One of the things I’ve tried to work on since middle school is being less judgmental about others. I often have these default assumptions about people which can sometimes be counterproductive. I am also convinced that if more people get to know each other, there will be less conflict.
As a minority coming to America for high school, I constantly had to contend with stereotypes. It was exhausting. The time I spent pushing back could have been spent enjoying life or studying. As a result, I am trying to shine a bright light on my blind spots to be a better person. Maybe you are trying to do the same.
Before sending our son to private school, I had a preconceived notion that all private school families were good. After three years of meeting over a hundred private school families, I realize that’s not the case at all.
In fact, my thinking was actually lagging behind for many families. As these families send their children to private schools, their cash flow is much tighter. As a result, they tend to drive modest cars and live in modest homes.
In other words, private schools were making some parents poorer than sending their children to public schools.
A grade school education preferred
As a public high school and public college graduate, I’m biased toward public schools that have worked 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 both my parents spoke. Additionally, 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 really enjoyed learning all I could about Taiwanese and Chinese culture. Being able to dream in another language on a regular basis creates the ability to subconsciously live in two worlds.
If there’s one thing I remember about education, it’s knowing how to speak Mandarin. About 1.3 billion people speak Mandarin and another 1.35 billion speak English. So if you can speak a language spoken by 33% of the world’s population, you can improve your chances of living a better life.
I think many families who send their children to our Mandarin immersion school feel the same way. As a result, they are willing to pay private school tuition even if they are not wealthy.
Income is needed to pay for private grade school
Personally, I wouldn’t send my kids to private school unless I made 7X or more the net cost of tuition per child. In other words, if a school costs $20,000 a year after financial aid, I would have to make over $140,000 per year per child.
I thought the multiple was 5X income. But, with rising inflation and diminishing returns to education, I increased the multiple on my bestselling book to 7, Buy this, not that.
I fear that many families stretch to pay private school tuition to their long-term financial detriment. 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 was that some were not following my recommendations. Why would they? Most haven’t read my book and I’m nobody.
But here’s the thing. After 14 years of writing at 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 are created.
Because of the high priority placed on grade school education, some families are willing to spend a much larger percentage of their household income on private grade school.
Example of a family paying a fortune for private school
To protect the family’s privacy, I have changed the occupation, estimated income level and situation details. But the point is still the same.
One day I was invited to a family home for a play date. My default setting was that every family that sent their children to private school was rich, I expected their house to be worth more than the median-priced house in the city.
Instead, I was surprised to find that the family lived in a cozy two-bedroom condo off a busy street. They have two sons, so the parents sleep in one room and the sons sleep in the other. Instead of a large play area for the boys to run around in, they use a homemade nook about four by six feet.
At first I was surprised since I bought a two bedroom condo twenty years ago in 2003 as a 26 year old. Parents and I were about the same age.
Then I was inspired by how the family made everything work so well in such a relatively modest space. The place was efficient and full of love. I’m also starting to feel guilty about wanting a big house 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 drink and warmly opened their home to us. And the kids all had a great time together.
Dual-income parents, never retire early
Eventually, we started talking about careers as we often do at get-togethers.
The husband earns about $150,000 a year in marketing and the wife earns about $80,000 a year as an administrator. A total of $230,000 is a healthy household income. But they’re in their 40s and live in expensive San Francisco with two kids in private school. I wrote about how $300,000 needed Living a middle-class life in a big city with children.
Private school costs $39,600 a year for a child, which translates to about $80,000 a year. after tax In private school tuition. Using a 27% effective tax rate, the family would need $114,285 in gross income to pay for their two children in private school.
After paying for private school, the household has roughly $115,715 in gross income ($84,472 net) for savings, spending, more taxes and investments. In a city with a median home price of $1.6 million, these families don’t own, but rent.
Maybe they make the maximum contribution to each of their 401(k) plans. If they contributed the maximum, this family would not have much disposable income left to build one Taxable investment portfolio. In other words, both parents will likely have to work until age 60.
Early life retirement in a big city with kids is tough
Working past 60 is normal. But paying 30% of your gross family income for private grad school tuition is beyond ideal. This 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 a minimum of $400,000 to $560,000 to comfortably send both of their children to private school and save enough 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 that a top 1% income now starts at around $650,000. Therefore, a $400,000 – $560,000 income is a top 3% income.
Clearly, private schools are not only accepting families with 3% of household incomes. From a school fundraiser I attend, about 20% of families receive financial aid
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. Many financial disasters happen in our lives to spend so much private school.
We may be living in a personal financial bubble
I enjoy socializing more with other families. It enabled me to realize my blind spots and understand that not everyone is as focused on their personal finances as I am.
For example, many families I’ve talked to don’t contribute much to their 401(k)s, nor do they have 529 plans. Where many of us at Financial Samurai try to take full advantage of tax-advantaged retirement accounts.
Instead of personal finance guidelines dictating how to spend their money (such as the 1/10th rule for buying a car, the 5-7X income rule for private school, the 30/30/3 rule for buying a house), many families We spend money on them for the most value. They deal with the consequences only after they spend, if any.
I like to follow a rules-based approach to spending money because it’s so easy for me to waste money. My personal financial guidance keeps my family out of financial trouble. They 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 guide is not for everyone. After meeting so many families, my blind spot is realizing that not everyone is as obsessed as we are about achieving financial independence quickly.
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 than anything else. After all, who wants to work at the same boring job for decades? Better to save for early retirement and invest aggressively!
But another blind spot is that not every parent wants to retire early! There are many parents who find meaningful jobs before their children graduate college. I incorrectly assumed from a Gallup poll that 70 percent of workers feeling “disengaged” meant 100 percent of workers would rather be doing something else.
Alas, I was clouded by my situation. Back in 2009, when this site was launched, I was starting to get bored with the world of finance. I was too Fear of losing all my money During the global financial crisis. So of course I wanted to figure out a way to grind it out soon while keeping my finances intact.
What I didn’t realize was that not every parent my age was as shaken by the global financial crisis as I was. Additionally, as our children are late, many parents are young and do not have time to build wealth.
We can all carry a lot, but handling everything is difficult. As a result, we will logically prioritize spending money on the things we value most For some families, that priority is a private grade school education.
A summary of the blind spots of private school families
- Not all private school families are rich
- A certain percentage of families receive tuition assistance (~20% at my school).
- If you’re reading this site and listening to personal finance podcasts, you’re in the minority.
- Some families value education highly and are consequently willing to spend more on education and less on accommodation, transportation and other items.
- Not everyone wants to start a fire soon
If you hold stereotypes about private school families, kids, or graduates, I hope you’ll reconsider now, like I did. The stronger your negative emotions about a certain group of people, the deeper you have to dig to find the root of the problem. Keep an open mind and get to know them. You will surely be pleasantly surprised at what you discover!
Related: Differences between private school and public school graduates
Reader questions and suggestions
Did you realize that there are many families who send their children to private schools who are not wealthy? Did you know that some families prioritize private grad schools over retirement or buying a home? What are some blind spots we might not realize about private school families?
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