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Saturday, June 27, 2009

Ask Orthonomics:
High Income Earner Wonders Where to Go From Here

It isn't every day that I receive a note from a reader that is doing very well financially. This email underscores just how much of a bite tuition for is and just how important it is to make good financial decisions right from the start, whether you are learning in kollel or earning well into the six figures. The burden of tuition leaves very little room for error.

I think the letter also underscores the importance of being careful with the property of one's fellow, an instruction in Pirkei Avot. It takes incredible earning power for a couple to jointly earn $350,000. (The income this couple earns is split nearly evenly). There are few with such great earning power and just like they need to guard their own finances, we need to make sure that we are using their tuition and tzedakah dollars with care.

I am going with the writers numbers regarding after-tax income, as well as some of the estimated expenses, although I'm sure we can quibble. Taxes take a huge bite out of those in the upper income brackets. Normal employees can't do much to escape that. And, more children and greater itemization don't have the impact they do on those in the lower tax brackets.

Hi, I’m an occasional reader of your blog. I could use a bit of your help and perhaps help from your readers. Let me explain: My wife, two children (hopefully we’ll have more children soon) and I live in Manhattan and are looking to move in the not-so-distant future out of Manhattan. My wife asked me to figure out how much we could afford to borrow for a house, so I did the math, and I determined that we could reasonably afford to live in most places in the New York Metro area. Then I started
looking and asking around how much were the tuition costs in various
neighborhoods.


I nearly fell over backwards. There were very large disparities between neighborhoods with Northern New Jersey averaging over $15,000 per child, but schools in Brooklyn and Queens were considerably less. I did the math and figured that although my wife and I are very fortunate and collectively earn approximately $350,000 per year, if we were to have a total of four children and send them to school at $15,000 per kid per year, we really wouldn’t have much room for much else in our lives. Before you say WHAT?, please look at the numbers:
After we pay taxes and contribute to our 401k plans we’re left with about 55% of $350,000, or about $192,500, which is about $16,000 per month. Here’s a sample starter budget, BEFORE TUITION COSTS :

Income $16,000
Mortgage (3,000)
Property Tax (1,000)
Food & Household Items (1,200)
Heat, Electric, Water, Sewer (750)
Life, Home, Auto Insurance (600)
Student Loans (600)
Medical & Dental Bills (350)
Car Repairs, Gas, Tolls (250)

--------------------------
GRAND TOTAL BEFORE
TUITION $8,250

Now let’s assume we have four kids and we spend $18,000 per child ($15,000 tuition + day camp + books + clothes). This totals to $72,000 for four kids or about $6,000 per month. So let’s go back to our budget:

GRAND TOTAL BEFORE
TUITION $8,250
Tuition & Other (6,000)

------------------------
WHAT’S
LEFT $2,250

So we’re left with $2,250, but that is without:
· Giving anything to charity;
· Saving for college
· Saving for other events such as Bar Mitzvahs or weddings
· Clothing
· Shul Dues

So here’s my conclusion: move somewhere where the tuition costs are moderate.
The schools don’t have to be prep schools or top notch or have all the bells and
whistles. Nor am I endorsing public schools or the Chasidishe Yeshivas. However, as long the school provides a decent education, that’s good. If sending kids to what is considered an “excellent” school means cutting back on retirement savings or charity or college savings, maybe it doesn’t make sense to send kids to an “excellent” school.


I realize we’re extremely fortunate to have what we have, but I want to make sure to use it wisely. I’m sure we could reduce some of the numbers above, but it won’t make a ton of difference. However, getting the $6,000 per month tuition cost down to let’s say $4,500 per month would make an extraordinary difference.

So where am I going wrong? Or maybe even right?
Thanks!!!



Dear Reader,

First off, please forgive me if it seems like I am "talking down," I'm not used to giving advice in this type of scenario. That said, I am as stunned by the numbers as you are. It only goes to prove that everyone must be careful with the income Hashem has blessed us with.

