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Kids and ER Planning
Old 03-12-2012, 12:44 PM   #1
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Kids and ER Planning

I posted an introduction a couple of weeks ago with our plans for ER in 2016. As a re-cap, I am 40, married, with kids age 7 and 10. The issue I struggle with most often is “What impact will our ER choice have on our kids?”. We have purchased each child 4 years of tuition in the state university system. Current 529 plans should grow to about $50k each covering room and board for 4 years as well. The ER budget will cover reasonable expenses for clothes, entertainment, and sports/school activities.

What my ER budget doesn’t specifically cover is cars/insurance, graduate school, house downpayments, and potential future wedding plans. We paid for nearly all of these expenses on our own after leaving home, although some of our costs were financed on a revolving door of 0% credit cards widely available from 1995-2005.

I guess I struggle between working longer to fund a never-ending number of kid-related ‘reserve’ funds versus ER and actually being more present in their lives. While ER may not allow us to pay for grad school and such, I can offer them all of the lessons I learned while doing it the hard way.

I know that this is highly individual choice each family much make about how to best prepare their kids for adulthood, but what experiences have others had? Has anyone encountered resentful kids who didn’t understand parents ‘giving up’ healthy salaries that could have provided them with new clothes, cars, iWhatever, ….?

Omalley
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Old 03-12-2012, 12:49 PM   #2
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Omalley, that's an excellent question. My children are grown and I still don't know what is best. It is much discussed here, with no single approach or answer. One thing most members do agree on, however, is whatever you decide, you should make your children aware of your intentions early, and perhaps often, so there are no surprises later on.
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Old 03-12-2012, 01:09 PM   #3
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Originally Posted by Omalley View Post
What my ER budget doesn’t specifically cover is cars/insurance, graduate school, house downpayments, and potential future wedding plans. We paid for nearly all of these expenses on our own after leaving home, although some of our costs were financed on a revolving door of 0% credit cards widely available from 1995-2005.

I guess I struggle between working longer to fund a never-ending number of kid-related ‘reserve’ funds versus ER and actually being more present in their lives. While ER may not allow us to pay for grad school and such, I can offer them all of the lessons I learned while doing it the hard way.

Omalley
During my undergraduate years, my parents paid for room and board and I paid for everything else (tuition, books, incidentals, etc.). After graduation, of the things that you list, the only other thing they paid for was my wedding - except the band (we had to pay for that if we wanted it). It was not that they could not afford much more, it was that they felt that children should be taught to work and earn their way early. In my junior and senior years of college, I had a full time job and anywhere from 2-3 part time jobs at a time. Having to pay for part of my college education made me appreciate it a lot more because I had my own money, my own sweat and blood, invested in it.

There is no reason to think that you have to give up your ER to provide more than the basics for your children. If it were me, I'd make sure that I had enough set aside for a reasonably nice (not extravagant) wedding or weddings and hang it up.
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Old 03-12-2012, 01:41 PM   #4
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One of the best things that my wife and I did with respect to our kids was to tell them upfront what we would provide and what we would not. Each got $60K for school. Each will get money at the time of a wedding. The thing is IMHO, say what you are going to do and do what you say and your kids will respect that and hopefully make smart decisions with no illusions about your financial contribution.
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Old 03-12-2012, 02:48 PM   #5
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Omalley,

We are about 8 years ahead on your path, with 2 kids (17 & 15), and have been ER'd for 3 years. As has been said in earlier posts, the biggest thing for our family has been to talk a lot with our kids about why we ER'd (less stress, more family time, better health, etc.), and what are the trade-offs for our financial status (continue to LBYM).

The kids know that we have saved enough for their college (state univ.), but they don't expect anything beyond that. We have reinforced the value of $, and not trying to compete with your neighbors / classmates for the latest gadgets, cars, clothes, etc. Hopefully these discussions will keep them balanced, despite their "lazy" parents.

Good luck with your plans.
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Old 03-12-2012, 02:58 PM   #6
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The kids are aware of the plans for ER in 2016 and at their current ages they are very excited about us having less constraints on our time. I expect that their excitement of us being home all the time will drop as they turn into teenagers.
We do talk them very frankly about most household finance issues, but they do not know how much we earn. We were concerned about playground disputes related to ‘my parents make more than your parents’. They know we work hard and save much more than we spend. The kids understand the basics of banking/investing, and have started their own car/insurance funds as a hedge against our future ER plans.
I revisited my spreadsheets, and working ‘one more year’ will allow us to fully cover many of these potential future expenses. My wife and I will have to re-evaluate the costs/benefits in another 2-3 years.
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Old 03-12-2012, 03:14 PM   #7
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Our children were about the age of yours when we retired.

