Educational planning vs. financial planning
Before we dive into educational planning, let’s talk about another term that’s been popularized in the last few decades – financial planning.
You know, the stepwise process that usually entails something like:
- Pay off credit card debt
- Put money aside into an emergency fund
- Buy life and disability insurance
- Earn compounding interest in various investment products.
If you follow these steps you will eventually achieve financial independence and maybe early retirement. Perhaps you will even have some money left over to pass on to the next generation.
Sounds familiar? It’s because financial planning is now a norm for middle class Americans. It’s what we do to feel secure and successful in this society.
Kevin and I live in Springfield, Illinois, a town of just over one hundred thousand people, and there’s a wealth management office every other block. That’s how much demand there is for financial planning services.
An important goal of financial planning is to build a safety net for ourselves and our loved ones. Another goal is to build a nest egg so we can have a peaceful retirement and leave a legacy for our children when we are gone. Through the accumulation of assets, however little by little, we make an effort toward achieving generational wealth and upward mobility in society.
Educational planning has the same goal. We want the lives of our children to be better than our own. We want them to have meaningful pursuits and fulfilling careers, to be productive, and to be adequately rewarded for their contributions to society. And perhaps we want them to have a little bit easier time and not struggle as much as we did in our youth, while getting there.
Cost of Education vs. Cost of retirement
Let me explain with some numbers why educational planning and financial planning should be of equal importance for the middle class parents.
The average cost of attendance for an in-state public university is $27,146 per year, and the amount doubles for a private university. At the median household income of $80,610, the expected family contribution (EFC) is about $10,000 each year. At the 75th percentile income of $144,770, the parents would be expected to contribute $30,000, equivalent to footing the entire bill for an in-state public university. Not to mention, the actual family contribution on most colleges’ financial aid award letters is higher than the federal estimate.
Four years of college for one child would cost a middle class family between $50-150k in cash, plus any debt the child incurs as student loans which is a part of most financial aid packages.
What if you also want to send your children to a private K-12 school, which can cost another $10-60k a year and there’s very little financial aid? What if your child wants to pursue a professional or graduate degree after college when they don’t yet have a salary or savings to pay for it? Four years of medical school tuition adds up to another quarter million dollars.
Below I’ve estimated the cost of education for one child based on the numbers above. For families with more than one child, the cost would multiply and quickly reach a number that makes us gasp. And keep in mind I’ve only listed the cost of formal education, not including money spent on sports, extracurriculars like dance and music lessons, and summer camps.
Estimate of educational cost for one child
| Low cost scenario | High cost scenario | |
| K-12 | Public – no cost | Private $10k per year for K-5 $15k for grades 6-8 $25k for grades 9-12Total $125k |
| Undergraduate | In-state public university $30k per year Total $120k – financial aid ≈ $50k | Private university $55k per year Total $220k no need-based financial aid |
| Graduate school | Does not attend | Medical school $65k per year Total $260k |
| Total educational cost | $50k | $685k |
In comparison, the average retirement savings for Americans is just over $500k by age 65. That’s the mean, which is heavily weighed by the outliers who save a lot. The median retirement account has $185k.
During our entire working decades, we engage in managing our finances and horning investment strategies to build up a balance in our retirement account that can offer us a sense of security and relief. We attend webinars, research investment products online, and receive professional help from HR and financial advisors.
On pure monetary terms, we likely end up spending the same amount, if not more, on our children’s education as what we save for retirement. Yet we don’t treat education with nearly the same strategic thinking and attention.
We spend more time picking stocks for our portfolio than helping our high schooler pick classes for her schedule. We have CPAs, CFPs, tax attorneys, insurance agents, benefit specialists, pension plan administrators at our fingertips to inquire about finances, but questions about colleges and majors are bounced off to our casual acquaintances at dinner parties and on the sidelines of soccer fields.
importance of educational planning
Of course educational planning is not only about having enough money to pay for college or make sure that money is well spent. Educational decisions we make have more far-reaching effects in our children’s lives – what skills they will learn, what careers they will dedicate their lives to, what hobbies they will fill their free times with, and even who they will date and marry.
It’s not that middle class parents don’t think education is important. Au contraire, we see education as a top priority issue. After all, education is how most of us were able to get ahead and arrive at where we are now.
We just have been approaching it wrong. We know we want our children to have a “good education” but what it means remains nebulous and how to accomplish it remains a mystery.
How many parents have picked a school district that they consider as “one of the best” in or around the city where they work, bought a house in the neighborhood, and sent their children on the school bus thinking education will take care of itself? They trust that the school district knows what a “good education” is and will bestow its benefit onto each student.
Common mistakes families make
The pitfall of the middle class family lies in this “set it and forget it” approach to our children’s education. Maybe when we were growing up, at the end of the last century, being in a good school district was all you needed to learn the skills to succeed in college and beyond. But that’s no longer the case.
We can’t rely on being in a good school district any more. Not to mention most of the time we aren’t even informed about what the school district is doing.
How many parents know the number of AP courses available at your child’s high school? How many parents know the differences between AP Physics 1, 2 and C?
The ratio of the AP courses the student has taken to the total number of AP courses available at the school is actually a crucial parameter for colleges to assess the rigor of the applicant’s high school education. Taking AP Physics C and doing well on the exam earns kudos from application officers, whereas taking AP Environmental Science is frowned upon if your school also offers other AP science courses.
Even in the best school districts in the country, the teachers and counselors are overworked and restrained by ever-changing policies and mandates. For example, a college counselor is often responsible for advising 250-500 seniors each year. At that point, they are herding, rather than educating. (There are other downsides of raising kids in the “pressure cooker” environment of a competitive suburban school district, which we will discuss in a later post.)
Parents don’t know what the schools offer. The teachers and counselors don’t know the student well enough to make individualized recommendations on courses, activities and colleges. See the disconnect?
The end result is in the fall of the senior year, parents and students are scrambling to grasp the elusive fit of a college while juggling the myriad of application paperwork.
It’s like struggling to make ends meet on fixed income when you retire from your job at age 67. If you’ve planned ahead of time, the chaos shouldn’t happen. The fall of senior year should feel calm and determined, just as retirement should feel relaxed with newfound time for travel and hobbies while maintaining the same quality of lifestyle.
So What is educational planning
Unlike financial planning, there isn’t a path with clear steps you ought to follow and calculators that can estimate how much money you’ll have saved by retirement. Instead, educational planning is a very much individualized path tailored to the talents, passions, and aspirations of each student, as well as the unique traditions and situations of each family.
Educational planning is a series of mindsets and strategies we can deploy at different times of our children’s life to maximize their potential and options for the future. It requires a long vision and active participation from both parents and children. It also requires an open mind and open line of communication, and some periodic soul searching to discover and nurture developing interests and aspirations.
Educational planning aims to build a solid foundation so our children feel confident and prepared to thrive in the pursuit of their dreams. We’ll discuss the various elements involved in educational planning in a series of follow-up posts. For now, I just want to plan the concept in your mind. I hope you’ve started to realize the importance of educational planning and are interested in taking a more active role in your children’s education.
So stay tuned, but let me be clear about one thing – educational planning is NOT high intensity or helicopter parenting. Educational planning is not about parenting style at all, although engaging in the process can lead to strengthening of the parent-child relationship.