I don't know that my advice will sound particularly profound, but then again, the ins and outs of healthy personal finance aren't particularly complicated. So I will put forward a some rules of thumb that will hopefully help you build wealth quickly so that you can more freedom to choose the schools and their neighborhood you feel is really best for your family.

I don't think there is anything wrong with choosing a school with fewer bells and whistles, but I think it would be far better if you really positioned yourself to be able to have freedom of choice when it comes to the chinuch of your children. Ultimately you want to get rid of the debt you do have, buy a home, and then put away money like there is no tomorrow. Paying off your home before you have more tuitions staring you in the face would be a fine idea too. Money put away earlier, as you know, will yield incredible dividends and give you far more freedom, so that is the basis of my advice.

  • Pay off the student loan really quickly, preferably before you take on any additional debt (i.e. a mortgage). Things will look a bit more rosy when the student loan isn't taking up its own line item in the budget.
  • Budget all regular expenses around (less than) a one income.
  • While you still have "only" two children, you should be attempting to bank as much as possible for 1) an emergency fund, 2) college funds and other long term expenditures from the next car to the weddings, and 3) paying off your home. As your kids get older, more of your current income will be eaten up by day to day expenses and it will get harder to save. So the quicker you can put away funds, the better.
  • Build an emergency fund of one years worth of expenses to insulate you from downturns in income, changes in the tax code, and job loss. The additional interest your emergency fund earns can be designated to fund the college savings plans.
  • Don't overbuy when purchasing your first home purchase. It is easier to sell a more average home that is in nice condition with some nice cosmetic updates than it is to sell a more custom home. There is no reason not to buy a home that will suit your families needs and wants in the future, but until you know where you want to live and where you want to educate your children, you likely don't want to "marry" a home. So steer clear of anything too custom at this point.
  • Make sure you are sufficiently insured: life, disability, and an umbrella policy beyond liability. Those in high yielding professions are very vulnerable, so make sure you are well protected in cases of liability.
  • Frugality is the underpinning of getting ahead financial, no matter how much or how little you earn. Frugality is how you will build passive income streams (interest, dividends, capital gains) that can be used to fund future expenses. The quicker you get out of debt and start to build passive income streams, the more choices you will have
  • Speaking of frugality, I most certainly do not expect high income earners to exercise the same types of frugal behaviors as I do. Chazal tell us we should eat at our means, so I don't expect those with quarter million dollar incomes to be making the same choices as those with five figure incomes. The saying "it takes money to make money" is a true one. But even where you do have to spend additional money to maintain the sanity needed to do your job, maintain whatever image and social expectations might be required (e.g. inviting the entire office to a daughter's wedding), you can still exercise frugality, albeit on a different level, through patience and preparation. A good read is the book The Millionaire Next Door.
  • Make sure you have a great financial advisor and tax advisor on your team. I am not familiar with the all of the ins and outs of the AMT, but certain investments that might provide little return can throw you through loops, so you need to have a reputable advisors.
  • While I normally do endorse using competent professionals in the community where the prices and expertise are competitive, when you have high income levels, you definitely want to maintain a great deal of privacy. Don't feel bad about employing outside of the community.
  • Continue to maintain relationships with other high income earners, but also make sure cultivate friendships with a more frugal crowd to eliminate some of the pressures that come with running with a wealthier crowd.
  • Don't be afraid of your wealth. Hashem has given you an incredible gift to do many things, from building your own tuition "endowment" to giving tzedakah generously. Don't feel pressured to support everything because you have a high income. You still have the right to be prudent even if blessed with wealth.

I am really most interesting the advice my fantastic commentors will offer. But before I open the forum, I want to make one more note. This particular family is fortunate that they work a fairly normal work week. Other families with similar incomes often work crazy schedules that leave their additional funds tied up in hiring around the clock childcare, even as their children grow.

Comments. . . . . . . .

85 comments:

ProfK said...

