your kids. What are you going to do today to start investing in your financial education?

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