Family Ties - Children, Education, and Money

I skipped an Urkel appreciation blog last week, but this time I'm giving Alex P. Keaton his due respect. JK, LOL, OMG. Back to the personal finance topic you came here to read. If I relayed anything in last week's blog, I hope you picked up that children are expensive! Food, clothing, shelter, books, toys, education, and Paw Patrol Live really add up. In part one, I wrote about thrift in regards to clothes, toys and other material goods. There are certain things, however, that you should consider when looking to save a dollar when it comes to your children. Education is a perfect example. Today, I'll get into the intertwined nature of children, education and money.

This looks innocent, but she has to cook every meal. It's mostly mac and cheese.

Daycare and Early Education

Daycare costs can vary greatly depending on what they offer. You may be tempted to go with the lowest cost provider, but consider the quality of care. Will the daycare provide a learning curriculum? What types of activities will your child participate in? And, the big one - is the daycare licensed? Cutting corners with your child's education may be tempting, but take a long-term perspective and set your child up for future success. Don't trust me? How about my chums at Johns Hopkins? If you can look past the surprisingly no-frills website, this very reputable university explains early learning stimulates neural pathways to form. I'm far from a medical expert, but I do know that building these pathways helps you repeat tasks more easily... think the 10,000 reps to become proficient rule. By blazing these trails earlier, a young learner can start picking up more difficult topics more quickly.

As is true for daycare and early education, the rest of a child's schooling is impactful. Investigate the public schools your children could attend (ideally, before you buy a home) to see how well they stack up. Websites like GreatSchools are a good resource to get an objective opinion, but also talk to parents of children that attends the school if possible.

Public vs Private

If you feel your public schools aren't a good option, consider private schools. While costs can be substantial, many offer scholarships for families who can't afford full tuition. Parents may struggle with spending money on private schools compared to the public school system. I attend a Catholic grade school, but a public high school, and let me tell you... there are pros and cons to each. My grade school was very small and, frankly, lacked the resources of the public school system. However, I think the smaller class sizes helped me break out of my shyness a little bit and gain confidence. In the public high school, there was so much more to get involved in, but it took me until senior year to get acclimated and truly find my place. Not every child is the same, and the generalities are not always true, but knowing your child and what it will take to help them succeed is really the key. Comfort is important, but some challenges here and there can help build character as well.

So what about the costs? Of course! Let me stop being Dad and get back to anonymous blogger. Private schools can be very costly. Continuing with my personal example, the Catholic high school's tuition would more than my undergrad tuition! That was not practical for my family, but if you have the means to do so, it may make sense. The key really is the quality of education and exposure to new experiences. If the public schools in the area are excellent and offer a wide variety of sports, club, advanced classes, etc., perhaps the cost of a private school isn't worthwhile. I'm really hedging here, but it truly depends on your personal finance and parenting circumstances.

College Savings

It's safe to say most parents hope their child gets some form of education after high school. Whether it's a four-year university, vocational program, or technical school, much of a person's financial success in life requires a skill set above and beyond a high school diploma. If you agree, and are a parent, you need to start saving for college when your children are young.

There are several ways to do so. Instead of something cool like a video game, my grandparents would always get me a $50 government savings bond for my birthday or Christmas. My parents forced me to contribute towards my college savings instead of buying Sonic the Hedgehog on Sega Genesis. While I missed out on a lot of gold rings as a result, it did put my on a path to graduating from college debt-free (kudos to McDonald's and Subway for getting me the rest of the way!).

For my U.S. readers, my suggestion would be to invest in a 529 plan. Think of a 529 like a Roth IRA - you invest post-tax money, and the principal and earnings grow tax-free. If the funds are used for education expenses, they remain tax-free, and funds can even be transferred between individuals (e.g. move money from your son's 529 to your daughter's). There are dozens of companies who administer 529's, and your investment options are similar to a 401(k) where you have a selection of mutual funds to choose from. Just like any investment, the time value of money comes into play, and a steady stream of contributions will snowball into a major stockpile for tackling education expenses.

Having children may be the best thing you can do with your life. Having a little half-you running around can be challenging at times, but the pure joy from being a parent outweighs any negatives. If you choose to do so, it is your duty as a parent to provide for your children as best you can. That doesn't mean Baby Jordan sneakers or taking them to Disney World every year. From a financial perspective, it means making sure you can pay for their basic needs and give them the opportunities to learn and develop into productive members of our economy through education and life experiences. Okay, stepping off the soapbox, have a wonderful week and we'll see you next week to wrap up this series by covering teaching children about finances.