Judging from the real estate taxes listing in the sample budget, the reader is assuming Jersey or Nassau County taxes. From that I'm extrapolating that the reader wants a nice house in a nice area.

If he wants a nice house, lower real estate taxes, a community with decent schools, a community where he will find those in his earning bracket as well as other brackets, a choice of shuls, plenty of community services and a very warm and welcoming community that is not polarized frumkeit wise, he might consider looking at SI.

Cost of real estate is cheaper than in Queens and Brooklyn and you get more house and property for less money relatively speaking. We have lower real estate taxes--he'd be shaving about $9K off of his budget. Insurance costs less here than in the other boroughs. As someone noted on a different posting here, JFS is only $6500 per year, and the RJJ schools are only a few thousand more. Nor would his income make him unusual--lots of couples here who make that much and more, so socially he could find his fit.

I guess what I'm saying is that he needs to expand his ideas of where he could live and look beyond the obvious.

rejewvenator said...

A few thoughts. First, having $2,250 left over is $27,000/year, which actually seems pretty reasonable. You should be able to afford all the items mentioned on this list. Having more kids is what will really pinch you, especially as you start hitting multiple big-ticket items, like bar mitzvahs and weddings, within short intervals of one another.

As for where to live, so much besides affordability goes into that decision, and when it comes to things like real estate taxes, those factors are built into the purchase price. Live where you have schools to send your kids and shuls you want to daven in, those are the most important factors.
The second point is that your tax numbers smell a bit off. Assuming you're married filing jointly, you should pay a final rate of 26.66% in federal income tax assuming no deductions whatsoever. Let's throw another 10% on for state tax, and that's a high estimate, leaving you with let's say 37% total tax, again assuming no deductions at all.

Keep in mind that when you buy a house, your mortgage interest is deductible, which can be a significant benefit, over $10k per year, depending on how much home you buy.

Anyway, my numbers are suggesting that you're putting away over 15% of your income into your 401k. While that's terrific, it's also way beyond what is realistic during the putting-kids-through-school phase of your life. If you brought that down to 10%, you'd have an extra $1500/month or so!

The last point is that your tuition expenses will vary. Early on, you're not going to pay $15k for kidnergarten, and later on you will pay more for high school. That works in your favor, since you can save in the early years for the later years.

Finally, I think you have to weigh out for yourself what phases of education you think your dollar can impact most. The CUNY system in NY offers excellent colleges at under $5k/year. If you have a truly brilliant child, save your money for helping them pay for a top grad school, rather than paying for an expensive college.

Dave said...

Do not postpone the 401(k) investments.

You get the most bang for your buck by investing for retirement early, not later.

Lion of Zion said...

"but schools in Brooklyn and Queens were considerably less."

i don't know about every school, but as far as some of the cheaper bklyn schools go, you get what you pay for.

REJEWVENATOR:

"Early on, you're not going to pay $15k for kidnergarten"

that is the ballpark range (if not low) for some MO pre-schools

Lion of Zion said...

SL:

i know that some of your advice is very sound (pay off student loans, build up a 1-year emergency reserve, etc.), but do you think that any of this should be overlooked in order to take advantage of a depressed housing market coupled with low interest rates.

Anonymous said...

ProfK - he might consider looking at SI.

I agree with most of your description about Staten Island. It is quite a nice community (I grew up there). However, there is one major negative - the commute. Commuting just about anywhere is generally more expensive and way more time consuming. I commuted to Brooklyn for 3 years via bus, ferry, and subway, and it took about an hour and a half in the morning, and often up to two hours in the evening. Later, when I commuted to NJ, I paid costly tolls everyday (Outerbridge crossing and Garden State Pkwy), and even worse tolls when driving to Brooklyn or to Manhattan (Verrazano bridge, now $10 or something like that). My mom still commuted to the city on the express bus and it takes at least an hour on a good day (and she still needs a ride from the express bus stop to the house most of the time).

