D.J.'s daughter has been accepted to two colleges: an in-state public university that the family can pay for out of savings and an out-of-state private university that would require borrowing $150,000.
"Our daughter worked very hard to get accepted to her dream school, and we would very much like to reward her by paying for her to attend the private school," D.J. wrote me. "Does it make financial sense to take on this debt?"
Almost certainly not. But plenty of parents would. Some spend so much on their kids that they wind up in bankruptcy court.
Research by Harvard bankruptcy expert Elizabeth Warren, summarized in her book "The Two-Income Trap," found that:
- Having a child is the greatest single predictor that a woman eventually will file for bankruptcy.
- Married couples with children are more than twice as likely to file as childless couples.
- A divorced mother is three times more likely to file as a single, childless woman.
There's no doubt that raising kids can be expensive. Personal-finance site Bundle found that married couples with children at home spent 15% more, on average, than those without. Meanwhile, a U.S. Department of Agriculture agency estimates an only child born in 2008 will cost an average $276,000 to raise to age 18. (Your mileage may differ: You can get an estimate of the annual costs and enter your own figures using the department's calculator.)
When you have a child, you need to make more money, reorganize your priorities or both. The logical thing to do when expenses rise in one area (food, health care, child care) is to cut back in other areas (vacations, dinners out, pay-TV subscriptions).
But some parents can't apply the brakes when it comes to their children. Feelings of love and obligation overwhelm common sense and financial self-preservation.
At the saddest extremes, elderly parents on tight budgets continue to shell out money to freeloading descendants.
"Many of the seniors I represent, sadly, have debt troubles because their adult children and grandchildren have financially abused their old folks and sucked them dry," said Los Angeles bankruptcy attorney Leon D. Bayer. "The parents want the social contact with the kids and the grandkids, and the adult children are just using the parent as a piggybank."
Before I had a child, I thought parents like this were idiots. Now I realize that they're deluded. Many think setting limits is a bad thing, when in fact it's essential if you want your kids to grow up to be decent people.
Not to mention how important it is to maintain your financial balance, so that you don't have to move in with your offspring after you run out of money.