College, Car, and Home Costs for Our Kids

[TNSTAAFL]

I guess I don't really see what the % increase in prices for these items have to do with building an argument for how to make prudent choices in building personal wealth and/or "set your kids up" for their own.

No matter the price change over time the path is the same. Make yourself valuable to others. Create and sustain economic contracts (work, marriage). Live frugally. Save more than you think you can "afford" to.

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[Nutterbuster]

One more time...

I know what I'M calculating the cost of a car, home, and college for my kid to be once she's old enough to need those things.

If it helps, here are my numbers.

A small, 4 door sedan, new, with basic trim, will cost approximately 40k by the time she's 18, assuming the same 101% increase I'm seeing from 18 years ago today.

A 4 year degree at an in-state uni will cost approximately 72k for tuition and fees, with no account taken for room, food, gas, etc. Just tuition and fees. Again, assuming the same 69% increase I'm seeing from 18 years ago today.

If she starts shopping for a first home at 26, as I did, she'll enter a market where the average new home costs just over $1,000,000. That's once again assuming the same 165% increase I'm assuming based on the increase over the past 26 years.

I'm not looking for general guidelines or financial advice. 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. I want that number to be realistic, so I'd like others' thoughts on what they expect those expenses to be on average.

I am not looking for advice outside of that range. I am just trying to check my math to try and prevent under/oversaving.

 

[kyler1945]

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.

How much do the siblings make? Is there any actual prospect of them changing that income materially by job change in the next few years? Or are they on the track they’re on no matter what?

Financial planning, especially with hard numbers, requires good numbers put in on the front end.

And Can they, and are they willing to move? To a place where they can live within their means more effectively and happily?

Have to know the answers to those two questions before we can even see if passing the marshmallow test is useful for them.

 

[kyler1945]

One more time...

I know what I'M calculating the cost of a car, home, and college for my kid to be once she's old enough to need those things.

If it helps, here are my numbers.

A small, 4 door sedan, new, with basic trim, will cost approximately 40k by the time she's 18, assuming the same 101% increase I'm seeing from 18 years ago today.

A 4 year degree at an in-state uni will cost approximately 72k for tuition and fees, with no account taken for room, food, gas, etc. Just tuition and fees. Again, assuming the same 69% increase I'm seeing from 18 years ago today.

If she starts shopping for a first home at 26, as I did, she'll enter a market where the average new home costs just over $1,000,000. That's once again assuming the same 165% increase I'm assuming based on the increase over the past 26 years.

I'm not looking for general guidelines or financial advice. 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. I want that number to be realistic, so I'd like others' thoughts on what they expect those expenses to be on average.

I am not looking for advice outside of that range. I am just trying to check my math to try and prevent under/oversaving.

I thought we were convincing your siblings to save money.

Are we just checking your math?

 

[Nutterbuster]

I thought we were convincing your siblings to save money.

Are we just checking your math?

Both

 

[Plebe]

Both

Your analytics are based on a small period of rate of change. And the future is unknown. Hopefully others can give you what you need.

 

[Nutterbuster]

To provide more background, mine and my wife's parents are not what I'd call financially savvy. It was a very happy accident that I ended up in a finance class in college and saw a graph depicting the average cost of living increase contrasted to the median income increase. That graph scared the **** out of me and was the reason I started 401k contributions early, kept expenses low, delayed having a child, stayed (mostly) out of debt, have aggressively increased our income, etc.

I have no idea of my siblings' financial state and don't really want to. I know that they share our parents' casual attitude to money, and I know that attitude put us all behind. I want to 1.) Make sure my math is good for my kid and 2.) Give that information to them and let them do with it as they may.

 

[Exhumis]

I’ll throw out what the wife and I are trying to do which is half college tuition for each kid, a down payment for house and pass down a well maintained vehicle for first car. I live in one of the most expensive areas in the US which is DC metro area, for us to do more is just not feasible. So I figure if we can help our kids at least not graduate with a ton of college debt, help them get into an “affordable” starter house and provide them with a well loved but well maintained first vehicle that will at least give them a head start.
Going off the figures you provided that’d be around the $50k range? Give or take? Most of which would be college tuition and down payment for a house. If you or your better half are state employees sometimes there’s programs for college children or first homes.

 

[HuskerInIowa]

One more time...

I know what I'M calculating the cost of a car, home, and college for my kid to be once she's old enough to need those things.

If it helps, here are my numbers.