This additional time spent commuting might result in additional childcare expenses, and less time with the children.

rejew - The second point is that your tax numbers smell a bit off. Assuming you're married filing jointly, you should pay a final rate of 26.66% in federal income tax assuming no deductions whatsoever. Let's throw another 10% on for state tax, and that's a high estimate, leaving you with let's say 37% total tax, again assuming no deductions at all.

The numbers are only a little bit off. I see exactly how you calculated the 26.66%, but you also need to account for fully funded 401(k) accounts before doing the calculation you did. That means $33,000 (2 x the maximum of $16,500 per person) goes into the 401k accounts right off the top. Also, as far as deductions (and exemptions!!!) go, at high income levels, they begin to phase out. The way I calculate it, their numbers are only a few thousand low. Also, they said they earn "approximately" $350k, so that could mean $343k, or something like that. And, in a place like NY with high income taxes, and/or with a bunch of kids, AMT [almost] always kicks in at that income level.

I would advise that they ratchet down their choice of house as a $3000 mortgage is very high (and as a fixed expense is unsafe in case one of them loses their job for a period of time*). Also, they didn't mention anything about car purchases (or loans) in their list of expenses. And anywhere they live in a house, they will have a car. They just don't have a car now because they live in Manhattan. Their utility list is missing communications which can run up to $200 a month with phone, internet, cable, and mobile phones. And pretty soon, camp expenses will be much higher, when the older kids "need" (ha!) to go to sleep-away camp at $6k a pop. Plus they might, just might, want to take a vacation once in a while, and that will cost some money each year. They are also assuming that no other family members will ever require help, perhaps elderly parents or grandparents.

Nevertheless, with judicious choices regarding housing, etc, these people can have a good life in NY if they so desire. Not an opulent life, but a good life.

Mark

* This is the most important thing to consider. If you set your fixed costs higher than your "emergency status" can accommodate, you might eventually hit big trouble. The odds of at least one of them losing a job sometime over a period of 30 years of kids in school is VERY high.

Charlie Hall said...

A $3,000 mortgage is about what it will cost to get a reasonable house in my neighborhood in Riverdale. But the property taxes will be around $400, not $1000.

SephardiLady said...

1. I would absolutely make fully funding 401(k) plans a priority at this stage. If Hillel was a financial advisor he might repeat the instruction, "if now now, when?"

2. LOZ-Under some circumstances I might say, hey, why not, jump! I also don't think we are headed back to a crazy hot market tomorrow either. So, a family with a lot of income that commits to the goal of knocking off the debt and building up reserves (which will need replenished after the downpayment) should be able to still buy at a low enough price.

Also, I heard there are families jumping in that are taking out ARMS in this market! So on that note, only take out a fixed rate loan.

3. I concur with Mark's comments on tax and missing expenses.

ProfK said...

Mark,
The commuting expenses and time are going to be an issue everywhere but Manhattan and maybe Brooklyn. A monthly pass from the 5 Towns on the LIRR is now over $300 per person and you still have to get yourself to the train, so think a car. The SI express buses also went up, as did all regular buses, and yes, it's an hour's commute. So is Woodmere to the city. Live in Kew Garden Hills and you have to take a bus to the train. Again, double costs and time. The bridge hikes for SI residents are not the posted hikes--resident discount will make the bridge about $5 and change. And no matter where you live in the outer areas of the city or in Jersey, once you get to Manhattan you are going to be paying subway/bus fares to get you to where you have to go. Unless you live in Manhattan you are going to be paying more money and more time to commute.

Good point about the missing expenses. Certainly computers need to be figured in. But a couple making this type of salary also must figure in clothing/hair maintenance of whatever kind. You don't make this type of salary and walk into the office looking like a shlump.

I agree with SL--you put as much as you can into your 401K now while expenses are still relatively lower. You can't start saving for retirement in your 50s and expect to have what you need.

Bottom line is that the NYC area is expensive one way or the other. Save on tuition and you may pay more in other areas. Pay less in these areas and pay more in tuition. Pay less monetarily and you may pay more in commuting time. If there is an ideal financial/time location no one has found it yet.

tesyaa said...

