One of the things I've tried to work on since high school is being less judgmental about others. To function efficiently in society, I often have default assumptions about people which can sometimes backfire. I'm also certain 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've been trying to shine bright lights on my blind spots to be a better person. Maybe you're trying to do the same.
Before sending our son to private school, I had a preconception that all private school families were well off. Paying for private school is like paying for bottled water when tap water is free. However, after meeting over one hundred private school families over three years, I realize this is not the case at all.
In fact, my thinking was actually backward for many families. Because these families send their kids to private school, they have much tighter cash flow. As a result, they tend to drive cheaper cars and live in modest homes.
In other words, private school was making some parents poorer than if they had sent their kids to public school.
The Prioritization Of A Grade School Education
As a public high school and public college graduate, I'm biased towards public school given things worked out well for me and my wife. However, we send our son to a private Mandarin immersion school so he can grow up bi-lingual.
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. Finally, I minored in Mandarin during college and studied abroad in China for six months.
I truly enjoyed learning all I could about the Taiwanese and Chinese cultures. To be able to regularly dream in another language creates an ability to live subconsciously in two worlds.
If there's one thing I remember about my education, it's knowing how to speak Mandarin. Roughly 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 might improve your odds of having a better life.
I think many families who send their kids to our Mandarin immersion school feel the same way. They place high value on knowing a second language. As a result, they are willing to pay private school tuition, even if they are not wealthy.
Income Needed To Pay For Private Grade School
Personally, I would not send my kids to private school if I didn't make more than 7X the net cost of tuition per child or more. In other words, if a 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 soaring inflation and the declining return on education, I increased the multiple to 7 in my bestselling book, Buy This, Not That.
I fear too many families stretch to pay private school tuition to the detriment 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.
What I soon realized after meeting many families is that some are clearly not following my recommendation. Why would they? Most have not read my book and I am a nobody.
But here's the thing. After 14 years of writing on Financial Samurai, I often live in my own bubble where I believe most people think and act like me. This is how blindspots and stereotypes form. Hence, being self-aware is important!
Due to the high priority of grade school education, some families are willing to spend a much larger percentage of their household income on private grade school.
Example Of One Family Paying A Small Fortune For Private School
To protect the privacy of the family, I've changed the occupations, estimated income levels, and situation details. But the point is still the same.
One day I was invited over to a family's home for a playdate. Given my default setting was that every family who sends their children to private school is rich, I was expecting their home to be worth more than the median-priced home in the city.
Instead, I was surprised the family lived in a cozy two-bedroom condo in a poorer neighborhood. They have two boys, so the parents sleep in one room and the boys bunk in the other. Instead of a large play area for the boys to run around, they utilize a homey nook that's about four by six feet.
First I was surprised since I had bought a two-bedroom condo twenty years ago in 2003 as a 26-year-old. The parents and I were roughly 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 about my desire to have a larger home with two offices, one for my wife and one for me.
What particularly moved me was how generous and kind the family was. They fed us endless food and beverages and warmly opened their home to us. And the kids all had a great time together.
Dual Income Parents, Never Retiring Early
Eventually, we started talking about occupations as is often the case at get-togethers.
The husband makes about $150,000 a year in marketing and the wife makes roughly $80,000 a year as an administrator. A total of $230,000 is a healthy household income. But they are in their 40s and live in expensive San Francisco with two kids in private school.
I've written about how $300,000 may be needed to live a middle-class life in a big city with children. Here's a budget I created for a $260,000 household income with two kids in private school. As you can see from the budget, the family is not living it up. They rent and save $20,000 in two 401(k)s and $12,000 a year in two 529 plans.
Private school for one child costs $39,600 a year, which means almost $80,000 a year after-tax in private school tuition. Using a 27% effective tax rate, the family would need to make $114,285 in gross income to pay for two children at their private school.
After paying for private school, the family has roughly $115,715 in gross income ($84,472 net) to save, spend, pay more taxes, and invest. In a city with a median home price of $1.6 million, this family does not own, but rents.
Maybe they contribute the maximum to each of their 401(k) plans. If they did contribute the max, this family would not have much disposable income leftover to build a taxable investment portfolio. In other words, both parents will most likely have to work until past 60.