A small, 4 door sedan, new, with basic trim, will cost approximately 40k by the time she's 18, assuming the same 101% increase I'm seeing from 18 years ago today.

A 4 year degree at an in-state uni will cost approximately 72k for tuition and fees, with no account taken for room, food, gas, etc. Just tuition and fees. Again, assuming the same 69% increase I'm seeing from 18 years ago today.

If she starts shopping for a first home at 26, as I did, she'll enter a market where the average new home costs just over $1,000,000. That's once again assuming the same 165% increase I'm assuming based on the increase over the past 26 years.

I'm not looking for general guidelines or financial advice. 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. I want that number to be realistic, so I'd like others' thoughts on what they expect those expenses to be on average.

I am not looking for advice outside of that range. I am just trying to check my math to try and prevent under/oversaving.

First and foremost, I wish you and your family and everyone else working through this sort of
thing the best of luck.

I’m sure you did the math and research correctly, you’re a smart dude. Where I feel caution is warranted in making your decisions and conversations with your family is in using a specific, and short, timeframe like you are. Most of these numbers, like most markets, experience fluctuations. I can remember my dad telling me how much more house I’d be able to get than he did because from the early 80’s when I was born to late 90’s when I was coming out of high school wages had increased and mortgage rates had decreased from 16 or so percent to 6 or so percent.

I’m not here to say it will get better or worse, the only thing we know is it will change. I know this isn’t exactly what you started the thread for so on topic your math is right for the time you are using on the charts I checked.

 

[Exhumis]

To provide more background, mine and my wife's parents are not what I'd call financially savvy. It was a very happy accident that I ended up in a finance class in college and saw a graph depicting the average cost of living increase contrasted to the median income increase. That graph scared the **** out of me and was the reason I started 401k contributions early, kept expenses low, delayed having a child, stayed (mostly) out of debt, have aggressively increased our income, etc.

I have no idea of my siblings' financial state and don't really want to. I know that they share our parents' casual attitude to money, and I know that attitude put us all behind. I want to 1.) Make sure my math is good for my kid and 2.) Give that information to them and let them do with it as they may.

Feel your pain there man. I’ve watch my parents try and scratch by on SS these last few years and it’s painful. My wife and I decided early on we were going to be fiscally responsible and not burden our children with the ramifications of bad financial decisions.

 

[Plebe]

I’ll throw out what the wife and I are trying to do which is half college tuition for each kid, a down payment for house and pass down a well maintained vehicle for first car. I live in one of the most expensive areas in the US which is DC metro area, for us to do more is just not feasible. So I figure if we can help our kids at least not graduate with a ton of college debt, help them get into an “affordable” starter house and provide them with a well loved but well maintained first vehicle that will at least give them a head start.
Going off the figures you provided that’d be around the $50k range? Give or take? Most of which would be college tuition and down payment for a house. If you or your better half are state employees sometimes there’s programs for college children or first homes.

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.

 

[TNSTAAFL]

Your analytics are based on a small period of rate of change. And the future is unknown. Hopefully others can give you what you need.

Right on to #1 & #2.

Alas, OP's thread. OP'S questions. I apologize for polluting it with unsolicited feedback. Eventually I'll learn not to touch the hot stove.

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[Nutterbuster]

Where I feel caution is warranted in making your decisions and conversations with your family is in using a specific, and short, timeframe like you are.

That's the kind of input I'm looking for. Is it better to lengthen the time frame and go back 20, 30, 40 years? Or is there a study/guideline/benchmark I'm missing?

I get that it's all at best an educated guess. But I know that my parents' costs increased over my grandparents', and mine increased over my parents'. I also know that I could be a lot further ahead with a lot less stress if somebody at some point had sat down and done what I'm trying to do now. I understand why they didn't, but it'd be unconsionable for my wife and I not to.

 

[sureshot]

I would say start a 529 plan and put in what you can. Once your kids are older and have a part time job, you can open a roth IRA and contribute up to what their taxable earnings are.

As far as college price increase, I don't think the rate you have calculated is a sustainable rate. The mantra that every kid has to go to college to get ahead has driven college tuition through the roof. Now there are millions of young people with mountains of college debt and degrees that don't get them a good paying job, while trade workers are bringing in 6 figures. The trend is shifting to more people going into trades vs college. Colleges aren't going to be able to charge whatever they want like they have in the past. This is all just my opinion of course.

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[Plebe]

I would say start a 529 plan and put in what you can. Once your kids are older and have a part time job, you can open a roth IRA and contribute up to what their taxable earnings are.