Charlie Hall, I know outer boroughs have low taxes compared to the suburbs, but don't forget to factor in NYC income tax.

Mark, a $3000 mortgage isn't so unusual or high in the NY suburbs.

SL, I'm surprised you didn't suggest that the mother should stay home with the kids.

Ezzie said...

ProfK - My bus + train commute is 40-45 minutes from KGH to Midtown (and downtown is just 5-10 minutes more).

We'll be iyH pulling in a nice six-figure combo in the next 12-month period, and we'll have 0 left over, despite just one kid in pre-school and one kid with a shared babysitter and despite living in a run-down rented 2-bedroom apartment. If we were paying tuitions we may as well give up.

tesyaa said...

Ezzie, intriguing choice of words. Give up? Meaning what? Public school? Beg for scholarships? (be sure to have no retirement savings or any discretionary expenses). Have fewer kids? People have a hard time facing that one.

Anonymous said...

It's hard to give more advice without having more information. For example, the ages of the husband and wife and how much they already have in 401(k)'s could affect whether or not they are over-doing their savings. What their jobs/professions are could also affect how easily they could move to an area with a lower cost of living and still have similar salaries and work hours. Age an job also would give information as to whether their earnings might increase.

Anonymous said...

I don't agree that just because this couple has very high earnings that they have to or should be spending a fortune on bar mitzvahs and weddings. Wouldn't it be nice if they set an example and had modest simchas. I don't agree with SL that they might have to invite everyoone in the office. For example, they can let their colleagues know that it's limited to family and neigbors, or members of their shul. The potential problem is when you invite some work colleagues but not others.

baruch said...

In order to live in Bergen county new jersey and be orthodox with three children - you need $300,000 to break even - the writer of the letter is 100% correct - ever hear the expression - "its the economy stupid" while for bergen county orthodox jews "its the yeshiva tuition stupid" $15,000 for elementary and $25,000 for high scholl

baruch said...

this couple is also paying an additional 7.5% in FICA on the first $100,000 of his income and her income $200,000 together - all those who calculated their taxes forgot to include it - they pay pay $15,000 in fica - they also pay medicare tax to their last dollar -

there are three solutions to yeshiva tuition problem 1) home schooling, 2) public school 3) or aliya - we are considering home schooling our youngest until she gets to highschool

JS said...

I found this post very interesting. A few notes for the letter writer:

1) Get an accountant who is familiar with high income tax returns. Many deductions you THINK you may be entitled to (as you hear people with lower incomes mentioning) are phased out for your income. For example, you can't deduct your student loan interest. You also won't be able to deduct your property taxes. You will also be hit by the Alternative Minimum Tax. There is a lot to consider here, so get a good accountant and have him advise you on how much house you can afford. Having a frum accountant, or at least explaining tuition costs, will help keep things on the level.

2) Look for a nice house that can be expanded instead of a huge house right now. This will keep expenses lower and controllable and allow you to decide when and if costs should increase. For example, a $600k house that has a great flow, but needs updating and can be expanded over a garage or back into the yard is a better option than a $850k house.

3) Decide where you want to splurge and where you want to be frugal. Maybe vacations aren't important to you (or maybe they are given how hard you both work), maybe you don't care about driving a fancy car. Maybe you don't need a 60" LCD TV. Whatever it is, pick your luxuries and then save on the rest.

4) Keep a low profile and don't advertise your wealth as it will make it much harder to save.

5) Consult with a rabbi if necessary, but don't feel like you must give astronomical amounts to tzedaka. Because of your income you will NOT get breaks on tuition (many schools are $15k just for K-8 and $22k+ for high school). Ironically, perhaps, you need to save more than others because no one is going to cut you some slack.

Ahavah Gayle said...

