College, Car, and Home Costs for Our Kids

[tailgunner]

Love my dude....remember when i was a young buck nesting...woundering how to afford feeding kids for 20 years.working non-stop side jobs after work for decades...once your kids are old enough to get thier own jobs all that stress becomes à thing of the past.there is all new stress but they can tell me over the phone while i sitt in a mexican jail giggling about my tab.do the birds worry.

 

[HuskerInIowa]

I would like to agree with you that it isn't sustainable, but previous generations have said the same and been wrong: https://educationdata.org/average-cost-of-college-by-year#1950

I don't mind if my kid goes to a trade school. I want her to do something that she is good at, that she enjoys, and that makes enough to keep her secure. If trade school does that for her, cool. But currently the rate of women in trade schools is low. Like 2% low. I don't anticipate that changing, but if it does I think every plan I've looked at covers that as an eligible expense.

If trade school does prove to be increasingly popular, I see 0 reason to expect that tuition won't increase in line with what we've seen happen with college tuition.


So if I wanted to calculate increase in costs over a 50 year period and apply it to my problem (costs in roughly 18 years), I'm assuming it looks like this:

1. Determine today's cost (say $100 for a widget.)
2. Determine cost 50 years ago ($10 for a widget.)
3. Determine difference (100-10=90)
4. Determine percentage increase (900%)
5. Multiply times 1/N where N is number of years between number 1 and 2 (900(1/N=18)
6. Perform simple interest calculation using that number over a period of 18 years

If I understand correctly, that would mean that if a widget costing $100 today cost $10 50 years ago, then it would be correct to assume that in 18 years it would cost $424?

If so, then calculating tuition cost in 18 years using that method looks like:

1973 annual tuition cost = $1,600
2023 annual tuition cost = $11,520
Percentage increase = 620%
Average yearly increase = 12.4%
2041 annual tuition cost = $37,232.64

I may be 200% bass-ackwards on this. Been a long time since I sat through a math class.

I’m going to just follow your logic to the best of my ability which I assume to be sticking to the base level of your post and math. That is again correct I believe but I am not Good
Will Hunting.

Potentially of note is that in ‘73 the annual tuition was roughly 30% of the per capita income and it is over 40% now.

 

[tailgunner]

Bob Marley & The Wailers - Three Little Birds (Official Video) / BobMarleyVEVO

 

[Nutterbuster]

Nutterman, are you factoring in inflation’s effect on your income as well or basing all of your saving/investing potential on your current income/debt ratio.

How are you planning on growing this money for your kid?

Currently, I'm happy to report that we can (barely) afford to set aside enough money each month so that in 18 years, we should have enough dough scraped up to cover in-state tuition plus a modest car. If she has higher aspirations (and I kinda hope she does) that's on her. I'll do what I can to help with her grades, credit score, first job, scholarships, grant money, etc. I put myself through school with the help of a scholarship and got a car that had almost 200k miles on it when I got it, so just that will be better than what we had. We can do this without jeopardizing our retirement savings, but it's tight. I'm sincerely hoping that our income rises faster than inflation but I'm not calculating anything based on hypothetical increase. I'd love to hit a point where I could consider giving her more of a head start, but for now I'm (fairly) comfortable with what we have.

The back-of-the-envelope math I've done also ignores interest earned on the money. Right now I'm shopping 529s and kicking around other options. If I understand correctly, we could roll whatever is left of a 529 into a Roth IRA for her, and after 5 years she could pull from it tax-free for expenses like a down payment for a home. Most 529s, from my understanding, also function similarly to retirement savings where you can generally plan on higher-risk investing early on and become more conservative as your kid gets closer to college-age.

To be honest, I'm still more concerned with hammering out the goal than I am in the action plan for it. But we're setting aside $500 a month right now for her. I think that if we can maintain that and get it gathering a little interest, she'll at least have a pewter spoon in her mouth.

Potentially of note is that in ‘73 the annual tuition was roughly 30% of the per capita income and it is over 40% now.

Yeah, my sense of urgency (that I'd like to intelligently convey to my siblings) comes from the fact that I don't think it's logical to assume anything other than that our kids will have a harder time affording things than we did. They're going to have to lift themselves higher with less bootstrap to get a grip on. Regardless of what you think of the numbers (and, reminder to all, I don't wanna veer into political discourse) they are what they are, and they don't paint a picture of rising income and lower costs.