Hard To Retire Early Living In A Big City With Kids
Working past 60 is normal. But paying 30% of your gross household income toward private grade school tuition is outside the norm. It is a risk this family chooses to take because they greatly emphasize the value of education.
Using my 5X-7X formula, the family would need to earn between $400,000 to $560,000 at a minimum to comfortably send both of their children to private school and save enough money for retirement.
My blind spot was realizing that a family with two kids is normal, but earning $400,000 – $560,000 is not. After updating my Top 1% Net Worth By Age post, I realized a top 1% income now starts at about $650,000. Therefore, a $400,000 – $560,000 income is a top 3% income.
Clearly, the private school is not only accepting families with top 3% household incomes. From a school fundraiser I attended, roughly 20% of families receive financial aid.
At the same time, the Financial Samurai in me cannot recommend earning only 3X more than the cost of tuition for each kid to justify sending a kid to private school. Too many financial calamities happen during the course of our lives to spend so much private school.
For most families, retiring early with kids is nearly impossible if you send them to private school.
We May Be Living In A Personal Finance Bubble
I'm glad to be socializing more with other families. It enables me to realize my blind spots and understand that not everyone is an obsessed personal finance maniac.
For example, many families I've spoken to do not contribute much to their 401(k)s, nor do they have 529 plans. Whereas many of us on Financial Samurai try to take full advantage of all tax-advantaged retirement accounts. It is a default setting!
Instead of letting personal finance guidelines dictate how to spend their money (e.g. 1/10th rule for car buying, 5-7X income rule for private school, 30/30/3 rule for home buying), many families spend money on what they value most. Only after they spend do they deal with the consequences, if any.
I prefer to follow a rules-based approach to spending money because it's too easy for me to waste money. I look at my growing belly as proof I lack the self-discipline needed to stay in shape without some help. My personal finance guidelines keep my family out of financial trouble. 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! These rules help keep me disciplined and a land of consumption.
I know my guidelines are not for everybody. After meeting so many families, my blind spot is realizing not everybody is as obsessed as we are about achieving financial independence sooner.
Prioritizing Between A House, A Car, Education, And Financial Independence
Since 2009, my default setting has been that most families prioritize achieving financial independence sooner above all else. After all, who wants to work at the same boring job for decades? It would be so much better to save and invest aggressively in order to retire sooner!
But not every parent wants to retire early. There are plenty of parents who have found meaningful jobs to do until after their kids graduate college. I erroneously assumed from one Gallup poll that 70 percent of workers feeling “disengaged” meant 100 percent of workers would rather do something else.
Alas, I was clouded by my situation. In 2009, when this site launched, I was beginning to get bored of the finance world. I was also scared of losing all my money during the global financial crisis. So of course I wanted to figure a way out of the grind ASAP with my finances intact.
What I didn't realize was that not every parent my age was as shaken by the Global Financial Crisis as me. In addition, given we had children late, many parents are younger and simply haven't had as much time to build as much wealth.
We all can afford many things, but it's hard to afford everything. As a result, we will logically prioritize spending money on things we value most. For some families, that priority is a private grade school education.
To Summarize The Blind Spots About Private School Familes
- Not all private school familes are rich
- A certain percentage of families receive tuition assistance (~20% at my school)
- If you're reading this site and listen to personal finance podcasts, you are a minority.
- Some families highly value education and are willing to spend more on education and less on accommodation, transportation, and other items as a result
- Not everybody wants to FIRE ASAP
If you are holding onto stereotypes about private school families, kids, or graduates, I hope you will reconsider as I now have. The stronger your negative emotions about a particular group of people, the more you've got to dig within to find the root of the problem. Keep an open mind and get to know them. You might be pleasantly surprised by what you discover!
Reader Questions And Suggestions
Did you realize there are plenty of families who send their kids to private school who are not wealthy? Were you aware that some families prioritize private grade school at the expense of saving for retirement or buying a home? What are some other blind spots we might not realize about private school families?
Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Please share, rate, and review!