I wonder if instead of paying tuition for their kids, they have realized the amount of money they can put into their education would hire a young credentialed teacher for academic homeschooling and a bochur for Torah education? They could have an academic teacher mornings and Torah afternoons, or vice versa. $500 or so per month per child would be a fortune to a college student and yeshiva bochur to do this for 4 hours a day, for a total of only $2000 per month (two kids) for 9 months a year, that's educating two for the price of one at a dayschool, basically - something they would NOT qualify for at their income level. Throw in some sports and hobbies in the afternoons for socialization, library trips, museum trips, etc. and you have a top-notch private education at half or less the cost.

Miami Al said...

Buy the cheapest starter home you can. It will keep down on the harassment for money, and has been pointed out, the long term financial health of the family is based on what you do now, not in 30 years. Assuming post-mortgage/post-tuition, you can maintain your lifestyle in retirement on 250k in 2009 dollars, and assuming a 4% withdrawl rate, and assuming no social security, your "number" for retirement is 6,250,000... The reason I'm starting there, is screwing around with 401(k)/IRA contribution levels is backwards, that's the target. Depending on assumptions of rate of return, etc., you can probably get that by socking away 500k by 35, or 1M by 42... run your assumptions.

Basically, if you can front load the 401(k)/IRA, you can setup your retirement in yours 30s and just let it sit. I took that approach, since when I have small kids, there aren't "expensive" things to do... I'm not taking them on a cruise, they'd prefer the park, so I'd rather sacrifice disposable income now for disposable income when I have teenagers, YMMV.

I would suggest the cheapest starter home you can get on a 15 year mortgage. Retiring student debts is nice, but it's low interest debt, and the long-term return on your 401(k)/IRA/Mutual Funds will be higher than the student loan debt.

Max the 401(k)s, make the IRAs (non-deductible is fine, you can convert in 2010 regardless of income, so that's 20k you can shelter).

The social pressures to spend pick up as you get older, so take advantage of your younger years to sock away... I started that way, and it blew up when I bought a nice house @ 25 and suddenly had 35-55 year old peers.

If you can earn 350k and live like you make 200k, you could sock away 100k/year after taxes... If you do that for 5 years, you can probably fund retirement. If you can do that for 7-8 years, you can probably fund college as well. Then you can ramp up to your current income, and contribute to 401(k) or not, you have the flexibility.

Ignore the people saying scrimp on college for the kids... you each earn 175k, you probably both have educations... you should be shooting for 4 Ivy League educations paid in cash, plus 4 graduate schools (Law, Business, Medicine), not all the kids will pick that route, but be ready for it.

Regarding cheaper areas... you'll save on tuition, but if your kids peers are living like paupers by high school, they won't shoot for success, especially if they are in an anti-success rightwing school.

Consider some tradeoffs... Could you stomach public school for K-3 with the older ones while the younger are with a Nanny anyway, then move them all to Day School at that point? A nanny + van (leaving you with cars) is only going to set you back 3k-4k or so a month, way less than tuition would be.

Again, if you can have retirement and college funded before you have 4 day school educations to pay for, you're WAY ahead of the game.

Houses have huge expenses, something is always breaking. I love my big house, but it's a money pit.

tesyaa said...

Ahavah, hiring a teacher for homeschooling and throwing in extracurricular activities may save money, but requires a lot more supervision and monitoring on the parents' part than sending them to an established school. Probably too much time for a two income couple, even a couple working relatively sane hours.

tesyaa said...

And Ahavah, I don't know what rate you're figuring the tutor / rebbe would charge, because I can't tell how many children you're counting, and I can't tell if you're having one teacher teaching several kids in multiple grades. Tutors and rebbes charge as much as $100/hour. I don't think anyone decent is going to work for $500 per month.

Anonymous said...

Charlie - A $3,000 mortgage is about what it will cost to get a reasonable house in my neighborhood in Riverdale.

tesyaa - a $3000 mortgage isn't so unusual or high in the NY suburbs.


At today's rates, $3000 is the payment on a $550,000 mortgage! And I thought my mortgage was too high.