 

[lungpuncher1]

Currently, I'm happy to report that we can (barely) afford to set aside enough money each month so that in 18 years, we should have enough dough scraped up to cover in-state tuition plus a modest car. If she has higher aspirations (and I kinda hope she does) that's on her. I'll do what I can to help with her grades, credit score, first job, scholarships, grant money, etc. I put myself through school with the help of a scholarship and got a car that had almost 200k miles on it when I got it, so just that will be better than what we had. We can do this without jeopardizing our retirement savings, but it's tight. I'm sincerely hoping that our income rises faster than inflation but I'm not calculating anything based on hypothetical increase. I'd love to hit a point where I could consider giving her more of a head start, but for now I'm (fairly) comfortable with what we have.

The back-of-the-envelope math I've done also ignores interest earned on the money. Right now I'm shopping 529s and kicking around other options. If I understand correctly, we could roll whatever is left of a 529 into a Roth IRA for her, and after 5 years she could pull from it tax-free for expenses like a down payment for a home. Most 529s, from my understanding, also function similarly to retirement savings where you can generally plan on higher-risk investing early on and become more conservative as your kid gets closer to college-age.

To be honest, I'm still more concerned with hammering out the goal than I am in the action plan for it. But we're setting aside $500 a month right now for her. I think that if we can maintain that and get it gathering a little interest, she'll at least have a pewter spoon in her mouth.



Yeah, my sense of urgency (that I'd like to intelligently convey to my siblings) comes from the fact that I don't think it's logical to assume anything other than that our kids will have a harder time affording things than we did. They're going to have to lift themselves higher with less bootstrap to get a grip on. Regardless of what you think of the numbers (and, reminder to all, I don't wanna veer into political discourse) they are what they are, and they don't paint a picture of rising income and lower costs.

Good on you for thinking ahead and wanting what’s best for your little girl, I too have a little girl that I’m trying to prepare and protect from this big world that awaits her.

However, one piece of advice I can give you is to not let this sense of urgency and fear overtake providing her with a stress free, happy childhood. So many parents worry about the bullets points of success and completely forget to enjoy the ride. The days are long but the years are lightening fast.

 

[rambotogo]

The most successful people I know all own their own businesses. One guy I know never when to collage . He started with nothing started buying rental houses . He paid the owner half the rent he took in . The other half he done the upkeep taxes etc . Over time he paid the owner in full . Fast forward to today he has over 100 rental units bringing in on avg $900 per month.
I know this is not for ever body but it worked for him .

 

[woodsdog2]

Somehow the present value and future value of money has to be considered in your equations as well. You are doing that with interest calculations but at what level of compounding?

You don’t want to consider political influence but national and international leadership is certainly a factor of production. In our state alone we have and are seeing the ethical and political issues directly impacting investment strategies and vehicles where this impact not only influences point of sale transactions but also the mass disinvestment in certain long held healthy companies due to political and other differences. The value of a fund and its ability to gain market share is now being directly impacted by the state…. the greater of all the bad of Keynesian economic theory.

 

[woodsdog2]

Good on you for thinking ahead and wanting what’s best for your little girl, I too have a little girl that I’m trying to prepare and protect from this big world that awaits her.

However, one piece of advice I can give you is to not let this sense of urgency and fear overtake providing her with a stress free, happy childhood. So many parents worry about the bullets points of success and completely forget to enjoy the ride. The days are long but the years are lightening fast.

This is the best advice yet. And truly how probably God wants us to consider true investment into our families and children with his assets. For it is true the gate is narrow and the meek shall inherit the earth. Money is temporal like this world. Invest in the ways you will do best @Nutterbuster, by caring, involving and showing what things are truly the most important in life. Most of those things have no dollar signs whatsoever!

 

[TNSTAAFL]

Here I go reaching for the burner again...

You mentioned help with securing scholarships and that is an important but hard to predict factor. Just like putting $500 a month away will pay off down the road, so will "investing" in things that increase the chances of scholarships and "merit money". Like, reading every day to your kids. Read anything and everything until you are so sick of reading...then read double that day. Encourage taking learning seriously... in school of course, but most importantly out of school stuff. Celebrate it all. You have a natural fascination for the world and you will likely gift that to your offspring.

Related to the scholarship is the encouragement of military service. It's not for everyone of course but it can be a game changer in terms of financing higher ed and jump starting economic life. An ROTC scholarship is not that hard to get, greatly reduces or eliminates any savings needs, provides a guaranteed job out of college, and comes with the GI Bill for use on a grandkid. Try calculating the price of tuition on the 3rd generation!

Anyway, $500 a month is a great starting point. Just keep at it and raise it whenever you can. I remember when we were about half way to college age with our 2 kids I had a conversation with an older parent (granted he had 4 college age kids all attending high priced private schools)...he said "Whatever you are saving in 529s, double it". We found a way eventually to do that and were glad we did, especially for our 2nd who had more time.