For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
Wow. This is wildly crazy. Only 11% of households in the US make over 200,000. Private schools that claim 20% receive financial aid doesn’t mean those people aren’t wealthy. Here is a quote from a big private school…
While there are no set income guidelines that determine who will qualify, most families making less than $350,000 per year will likely qualify for an award.
That means people making $349,000 are part of that 20%.
Sounds like you’re talking about one specific school. $350,000 is a high hurdle to be able to get financial aid, unless you’ve got at least 4-5 kids.
Yes the financial spreadsheet makes sense for public over private. It’s the things you can’t quantify that make the filter of private school better – the unmeasurable social value, the higher level of standards.
There are a lot of factors in public vs private high school. Where I grew up if you get into selected public academies you are fine. Otherwise, you are toast. Given the issues going on in my local public schools such as boys being able to use a girl’s bathroom if they say they are trans and vice versa (doesn’t mean they are, the school takes them at their word), I can see the motivation for private school. I am slowly coming to the viewpoint that every parent should get vouchers to choose the school of their choice public or private. It would force some competition into an area where there is not enough. It is not a silver bullet but it would inject some urgency in public schools that I think is lacking.
This is a super interesting topic! My wife and I are a middle income family in a LCOL area and we’ve taken a different approach to educating our children. My wife has stepped back in her career to home school our kids. In a lot of ways, her lost income is way more expensive than private school tuition. On the other hand, we have control over the ciriculum, can provide a ton of extracurriculur activites, and customize their learning environment. We are a part of a close knit homeschool group so our kids can be socialized while minimizing negative influences. This has defintely set back out timeline for financial independence, but their education is a top priority for us.
I think homeschooling is great if you can find a community of other parents and kids as well. We homeschooled for 18 months and had a lot of freedom everyday to explore, learn, teach, and discover. I don’t regret it one bit! It was awesome.
Now I wonder regularly whether paying all this tuition is worth it.
We’re in year 2 at a PK-12 private school comparable to what you describe in the post, with 2 kids in a MCOL city. I also expected wealthy families across the board but was pleasantly surprised by the diversity. Not just economically, but also ethnically way more diverse than our local public school would be. One thing I don’t think you don’t touch on much is multigenerational support. I think there are lots of middle income families that get financial support from grandparents or trusts to make it work. I’m still trying to feel that out, cautiously.
I’m sure grandparents are helping. This is especially true for immigrant families.
I would and will truly hate myself if I can’t afford sending my kids to private schools starting with elementary. A visible gap between public kids and private kids is so noticeable after a couple of years. I feel as if I forcing my family to live in the worst and dangerous neighborhoods instead of a nice, safe neighborhood. High school for me consisted of kids in and out of juvi jail, drugs, violence, incessant bullying of the studious kids and my complaints go on. My former elementary and high school is taught by my high school classmates who couldn’t get into a stem degree, got drunk every weekend, and can’t do math to save a life. I’m really not looking forward to my kids going to public education because of the $45 – 60,000 price tag. Forcing my kids, to be taught by people who couldn’t qualify for an easy simple stem degree then subjecting them to a life in school with drugs, violence and bullying has to be solely my fault.
Wouldn’t it be easier to move to a good public school district? You also get the bonus of not living in a slummy area it sounds like you live currently. There are plenty of public school districts that offer far more than most private schools. If you can afford private school, surely you can afford to move to a good school district right?
I’m impressed by the cost you’ve associated with private schools. My kids attend what I believe to be one of the top private grade schools schools in Orange County, CA and it’s about $11,000 per year *combined*.
Sounds like great value! Yes, in general, incomes and costs are bigger here in SF.
The top private school in OC is Sage Hill and it’s >$50K/yr. Your local parish school doesn’t count as they’re virtually open admission for anyone in the diocese.
Haha, so true. A local catholic school education honestly is probably worse than a well-funded public school. The only private schools you are getting for $11K a year are usually religious based and not full of wealthy families. 50% of the reason most people choose private school is the connections made with wealthy status individuals and the other 50% is for safety and avoidance concerns. Most likely your just getting the safety part with that $11K private school. And probably a worse education than a well-funded public school. (Public school teachers make a lot more than private school teachers in CA…. last i looked.. and usually talent follows the money). Go look at http://www.transparentcalifornia.com. Teachers are all making 6 figures after 5-10 years working.