As far as college price increase, I don't think the rate you have calculated is a sustainable rate. The mantra that every kid has to go to college to get ahead has driven college tuition through the roof. Now there are millions of young people with mountains of college debt and degrees that don't get them a good paying job, while trade workers are bringing in 6 figures. The trend is shifting to more people going into trades vs college. Colleges aren't going to be able to charge whatever they want like they have in the past. This is all just my opinion of course.

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Allegedly AI struggles in the trades, but excels in analytics.

 

[HuskerInIowa]

That's the kind of input I'm looking for. Is it better to lengthen the time frame and go back 20, 30, 40 years? Or is there a study/guideline/benchmark I'm missing?

I get that it's all at best an educated guess. But I know that my parents' costs increased over my grandparents', and mine increased over my parents'. I also know that I could be a lot further ahead with a lot less stress if somebody at some point had sat down and done what I'm trying to do now. I understand why they didn't, but it'd be unconsionable for my wife and I not to.

The longer time frame you use the more you will be able to even out some of the anomalies that occur for a myriad of reasons. I personally think a 40 or 50 year timeline gives a better trend line.

Some would say to drill down further you would likely need to eliminate years that have extraordinary circumstances (wars, disease, etc.), not because they won’t occur again but rather because those spikes distort the trend, it’s my opinion that a longer time frame accounts for anomalies and it’s best to include them.

The following is not meant in any political context but rather a hopefully helpful input in planning. The Federal Reserves mandate is maximum employment, stable prices, and moderate long term interest rates. While most of us perceive inflation as evil it is a necessity, hence the 2% target. You can read more about that in links below if you feel it’s helpful. You can also subscribe to emails from them which can be helpful for interpretation of how they see the current economic state and what moves they feel may be coming. Those things have helped me with investment risk. Personally I just do the Minneapolis Fed as I find Kashkari the most upfront and best at explaining things in laymen’s terms.

Why does the Federal Reserve aim for inflation of 2 percent over the longer run?

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Monetary Policy: What Are Its Goals? How Does It Work?

The Federal Reserve Board of Governors in Washington DC.

www.federalreserve.gov

Mods free to delete or edit as needed without asking me to keep the thread helpful if have entered a political arena without intent.

 

[HuskerInIowa]

I would say start a 529 plan and put in what you can. Once your kids are older and have a part time job, you can open a roth IRA and contribute up to what their taxable earnings are.

As far as college price increase, I don't think the rate you have calculated is a sustainable rate. The mantra that every kid has to go to college to get ahead has driven college tuition through the roof. Now there are millions of young people with mountains of college debt and degrees that don't get them a good paying job, while trade workers are bringing in 6 figures. The trend is shifting to more people going into trades vs college. Colleges aren't going to be able to charge whatever they want like they have in the past. This is all just my opinion of course.

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I’ve got nothing against a 529, overall think it is great, but it’s important to keep fluctuation and risk management in mind there as much as any stock and make adjustments as needed as they age. Personal experience saw my daughters actually be losing money for a time. I’d be ahead had I buried money in a jar in the backyard for a period of her life and started the 529 later. That’s not investment advice, just a reminder that things happen in the market.

 

[Nutterbuster]

I would say start a 529 plan and put in what you can. Once your kids are older and have a part time job, you can open a roth IRA and contribute up to what their taxable earnings are.

As far as college price increase, I don't think the rate you have calculated is a sustainable rate. The mantra that every kid has to go to college to get ahead has driven college tuition through the roof. Now there are millions of young people with mountains of college debt and degrees that don't get them a good paying job, while trade workers are bringing in 6 figures. The trend is shifting to more people going into trades vs college. Colleges aren't going to be able to charge whatever they want like they have in the past. This is all just my opinion of course.

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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.

The longer time frame you use the more you will be able to even out some of the anomalies that occur for a myriad of reasons. I personally think a 40 or 50 year timeline gives a better trend line.

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.

 

[gcr0003]

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?

 

[thedutchtouch]

the office of financial readiness has a calculator where you can adjust lots of variables (and gives you info on where they lull the baseline numbers from). https://finred.usalearning.gov/ToolsAndAddRes/Calculators/Savings the results are... sobering. seems like it's impossible to save enough, unless you make enough $ annually that you don't need to worry about saving. typic circular financial cluster imho. so save as much as you can is my plan. once i dig myself out of the financial hole of buying half my house from my ex.