Blind Spot About Private School Families: Not All Are Rich!

One of the things I’ve tried to work on since high school is to be less judgmental. I often have this default assumption about people that can sometimes backfire. I’m also sure that if more people got to know each other, there would be less conflict.

As a minority who came to America for high school, I had to constantly fight stereotypes. It was exhausting. The time I spent pushing back could have been spent enjoying life or studying. As a result, I tried to shine bright lights on my blind spots to be a better person. Maybe you are trying to do the same thing.

Before I sent our son to a private school, I had a preconceived notion that all private schools were doing well. After meeting over a hundred private school families over three years, I realize that is not the case at all.

In fact, my thinking was actually backwards for many families. Because these families send their children to private school, they have a much tighter cash flow. As a result, they tend to drive modest cars and live in modest houses.

In other words, private school made some parents poorer than if they had sent their children to public school.

Prioritization of primary school education

As a graduate of a public high school and a public college, I am biased toward public school because things have worked out well for me and my wife. However, we send our son to a private Mandarin immersion school so he can grow up bilingual.

I grew up speaking Mandarin and English because my parents speak both. In addition, I lived in Taipei, Taiwan for four years when I was in elementary school. I ended up majoring in Mandarin in college and studied abroad in China for six months.

I really enjoyed learning all I could about Taiwanese and Chinese culture. The ability to regularly dream in another language creates the ability to subconsciously live in two worlds.

If I remember anything from my education, it is the knowledge of Mandarin. About 1.3 billion people speak Mandarin and another 1.35 billion speak English. So if you can speak languages ​​spoken by 33% of the world’s population, you can improve your chances of a better life.

I think many families who send their children to our Mandarin Immersion School feel the same way. This makes them willing to pay private school tuition even if they are not rich.

Income needed to pay for private elementary school

I personally wouldn’t send my kids to a private school unless I was making more than 7x the net cost of tuition per child or more. In other words, if the school costs $20,000 a year after financial aid, I would need to make over $140,000 a year per child.

I used to think the multiple was 5X income. But with inflation soaring and diminishing returns to education, I upped the multiple to 7 in my bestselling book, Buy this, not that.

I fear that too many families struggle to pay private school tuition at the expense of their long-term finances. For most families, there is a delicate balance between saving for retirement and providing as much as possible for their children.

After meeting many families, I soon realized that some were clearly not following my recommendations. Why would? Most of them haven’t read my book and I’m a nobody.

But that’s the point. After 14 years of writing for Financial Samurai, I often live in my own bubble where I believe most people think and act like me. This is how blind spots and stereotypes arise.

Given the high priority of primary school education, some families are willing to spend a much larger percentage of their household income on a private primary school.

An example of one family paying a fortune for a private school

To protect the family’s privacy, I have changed occupation, estimated income levels, and situation details. But the point is still the same.

One day I was invited to a family home for a date. Since my default was that every family that sends their kids to private school is rich, I expected their house to be worth more than the average priced house in the city.

Instead, I was surprised to find that the family lived in a cozy two-bedroom apartment on a busy street. They have two boys, so the parents sleep in one room and the boys on the bunk bed in the other. Instead of a large playground for the boys to run around in, they use a cozy corner that’s only about four by six feet.

At first I was surprised because I bought a two bedroom apartment twenty years ago in 2003 as a 26 year old. My parents and I were about the same age.

Then I was inspired by how the family made everything work so well in a relatively modest space. The place was efficient and full of love. I also started to feel guilty the desire to have a bigger house with two officesone for my wife and one for me.

What particularly touched me was the generous and kind family. They fed us endless food and drink and warmly opened their home to us. And all the kids had a great time together.

Dual income parents, never retire early

Finally, we started talking about professions, as we usually do at meetings.

The husband makes about $150,000 a year in marketing and the wife makes about $80,000 a year as an administrator. A total of $230,000 is a healthy household income. But they are 40 and living in expensive San Francisco with two children in private school. I wrote about how $300,000 is needed living a middle class life in a big city with kids.

Private school for one child costs $39,600 a year, which is almost $80,000 a year after tax in teaching at a private school. Using a 27% effective tax rate, a family would need to earn $114,285 in gross income to pay for two children in their private school.