That’s very reasonable. I pay about $12,000 per year for private school in Los Angeles County.
I teach in a private school. 28k tuition, 70 zip codes k-12 in the midwest. Alternatives for public education in this city are higher than average yet we still have record enrolment. Our students come from -among others – the local Jewish business and education community, the Indian diaspora of mega corporation professionals, local old-money “aristocracy” if I may, and also a surprising number of lower middle class hard working dual income parents with lower than median incomes. This is sought out by our administration: we seek diversity not only racial and cultural but also diversity of financial/class experiences in this american life. Tuition sticker price is almost a myth these days as each family pays something a little different based on so many factors. I believe this piece is here for good: justifying a private education is a different math computation for each family and admissions teams have to be nimble and respond to families almost on an individual basis. For context, property taxes here are probably a fraction of what they are in SF (houses are way cheaper), so there’s also the fact that it is harder for middle class families to justify paying property taxes on a nice house in a good school district and then opting out of that public school to send their kids to private schools…
I’m mystified why you don’t talk about the wisdom of buying in a zip code with great public schools, which is the driver for appreciation in coastal CA real estate everywhere except SF. My friends that work in SF live in Piedmont, Mill Valley and Hillsborough and all used their good local public schools. Our South Bay high school is so sought after houses in my zip are still closing at >$1K/sq ft even with 8% mortgage rates.
I just like to write from experience. So this is my experience.
I would say about 95% of the families I know want to live in San Francisco or another big city for the opportunities, culture, events, food, activities and more. If they can’t comfortably afford the city, then they will move to the suburbs. But they really don’t want to because they find the suburbs too sleepy. Some have used the words boring and depressing. They say a lot of people in the suburbs just stay in their homes all day. That’s not me.
I think I’d be OK with moving to the suburbs at age 60+. But then again, I might want to live in the city more bc it would be too slow after my kids are out of the house. There are just so many fun things to do in SF.
Commuting consistently ranks as one of the most disliked things about work, and I agree. I hate commuting.
For folks who earn less than 5X tuition per kid, I definitely recommend going to public schools in the suburbs.
There shouldn’t be a knock on auburn living and public schools. And I’m glad you enjoy suburban living.
Kind of agree! Suburb life is more slower paced aka boring. I moved from SF to the burbs with a good public school district 7 years ago but still drive to the city/SF or to the South Bay 2-4x a week for meals and/or activities. There’s a lot more to do and see in big cities. I have to “commute” even though I don’t have work.
We started sending our kids to private Christian school last year after I was so sure I wouldn’t ever so such a thing! My husband went to pricey private school his entire life even though both of his parents were public school teachers. The pandemic opened my eyes to what exactly they were being taught. The severe restrictions of closing down the public schools in my blue major east coast city was the last straw. My youngest is still paying for severe learning loss years later. We don’t ever qualify for any scholarships due to being right over the income requirement. It’s been a sacrament for sure (3 kids) I’m also an immigrant, married to an American man but I don’t think that plays into our decision to do this for our kids.
Sorry to hear about your kid. But I think he’ll eventually catch up!
Yes, the name of this of private schools during the pandemic. Also open my eyes to its benefits versus public schools as well. Public schools were shut down for a year here in San Francisco. But we would’ve dealt with it. No problem because we homeschooled our boy for 18 months. But Not every bird household has that privilege.
You couldn’t pay me to live in the suburbs. Life is just too short for suburb living.
The diversity and culture of San Francisco is so much better than the homogenous environments in Piedmont, Mill Valley, and Hillsborough. They’ve got nice homes, but I’d rather live in a vibrant city.
And no way would I pay $1,000/sqft to live in the suburbs. That’s crazy.
