When One Dollar Costs You Ten

My kids won’t fully appreciate my choices until after I’m gone.

My #1 financial goal for my kids is debt-free education in a field that enables them to get paid.

With the very best of intentions, the US Government has completely screwed up both (a) the cost of college education and (b) the financial lives of the students they were seeking to help.

Debt isn’t free.

Every market juiced with easy money gets screwed up.

Explanation below – my life mirrors the blue line – graduate early, debt free, start saving

I googled up average debt at graduation and average graduation age.

$40,000 and 23 yo.

So let’s make three simple scenarios:

  1. Debt free early graduation (21 yo) => McGill 1990 finance grad
  2. Debt free at 25 yo
  3. Debt free at 30 yo

Let’s run it forward assuming:

  • Investment return of 5%, prior year close
  • $20,000 per annum savings

The late-start saver

  • who saves at the same annual rate
  • who earns the same return

ends up ~$1 million behind at 60 yo.

This is not the whole story, not even close!

In my demographic, families can burn ~$250,000 of capital to help a kid “get started” => 529 accounts and parental support. Even more if you roll private from Kindergarten.

What’s the 30-year cost of this choice?

$250,000 * (1.05)^30 = $1,080,000

Million bucks gone, you never see it.

  1. You burned the capital
  2. The kid figures life out by 30, and spends most of their 20s pissed at you (for tapering their support) ūüėČ

$2 million opportunity cost, spread between two generations.

You assume it was what you were supposed to do and are grateful you finally got them off the payroll.

A possible alternative…

Our default position is in-state education and I’ll buy whatever’s left of your 529, at $2 on the dollar, once you save $100,000 of your own money.

What do we want to have happen?

  1. conserve family capital
  2. use debt sparingly
  3. build a habit of saving

Everyone pays their own way.

Setting Family Financial Priorities – College and Retirement


What’s next? It’s tempting to think about my kids. College accounts are on my list but they aren’t the next priority.


Because kids that will be successful don’t need much¬†help and the family (particularly a¬†financially responsible child) gains¬†by not having to pay for Mom and Dad’s Golden Years.

Education has an mixed¬†return on investment. Here’s my article on how families blow more than $1 million per kid.¬†It’s a rare family that looks at education¬†in terms of return on investment.


If you want to give your family¬†a leg up then take care of yourself. Do this by max’ing out your retirement accounts – especially anything with an employer match.

I have a¬†single member 401K under my consulting business. If you’re self-employed then you¬†can find out your options by getting in touch with Vanguard.

I spent Friday afternoon shifting my retirement assets and Vanguard has an online tool that the self-employed might find useful.


What about college?

In current dollars, my pals that have put their kids through college have spent $200,000 per kid.

That’s $600,000 for my family of three – ignoring grad school.

Considering my entire family tree, there is no way the family would earn a reasonable return on that level of investment. Of course, my mind likes to tell me that MY kids will be different!

Thinking about the opportunity cost of $600,000:

  • A¬†lifetime annuity of¬†~$2,400 per month – starting¬†now
  • We could move into one of the best¬†public school districts in¬†the country
  • We could buy three rental properties and teach our kids about money by having them involved in deciding¬†to borrow against the properties (or not) to fund their educations. The kids could receive a¬†direct financial benefit from minimizing the cost (if any) of their educations
  • We could help send¬†a dozen kids to¬†grad school
  • We could back a family member to buy into¬†an established professional¬†practice
  • We could work less (for the rest of our lives)¬†and make¬†the world a better place
  • We could live abroad long¬†enough for the kids to become bilingual (or to gain residency in a country with free education, national health care and retirement support)
  • We could improve¬†the lives of thousands of people in the developing world (schools, safe drinking water, medical care)

The ideas above ignore the cost of the misery that we give ourselves worrying about funding college!

Given that I’m unsure that the¬†family wants to support three college educations, we are working towards funding one college education spread between three 529 accounts.

Total annual contributions to college funds can be $14,000 per kid, per parent => a potential investment of $84,000 per annum for a two-parent family with three kids.

For all but the top 2% of US earners, paying for everything will be out of reach.

Don’t beat yourself up.

The best thing I can do for my family is love them and work on continually improving myself. I’ve come to see the benefits of my constraints.