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[woodsdog2]

Another thing is if you can try and live off of one check, that is a great motivator for both to be involved in the savings game which is huge. So if you both have jobs, try to put the equivalent of one whole check in “the bank” (i.e. savings, 401k, 403b, 457b whatever IRS code your respective employer(s) fall under private, not for profit or government) each payday and use the other for your expenses.

 

[Tree hunter]

A friend told me ... it’s simple earn more then you need.
today some people have to work 2 & 3 jobs to make ends meet.

But another friend told me... Do things you like while you are young.
I know my grandfather had to work 2 jobs his whole life to support 3 kids.

SO no matter what the %’s are it stays the same.

 

[sureshotscott]

This is a big topic. I'll suggest a couple external resources:

Retirement Planning Education A podcast not specifically related to education planning, but lots of nuts & bolts of financial topics. I really wish this was available 20 years ago.

Bogleheads This site is the saddlehunter.com of DIY personal finance.

 

[Exhumis]

I’d love to see the percentage of parents who provide half college tuition, down payment on house, and well maintained vehicle for kid(s).

Just to put it in perspective.

Not easy on the whole.

We’re trying. Dunno if we can accomplish it but we’re trying. Fortunately being a state employee the state has a 529 match so that helps. And the cars we’re passing down are gonna be 20 years old so def not new lol. It’s sacrifice for sure.

 

[mschultz373]

As much as the economy has changed, the old ways still work. Don’t go into debt, pay off any debt you have as fast as you can. Save regularly. Slow and steady.

First things first, too. I drive a 96 Volvo still because I own it, cheap to insure, safe, and it runs. A newer, nicer car would be nice but it’s not a priority and shouldn’t be.

I would reiterate that ultimately having enough is enough. I trust that God will provide what I need, if I work diligently.

Also buy bitcoin. I doubt USD is gonna last our lifetimes….

 

[Pyronole]

Also, check and see if your state offers incentives towards free tuition. In Florida, Bright Futures provides up to 100% of college tuition based upon high school gpa plus community involvement/volunteering. Both my kids qualified for 100%. We also had done the Florida pre-paid college program.

My son won an engineering contest put on by his university and won a 4 year tuition, dorm and cafeteria scholarship....with the Bright futures too he actually made about $3500 per semester so in the end he was able to get nearly $12K leftover prepaid to help get a decent vehicle when he graduated.

My daughter graduated in 3 years because of college level course she took in high school and hard work. She had a lot of fun, but got in and got out. She wanted to live off campus so that was more expensive and resulted in some minor loans. I wasn't thrilled with those but it was her choice to enjoy the the time in school and having a social life while busting her tail on her studies at the same time.

My son turns 25 this week in Virginia and my daughter is 21 living in Austin. He makes almost more than I do and she is doing very well also. You do the best you can, give them the best you can and it worked out well for us.

 

[Andrew920]

Please keep politics out of this thread!!

I'd like for it to not get shut down. Regardless of your thoughts on how we got here and where we're going, I think it's valuable to take the current trends and project them into the future to know where we stand.

@gcr0003, @kyler1945, and any other folks with new kiddos, I'd especially urge y'all to share any numbers you've crunched.

I just got done comparing and contrasting expenses now and 16-26 years ago. The numbers I looked at were:

• Average new and used car cost 16 years ago vs now
• Average tuition cost for in and out-of-state 4 year schools now vs 18 years ago
• Average new home costs now vs 26 years ago
• Average median household income now vs 18 years ago

I then took the percentage increase over that timeframe and assumed the same increase for the next block of time to get a rough feel for what the world could look like for my newborn when she goes to buy her first car, attend university, and buy a first home. That's about the best I can do with what I remember of the two stat courses I took a decade ago.

What I got was:

• College costs went up 69% over the last 18 years
• New car prices went up 101%
• Used car prices went up 233%
• New home prices went up 165%
• Median Household income went up 75%

I'd like for whoever is so inclined to do the same and compare/contrast their results. And if anybody is more statistically adept than me (not hard) I'd especially like their figures and an explanation of how/why they got their calculations. My wife and I are already trying really hard to put ourselves and our kid ahead as much as we can, but what I'm trying to do is build the best case I can to encourage both of my siblings to start doing the same for their new kids.