Mark

Anonymous said...

tesyaa - SL, I'm surprised you didn't suggest that the mother should stay home with the kids.

Hey, if the mother can earn $175,000 (about half let's say) a year, then it makes sense to work outside the home. If my wife could earn that, she would be working outside the home as well!

In most cases, it's ideal for one parent to stay home with the kids while they are very young, however, it's more ideal to not give up $175k a year of income, and the career advancement that comes with the additional years of experience.

Mark

Phynance said...

"Regarding cheaper areas... you'll save on tuition, but if your kids peers are living like paupers by high school, they won't shoot for success, especially if they are in an anti-success rightwing school."

I agree with a lot of what you write. You might want to consider though that not everyone's definition of success will be yours.

Phynance said...

Regarding paying off student loans and the assumption of significant mortgages, these should be considered carefully. While psychologically it might be easier to avoid debt, these can have low interest rates and/or tax advantages which might make them worthwhile. And don't forget that mortgage payments include principal as well as interest.

Miami Al said...

Phynance said... "I agree with a lot of what you write. You might want to consider though that not everyone's definition of success will be yours."

Correct, but if success is your child being able to earn the equivalent of 175k in 2009 dollars (same as the parents), then it is the same.

If success is make that high income stretch two generations and support the next generation on stipends at Kollel, then the definition is not the same as mine.

I am assuming that the family values their high earning power, and wants to transmit that capability to the next generation.

Anonymous said...

Hi,

I'm the one who posed the question to SephardiLady. Just trust that it was me. I greatly appreciate everyone's thoughts and comments and the time that everyone has taken to write. Most specifically, let me thank SephardiLady for her noble efforts as she is definitely being M'zakeh HaRabbim with her blog.
I need to break my thoughts into three separate posts because of length.

Let me just say a bit more about us and then I will make some general comments and then respond to some specific thoughts & comments. We are in our late 30s and reasonably established in our respective professions. We live very modestly, don't like to waste money, and don't do things just because the neighbors do them. We don't take fancy vacations, go away to a hotel for Pesach, have designer clothes, etc. We shop at the Children's Place four our kids clothes, not the GAP, not Nordstrom. We drive a 7 year old car that we bought used. I personally would like to move from the NY area, but for a variety of family and professional reasons it isn't a real possibility right now.

SephardiLady is right about taxes: we paid a lot last year, with over $22,000 going to New York State and over $12,000 going to New York City. We also paid about $10,000 in AMT taxes last year. Some readers may find this funny: I'm actually a CPA, but I don't work with taxes. I work as an auditor. I point this out to demonstrate to the readers that although I'm hardly perfect, I have a reasonable understanding of finances and taxes.

About that mortgage: Simply based on the numbers we could afford a $1,000,000 house, but that's never going to happen. My general impression from the NY suburbs is that you can buy a starter home for about $400,000 or a nicer one for $600,000 and up. My estimate of a $3,000 mortgage was based upon a $600,000 home, with us borrowing $500,000. That's a lot of money. I'd consider doing this because we're reasonably established, have reasonably safe jobs and we wouldn't plan on moving for a long time. Still, a $600,000 home is hardly the epitome of luxury around here. I'm very much on the fence on this one and I do understand those who say to spend less. NEVERTHELESS, sending 4 kids to yeshiva @ $15,000 per kid, will cost you a lot more than a $500,000 mortgage.

Anonymous said...

Some specific comments to readers :

To SephardiLady: Again, thanks for the thoughts and time. I think the most important and profound thing you said was to position ourselves in a way that we can make choices, whatever they are. In our case, choices will not be between a Lexus or Mercedes. It will be to use our money wisely on chinuch, our home, etc. We're extraordinarily fortunate that we could spend $60,000 on yeshiva tuition, but my inner feelings tell me there's something extraordinarily wrong about doing so.

To ProfK: You make good points about SI, but its not really workable because its too far from work/family. Also in our case the low property taxes would be offset by the city income taxes. Because of our income levels we're basically at a wash between lower property taxes/city income taxes and higher property taxes/no city income taxes.

