College or 11.7 Million Dollars? Choose Your Own Adventure
You are being held at gun point, and you have 10 seconds to choose whether to send your child to a great 4-year private college or you can give them 11.7 million dollars, but it cannot be cashed until they are 68 years old. What would you choose?
The average price of college has skyrocketed 48% over the last 15 years, leading many families to contributing vast amounts of money into 529 plans. This sacrifice often times leads to more financial stress, a longer working career and stress around the unknown. Will my child graduate college? Will they drop out and spend 100k without getting a degree? Will they be happy? Will they get herpes and acquire a drug addiction? The worrisome questions go on and on.
The average cost of attendance for an in-state 4-year public school is now $29,910/yr totaling $119,640. The average financial aid package brings this down to $20,780/yr.
The average cost of attendance to a prestigious 4-year private school is now $62,990/yr totaling $251,960. The average financial aid package brings this down to $36,150/yr.
If a loving parent wants to pay for their child's education and not leave them strapped to soul sucking student loan payments, they will have to invest serious amounts of money each year.
Investing $3,204 per year for 18 years with an 8% return will pay for 4 years at a public college
Investing $6,675 per year for 18 years with an 8% return will pay for 4 years at a good private college.
Source: The College Investor
Choose Your Own Adventure:
Situation 1:
Instead of paying for your child to go to a public 4-year college and majoring in history, they decide to attend trade school for $5,000. You still invested $3,204 per year for 18 years leaving you with approximately $120,000. You decide to leave the money invested in general index funds for 30 more years until your child turns a mature 48 years old. The account now has $1,200,000 in it, and your kid is most likely making $120 per hour as a plumber. If you leave the money invested until they are 68 years old, they end up with 5,600,000. Either scenario, your kid is winning.
Situation 2:
Instead of paying for your child to go to a private 4-year college and majoring in literature, they decide to become a commercial pilot. You still invested $6,675 per year for 18 years leaving you with approximately $250,000. You decide to leave the money invested in general index funds for 30 more years until your child turns a mature 48 years old. The account now has $2,515,000 in it. And your kid is making $155,000 per year as a pilot with 5 weeks of vacation. If you leave the money invested until they are 68 years old, they end up with $11,700,000. Your kid has options and options = freedom.
Situation 3: Real life story
My client attended a BOCES vocational program, got certified as a car mechanic. As a Junior in high school, he started working at a body shop making $25/hour and working weekends helping with excavation work at his father's company. He graduated high school and started making $38 per hour at a mechanic shop. ($76,000 per year) He started investing as a Junior in high-school and has been investing $800 per month for 3 years now. At that rate, by age 48 he will have $1,192,000. My guess is he will increase his monthly contribution as he gets pay raises. (and he has no student loan payment) He is winning.
With that said, I am very pro education, so by no means am I saying kids should not go to college. We need doctors, lawyers, engineers etc. But I do believe college is pushed on far too many kids leaving them with sub-par jobs, no career and student loans that severely limit their lifestyle. The majority of guidance counselors advise you to go to college. If you decide that is not a route for you, they send you to a BOCES vocational program (unfortunately viewed as the dumb kids' program) Imagine if more kids choose mentor programs, and vocational trades program upon leaving high school.
The results:
1) We would not have extreme job shortages in important blue collar career fields.
2) We wouldn't have 10 million student loans in default (IE: not paying).
3) More families could afford to have one parent working with the other at home raising children. (no student loans + healthy retirement account + good paying job = success)
4) We would have more millionaire (and multi-millionaire) children by 48 years old.
All parents want the best for their children. This is the narrative:
Q: Why are you saving to send your kid to college?
A: So, they make better pay than I did.
Q: Why?
A: So, they can have economic security.
Q: Why?
A: So, they have more options than I had growing up.
Q: Why?
A: So, they can do what they want.
Q: Why?
A: So, they can purchase a home with a white picket fence, a golden retriever and enjoy life.
Q: Why?
A: So, they have happiness and absence of stress.
Happiness and the absence of stress. The ultimate end goal for parents and their children. While the scenarios above may not be for everyone, it may be a great path for some.
Suggested Reading:
Student Loans: The Gift That Keeps on Taking
Dear Johnny Q&A: Should I Buy a New Vehicle After Graduating College?