After paying for private school, the family has a gross income of roughly $115,715 ($84,472 net) to save, spend, pay higher taxes and invest. In a city with an average home price of $1.6 million, this family doesn’t own, they rent.

They may be contributing the maximum to each of their 401(k) plans. If they contributed the maximum, this family would not have much disposable income left to build a house taxable investment portfolio. In other words, both parents will probably have to work until they are 60.

Hard to retire early living in a big city with kids

Working over 60 is normal. But 30% of your gross household income for tuition at a private primary school is out of the norm. It’s a risk this family chooses to take because they place a high value on education.

Using my 5X-7X formula, a family would need to make at least $400,000 to $560,000 to comfortably send both of their kids to private school and save enough money for retirement.

My blind spot was realizing that a family with two kids is normal, but making $400,000-$560,000 is not. After updating my Top 1% of Net Worth by Age post, I realized that the top 1% income now starts at around $650,000. Therefore, income of $400,000-$560,000 represents the top 3% of income.

Clearly, a private school does not only accept families in the top 3% of household incomes. From a school collection I expected about 20% of families to receive financial assistance.

At the same time, the financial samurai in me cannot recommend earning only 3X the cost of tuition for each child to justify sending a child to private school. Too many financial calamities will happen in our lifetime to spend on so many private schools.

We may be living in a personal finance bubble

I am happy to interact more with other families. It makes me realize my blind spots and understand that not everyone is as focused on their personal finances as I am.

For example, many families I have spoken to do not contribute much to them 401(k)sthey don’t even have 529 shots. while many of us at Financial Samurai try to take full advantage of all tax-advantaged retirement accounts.

Instead of personal finance guidelines dictating how to spend your money (eg The 1/10 rule for buying a carthe 5-7x income rule for private schools, The 30/30/3 Rule for Home Buying), many families spend money on what they valuet. Only after they spend do they deal with the consequences, if anything.

I prefer a rules-based approach to spending money because it’s too easy for me to spend money. My personal finance policies protect my family from financial problems. They also motivate me to work harder if I want to buy something.

For example, if I really want to buy an $80,000 car, I need to find a way to make $800,000 that year. Otherwise I’m not buying it!

I know my instructions are not for everyone. After meeting so many families, my blind spot is realizing that not everyone is as obsessed as we are with achieving financial independence sooner.

Prioritizing between house, car, education and financial independence

Since 2009, my default setting has been that most families prioritize achieving financial independence first. After all, who wants to work at the same boring job for decades? It would be much better to save and invest aggressively to withdraw earlier!

But another blind spot is that not every parent wants to retire early! There are plenty of parents who have found meaningful work that they can do until their children graduate from college. In one Gallup poll, I mistakenly assumed that 70 percent of workers were “disengaged,” meaning 100 percent of workers would rather be doing something else.

Unfortunately, I was enveloped by my situation. In 2009, when this site was launched, I was getting bored with the world of finance. I was too I’m afraid I’ll lose all my money during the global financial crisis. So of course I wanted to find a way out of this mess with my finances intact as soon as possible.

I didn’t realize that not every parent my age was like that shaken by the global financial crisis like me. Plus, since we had kids late, many parents are younger and simply haven’t had as much time to build that kind of wealth.

We can all afford many things, but it’s hard to afford everything. As a result, we will logically prioritize spending money on the things we value most. For some families, private primary school education is a priority.

To summarize the blind spots of private school families

  • Not all private school families are wealthy
  • A certain percentage of families receive tuition assistance (~20% at my school)
  • If you read this website and listen to personal finance podcasts, you are in the minority.
  • Some families place a high value on education and, as a result, are willing to spend more on education and less on housing, transportation, and other items
  • Not everyone he wants to BURN as soon as possible

If you hold onto stereotypes about private school families, kids, or graduates, I hope you’ll reconsider as I did. The stronger your negative emotions about a certain group of people, the more you have to dig inward to find the root of the problem. Keep an open mind and get to know them. You must be pleasantly surprised by what you discover!

Related: The difference between private and public school graduates

Questions and suggestions from readers

Did you realize that there are a lot of families who send their children to private school and are not rich? Did you know that some families prefer private elementary school at the expense of saving for retirement or buying a home? What are some other blind spots we may not be aware of in private school families?

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