A tool my wife and I used was the Michigan Education Trust. Basically you pre pay your child's tuition at a state school when they are young. You can pick how many semesters you want to pay for and then pay on it, or pay the lump sum. We did that for both of our kids. What's nice about it is that it can be used at private schools as well (doesn't pay for as much). The deal I gave my kids was we paid for their car, a portion of their rent and their tuition was already paid for. They were responsible for everything else. Both of my kids were able to get bachelor's degrees with zero debt.

I don't know where you live, but I would guess your state has something similar.

 

[TNSTAAFL]

I am specifically looking for a target to try and hit if I want to help my daughter with tuition, a first car, and possibly a down payment for a home or a head start on her retirement.

On the help with child's retirement savings here's an idea I've been mulling over as my kids enter/approach the adult workforce:

Offer them matching money for putting money in a post tax Roth IRA. Basically, they show me a full Roth annual contribution and I'll give them half that value to use however they wish. This way, they saved half an annual Roth contribution and I funded the other half. Incentivizes saving, much like an employer 401k match, which they should do if available (and might also be a condition of the gift).

Having both accounts building from early on not only doubles down on the magic of compound interest, it also gives them tax diversity with both a pre & post tax retirement pot.



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[Bigterp]

I started both my kids early on letting them know they’d be buying a car not us, but we matched their savings ( up to 5k) bc that 10k was a lot of car for a new driver ( adjusting that total for whatever makes sense) so my son set the challenge that his first car was gonna get him through college. It did, now that’s the competitive standard for my daughter to follow. She’s a sophomore in college & that vehicle will last until she doesn’t like it. My son just bought his 1st car on his own , cash after graduation from college. I think just modeling & discussing financial literacy & long term thinking with your kids is every bit as valuable as actual $ for them. Creating kids that have a strong work ethic & can add value in the workplace is infinitely valuable.

 

[bigmike23]

Everything is harder, but look around and study the people who really struggle. I would easily say 9/10 dig themselves their own hole thats so hard to get out of.
Having vehicles they cannot afford is problem #1.
Problem two is having kids before you are financially ready. My coworker married his wife at 29 years old. She was 23. Immediately upon tying the knot, she wanted to start a family. He made it crystal clear that wasn't happening until both of them landed their careers of the rest of their lives. Then they had kids and having the kids wasn't a huge financial strain at all.

One of the biggest differences between mature adults and children is the ability to delay gratification. When a kid is in the checkout lane with mom and he wants that candy bar staring at him, he wants it NOW. Right NOW. So many adults have this same mentality that gets them into financial ruin.
Probably one of my favorite videos ever on it and one I listen to before I go to any hunting shop or show lol

 

[kyler1945]

You can no longer rely on government and corporate retirement benefits as a single source of retirement income. They may be around as a supplement.

I would put real estate in the same bucket as above because it’s just so darn prohibitive to buy into the game at this point. And given the volatility of 90% of Americans income right now, and the volatility of the real estate market, I don’t see it as sure of a bet as many make it out to be.

Your location, income, and savings/investment habits are the only things you can control.

If you can’t get a job, and live in a place, that allows you to set aside the amount of money required to fund the future you’re discussing, it doesn’t matter if you’re off by 25% on your math. Probably doesn’t matter if you’re off an order of magnitude.

For basic calculations, just assume the same rate of inflation on everything you earn and spend. The only thing you’re applying compounding interest to is the money you save/invest.

I assume average rate of inflation for appreciation on real estate. 5% compounding for standard retirement accounts/investments. Both are long term plays, and can’t be predicted or gamed in the short term.

Goals are helpful. But they require two inputs to offer any realistic vision:

what does it cost where you will live, to live the life you want to live? Not the fantasy version. Where you actually live now, the way you want to live now.

How much money do you make now?

If those two things added together don’t leave a positive balance, none of this matters. If you’re not willing to move or change careers, none of this matters.

Unfortunately, college degree signal strength is probably decreasing, because the IQ of the average college grad now matches the average IQ of US population. But you should be saving the money for college, or whatever replaces it as a way to earn money or social cred. The problem is the cost is unpredictable. Could be double the cost it is now. Could be a system completely by the wayside for any soft degree in 10 years.

The folks in charge of wealth and control are dying off fast. It will be a bumpy ride if I had to guess.

If I were you, I’d ignore the detailed math until you decide where you want to live, and how much it will cost you and your wife and kid(s) to live the way you want to live there until they’re 20. Then look at the list of jobs you’re qualified to get that you earn that much after taxes, plus 25% as a start.

If there is no jobs that do the above, change where you live, change your qualifications, or buckle up for a bumpy ride.

Probably repetitive, and I just drove 10 hours through the mountains in icy snowy crap conditions. Im sure I can clean it up a little when I’ve had some sleep