I know they would say (they do say) that they would prefer that we have this time together as a family than have more spending money. Some years ago one of them said he wished we could have X. I said we couldn't afford it. He thought a moment and said, YES, we could. I said, I'm sorry, you're right, we could afford it -- one of us would just have to go back to work. He just needed a few seconds to think it over and say Never mind!

Our kids have excellent values and they are quite frugal. They shake their heads over their spendthrift friends. They're great savers and very interested in working, earning, and investing. They really prioritize time with family and friends. Our midlife retirement has been an excellent experience for the whole family.

I wouldn't be so sure about your kids' excitement in having you around lessening as they become teens. I remember a study from a few years ago that said what teens wanted most -- including iGadgets -- is more time with their parents.

It's an old saw, but I'm guessing on your deathbed you'll relish the time you spent with your kids and care not a whit about missed cars, clothes, and iWhatevers.
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Old 03-12-2012, 03:20 PM   #8
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I am sure they will receive some benefits from always having a parent available to them, even as teenagers who are experimenting with breaking away (as they must). I would expect that this would give them a ready answer for any one who wished to get into the comparison game. I would imagine they would be stronger for it.

My kids are 6 & 3. I spend a bit of time teaching the six year old that money is a tool, and best used to create choices.
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Old 03-12-2012, 04:07 PM   #9
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I will have 3 kids at ER time (roughly age 4, 9, and 11). I haven't exactly figured out how much we will set aside to cover higher routine teenage kid costs (activities, car/insurance). I have currently budgeted $1000 a year per kid and this may be high for the non-teenage years and low for the teenage years (I imagine insurance will cost this much alone!).

However I treat these costs as permanent additions to my budget and withdrawals, even though they will theoretically end sometime around age 18-22. So there is some wiggle room in the budget. I may convert these expenses to lump sum costs to set aside and get a more detailed estimate for each kid.

I have college costs (~$30k each) and wedding/house down payment/generic big gift costs budgeted at $5000 lump sum per capita.

I'm still about 4 years out from being FI so it is all subject to change. You are correct in that working just 1 more year will likely provide a much larger kid expense cushion, but for me it would be a question of do I set aside any extra earnings for my next 50+ years of living or blow it on spoiling the kids? Probably some compromise - but the question is there. The last thing I would want to do is financially burden our kids if our ER plans don't work out decades down the road.

The hardest question is whether they will value that time you get to spend with them while they are still young, or resent you because they can't have a fancy new sports car when they are 16 like their friends have (or the iWhatever with unlimited x/y/z monthly service plan). I doubt our kids will resent us for not having all the latest and greatest because they have not known a life of profligacy to date, and that will likely continue to be a trend in our household.

And at some point as they get older, there is always that useful advice "if you really want that, consider how you can make money - get a job, do extra chores, mow grass, babysit, etc". Teaching them to be independent and earn their own money early on isn't a bad thing.

In terms of how much will we actually end up spending on them, it depends on how our portfolio does. If things go according to plan, we will have about 14 years of ER under our belts when the youngest goes off to college, and our portfolio may have grown significantly by then such that we can afford to increase our discretionary spending a good bit. Or things may go poorly and we have to tighten our belts. I figure being fairly open about how things are going and how we get the money we use to support our household is important to get and maintain by in from the stakeholders (our kids).
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Old 03-12-2012, 04:42 PM   #10
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Originally Posted by Col. Klink View Post
One of the best things that my wife and I did with respect to our kids was to tell them upfront what we would provide and what we would not. Each got $60K for school. Each will get money at the time of a wedding. The thing is IMHO, say what you are going to do and do what you say and your kids will respect that and hopefully make smart decisions with no illusions about your financial contribution.
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Originally Posted by Omalley View Post
The kids are aware of the plans for ER in 2016 and at their current ages they are very excited about us having less constraints on our time. I expect that their excitement of us being home all the time will drop as they turn into teenagers.
As Col. Klink says, kids don't care about the finances. They just want your time. They will never, ever mention it to your face, let alone say "Thank you!", but after a year or two you'll be aware that you have a reputation around the school as the cool parent who's always available to chaperone a field trip.