I lived in the city in my 20s… it was fun then. Most of us grow up and have families and move to the burbs. I also lived in the city before it was as dangerous and had tent cities under every overpass. A lot has changed for the worse in the last 15 years. Most suburbs you disdain have great city centers that are more vibrant and safe than any downtown city proper has. I have a few uber-liberal friends that don’t dare move too far from the city for fear of moving near a Trump supporter in the burbs. But, it’s really seems to be more homogenous in the uber-liberal cities now than ever.
I learned this in high school only because I was one of the “poor” kids. I attended private school for two years on scholarship and financial aid. I couldn’t have attended otherwise. I didn’t even think I had any chance to get in but I’m glad I tried anyway. My public school became unsafe and I really wanted a way out and a safe place where I could focus on learning instead of worrying about gangs and fights.
I’m not sure the benefit of private school for our only child. She’s a competitive gymnast and since high level gymnastics is expensive, it’s very self-selecting of wealthy families. Most of the benefits of private school are the safer environment compared to public school and wealthy connections you make with families in the school. My daughter already has the wealthy connections via her gymnastics friends, who 90% of which go to private schools, we can save money by going to our strong local public schools. Gymnastics is an expensive sport, but still much cheaper than most of the $40K+ private schools in our area.
Also, if she truly desires to pursue high level elite gymnastics, home schooling of some sort will be necessary by high school. Since our local public school offers part-time remote independent study, it should be a perfect fit. Why pay private school prices when she might end up doing a lot of remote independent study in high school anyway. By not sending our child to private school, we will have saved nearly $500K over the her 13 years of pre-college schooling. That kind of money would negate any benefits provided by private school long term in our opinion. We can focus on our own retirement and her 529 savings plan much better this way.
If our local school was unsafe or filled with distractions, and my daughter didn’t compete in an expensive and prestigious club sport, then private school could offer more benefits.
Agree, lots of first-generation immigrants make a lot of compromises to send their kids to private schools.
This is a very good point. A lot of first generation immigrants. Don’t feel as secure as people who have been in the country for generations. Therefore, there is a tremendous emphasis on the Best Education possible to give their children the best chance possible to break a difficult cycle, or improve a current difficult situation.
Hey Sam ,
Yah , private schools can be a bubble within a bubble . I have sent my kids to multiple private schools and blown away how different the family structures are . One went to a Jewish school on the Peninsula , was mostly Nannie’s and Au Paires doing drop off and pickups . Sent another by you around 19th Taravel . Lots of multi generational households . Lots of Grandparents involved . Currently send them to a private school on Peninsula . Rarely see any Nannie’s or Au Paires . A couple grandparents . I prefer the dynamic of parents involvement . I have been to play dates in homes with 10 bathrooms and apartments with 1 bathroom . The parents offering playdates are all fantastic people and very involved in their children’s life and wants them to be exposed to other children .
Most private schools near us do not matriculate to better, top colleges compared to the public ,magnet or chart schools which are free! We looked into a local private school, and there students attended colleges that were very similar to our local public option. In fact the best boarding school in the our state is public school and does have a lot of it’s students attend top colleges! The best private schools are 25-35k per year ,and with 2 kids that would be about 70k after tax income for almost 12 years. We considered for just the high school years, but still did not make sense. In the end, if the private schools near us were matriculating into more competitive colleges compared to the public options we may have dipped into 529s. In the end we are supporting our local public school, and yes while there is a very diverse student body, with various different backgrounds and goals, this is not unlike the real world that my kids will enter once they are out of school. If the public school were significantly worse or unsafe, than it would be a harder decision for us. My husband and I both graduated at the top of our public HS classes and attended top tier undergrad and grad schools. I do think with the advent of charter and more private schools that take advantage of parent anxiety and angst, the quality of local community public schools has suffered, since they are charged with educating the students that have the most barriers. I can see that in big cities perhaps there are significant differences between public/private school, but thankfully our school system is pretty good, and not horrific enought to justify the 35k per year.
I sent my daughter to a private high school. The cost was 14k a year or if you volunteered 50 hours a year it was 11k. Half the parents paid full tuition and half the parents received subsidies that covered all the tuition. The fact that the “rich” kids integrated with the “poor” kids and vice versa was a major selling point for a lot of the parents. The kids themselves for the most part couldn’t care less.