They're at a great age for you to reassure them and to shape their view of how the world works. You can let them know that you have a retirement budget for the things they need, and that they'll either have to save their money (or work for it) to buy the things they want. You can also start telling them the rules for how much college support you plan to provide... for example you'll subsidize two years at the community college and transfer those credits for two more years at State U, but anything more is up to them. By the time they're old enough to realize that other suckers parents are paying for their kid's full college ride, it'll be too late for them to do anything about it. Of course they may move out of the house in disgust to make their own way in the world, so it's a win-win for you!

When your kids are teenagers, they're even more excited to have you around. Well, I guess I should qualify that: they're happy to have your wallet and your car around, so that you can give them money and drive them places. But of course they do not want to be seen in public with you again until they've graduated from college.

Your kids have a higher potential for lifetime earnings than you do, and they have a few more working years ahead of them than you do. They can also get plenty of college scholarships, work-study grants, and student loans. You will not enjoy the same financial support for retirement. Take care of yourself before you worry about taking care of their college educations.
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Old 03-12-2012, 08:23 PM   #11
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I retired from paid work when I was 45, in 2006. Six years later, our kids are almost 18 and almost 20. One is in college and the other headed there. Retirement didn't change our lifestyle financially, but we also haven't been "moving up" with higher and higher income and more stuff. I still make about 1/3 more than we spend, and we have a very nice lifestyle.

Our kids had been pretty clueless about money. In fact, I worried most when I FIRE'd that they would never understand the work ethic required to make money because they wouldn't see me going to a job everyday. I've been pretty clear with them that part of my job is to manage money, and part of the rest of the time I do stuff to give back to my community. I'm still there for them, but as they get older that becomes less important.

They have never resented the fact that I stepped off the escalator, I don't think. My daughter's boyfriend's father works (not full time), but has been very successful (three houses, staff, many cars, much travel). She never compares what they spend with what we do. The attitude seems to be, "it is what it is." I think my son feels the same way.

We have put increasingly tight parameters on their spending to educate them about the value of money. We still pay for all the major stuff, but they are starting to have to pay for more of the optional things. They have both, without prodding, taken part-time jobs for extra money. Ironically, the one I would consider the "shopper" saves most of her money, while the other, while not as impressed with what other people have, spends more of his.

It is a journey you will all take together, and you will all change along the way. It will all come together, and it will all work out.
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Old 03-12-2012, 08:31 PM   #12
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We were concerned about playground disputes related to ‘my parents make more than your parents’.
Sorry, but that says more about you than anything else. If you raise yourself and your kids with a healthy attitude about money, none if these kinds of issues will arise.

To wit, my kids kind of feel sorry for their friends whose parents are presidents of oil companies or airline companies. They can see some folks who lives are completely messed up because they have been given lots of money freely. Who is impressed if you get a new Mercedes every 6 months or so?
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Old 03-13-2012, 09:21 AM   #13
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Hi Omalley,

I think you have all the bases covered. In my opinion if the kids want to go to graduate school it is their decision and up to them to get the scholarships and funding.

I see more money wasted on big weddings. We never had one and frugally saved any money that came along. Unless you have a lot of cash to throw around.

Do what you can, but don't get them hooked on being given.
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Old 03-13-2012, 11:25 AM   #14
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One thing we did was to plan our car purchases so that each kid would have a ~10-year-old car available to them during college and (hopefully) until they had saved enough to purchase their own newer used car once out on their own. This worked out great - DD used car #1 for her last 2 years of college and then decided taking care of a car and paying for insurance, etc., wasn't her thing (at least for now) and has converted to a bicycle-and-public-transport lifestyle (fortunately she lives in a city where that is practical). So we sold car #2 last year and DS now uses car #1 in the summers. He'll take it to college for his senior year so that he can more easily travel for interviews, etc.

Never ceases to amaze me the number of kids in our area who get expensive new cars either on their 16th birthday or when they graduate HS. And in many cases their parents drive older cars. Fortunately, we made it clear to our kids well in advance what the plan was.
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Old 03-13-2012, 12:02 PM   #15
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I believe like several have stated that being upfront about your level of post high school financial support to prevent bitterness of "assumptions" children may have is important. My ex and I have promised her to get her out of college debt free ( only 4 years, any more is on her dime). We bought her first car (used) and will not be involved in anymore car purchases. I probably will give a few grand to her when she graduates to help get her on her own, but that will be it. Understanding money and finances is not a priority for her yet ( age 18), but at least the " fear/responsibility" of being on her own is sinking in after my gentle warnings the past few years. She saves every penny of her part time job, while smartly keeping all the survival costs attached to our wallets. I asked her what her intentions were with the money and she responded she will need it to live on after college. My "teachings" about living in a card board box during her adult years may not have fell on deaf ears afterall.
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Old 03-13-2012, 05:25 PM   #16
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At your age, I would certainly think about part time work. The kids will be in school 9 months of the year (unless you homeschool). You can't travel during the school year, and you can't be home with them on weekdays because they aren't home.

Of course, your occupation has a lot to do with part time job opportunities.
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Old 03-13-2012, 07:39 PM   #17
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Paying for college varies a good bit on family philosophies. I'm 60, it was always understood that parents would pay for it. However, when I got married at 19 that became tuition only. For my kids the same applied, but they both got scholarships so we were only on hook for living expenses. In return, we paid for JYA for both as well as other perks. I don't think we owe our kids college educations, but for those of us who can pay for it (and I'd include those for whom that means deferring ER a year or two) I think we should. I work with engineers and learn of 30+/- age ones still carrying over $30k of debt. That's not so bad, because they earn a decent salary; can't imagine someone with a BA degree carrying that much.

For those with kids up and coming to college, I'll add that I think a lot of the private schools are a rip off, plain and simple. Only status value. That's based on me having attended one of each, and my son and daughter getting identical chem e degrees, one one year behind the other. They compared notes and concluded the state school was equal or better education.
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Old 03-13-2012, 10:21 PM   #18
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I plan to retire either at the end of 2012 or early 2013 when I will be 46 or 47. We have two young children who will be 7 and 9 then.

In terms of children and money, we see three issues:

1. paying for their education and other needs/wants: we've budgeted for continuing education and living costs through to about age 22 for each of them but without putting the money aside in a designated account - that gives us additional flexibility (and there are no tax benefits from doing so where I live)

2. managing their expectations: at this stage we are managing down expectations on small things that they might ask for (mostly books but some other things as well) and in due course will manage expectations about post secondary school support

3. teaching them about the importance of LBYM and investing well: we are trying hard to create a LBYM mindset from an early age and they are both already asking questions about investing

A related issue which one of my colleages has raised is whether a parent who retires early is a bad role model because they don't demonstrate a good work ethic. Although I can understand his concern, I actually think it shows the opposite - achieving freedom as a result of hard work and prudent financial management.
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Old 03-14-2012, 02:10 PM   #19
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Originally Posted by Omalley View Post
I posted an introduction a couple of weeks ago with our plans for ER in 2016. As a re-cap, I am 40, married, with kids age 7 and 10. The issue I struggle with most often is “What impact will our ER choice have on our kids?”. We have purchased each child 4 years of tuition in the state university system. Current 529 plans should grow to about $50k each covering room and board for 4 years as well. The ER budget will cover reasonable expenses for clothes, entertainment, and sports/school activities.

What my ER budget doesn’t specifically cover is cars/insurance, graduate school, house downpayments, and potential future wedding plans. We paid for nearly all of these expenses on our own after leaving home, although some of our costs were financed on a revolving door of 0% credit cards widely available from 1995-2005.

I guess I struggle between working longer to fund a never-ending number of kid-related ‘reserve’ funds versus ER and actually being more present in their lives. While ER may not allow us to pay for grad school and such, I can offer them all of the lessons I learned while doing it the hard way.

I know that this is highly individual choice each family much make about how to best prepare their kids for adulthood, but what experiences have others had? Has anyone encountered resentful kids who didn’t understand parents ‘giving up’ healthy salaries that could have provided them with new clothes, cars, iWhatever, ….?

Omalley
It's admirable that you think of your kids in all you do, there are too many parents to the contrary.

First off, let me say that I don't have children. However, I don't think that precludes me from offering an opinion.

I think parents often want to help kids through the "expensive" things in life such as college, but don't forget that making them work a bit to get their own things is also a good lesson for them. Maybe you offer to pay 1/2 their college and expect them to either get work or loans for the other half, which will help them appreciate what they earn. Since you anticipate having the money saved, keep it aside, and if they graduate with good grades and are still responsible people, give them the remainder as a house downpayment or wedding gift, half the tuition towards graduate school, whatever.

I just think that making kids earn at least a portion of everything is a valuable lesson that I had as a child that has served me well.

Good luck.
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