To rejewvenator: You're correct that $27,000 per year is a lot of money. BUT, that's $27,000 before giving a dime to charity. Last year we gave about $35,000 to charity (I don't say this to be self-righteous, but just to give some perspective.) It seems awfully backwards to me to potentially spend a ton on tuition and then be very limited in giving to those who really don't have what to eat. We didn't go to any charity events last year, partially because we don't like going, partially because the charities we give to don't have events. They need every penny for their basic missions. Regarding your comments that the numbers are off, I'm sure that's true to some extent, but not any significant extent that would dramatically change the discussion. But the 55% is very close. If its not 55%, maybe its 57%.

To JS at 10:48am: You'll laugh again, but I am a CPA. And yes, we get killed because our state and city taxes, and dependent exemptions are negated because of the AMT. I'm also expecting that we'll pay full price for everything. That's OK. We're B"H doing very well. But I don't want to be pillaged by school administrators looking to fix their shortfalls. We're hardly looking for a huge house, just something that is in reasonably good shape. We don't want to splurge, but we don't want to have to do a gut renovation. From what I've seen, the minimum you're looking at is about $500,000.

Anonymous said...

To Miami Al: Absent tuition, we could easily save way more than $100,000. We don't spend money to impress our neighbors. Unfortunately, we pay a ton in taxes that the folks in Florida are spared from. Those are the breaks. We're saving for college, but we're not overdoing it. You can borrow for college, not for retirement. You make a fair point about anti-success right wing schools, but that was never really in the cards. I'm looking for a low key moderate education. Both my wife and myself went to no frills schools and did OK. I hardly believe that everyone needs to go to Ramaz or they'll be destined to a life of poverty. Quite the contrary: Many who went to Ramaz end up going to CIty or State University of NY. But the absurdities of many schools nowadays is just beyond belief.

My last thoughts circle back to what SephardiLady said about choices. The choice to spend $15,000+ on a first grade tuition is beyond obscene, in my opinion, and not one that I plan on making, irrespective of whether I can pay for it. If I were to say to my three year old son, I'll spend $10,000 on your tuition, not $15,000, but the extra $5,000 I'll save for you through high school each year, he'll have a lot of money come college and probably be thankful. I think you can get a reasonable education for $10,000. It might not have the bells and whistles and clubs and whatnot, but who cares? When I was in elementary school 30 years ago who had ever heard of clubs? I'm sure some people will say that we should do the absolute most for our kids, send them to the best school, etc. I understand those points, but I have to disagree with the value system that requires parents to impoverish themselves sending their kids to a fancy yeshiva. The moment we have to start asking our parents for tuition money on a recurring basis is the moment I start looking at public schools.

There's one other thing I should point out and many have said something to this effect on the blog. Practically all of us need to be careful because most of us are just one small step from disaster. One messed up tiny nerve or vein or muscle, and all hell breaks loose. We all get by every day through the extraordinary mercy of God. We literally dangle K'chut Ha'Saarah (strand of hair). Thoughts like that make me want to scream parents using all their disposable income on frivolities. What I take from this is to live way beneath your means, when possible.

Again, thanks.

Ahavah Gayle said...

Tesyaa,

A hundred dollars an hour is highway robbery. If that's what tutoring costs in the NY area, then that's just another reason to leave NY.

Avi said...

@letter writer:

Your numbers are accurate, as are your assumptions on home prices (once property taxes are taken into account). The one thing you probably aren't taking into account is that the 15K in tuition includes about $3K of tzedaka, because (according to an earlier thread on this site) the school pads tuition fees to pay for scholarships. Not sure that will make you feel any better, but thought I'd put it out there...

If you do find a "basic" school for $10K that meets your needs, please let me know which one it is - I'd like to send my kids there, too. In the meantime, RYNJ in Bergen County is closer to $13,500 per child once everything is included. Not $10K, but not quite $15K, either.

SephardiLady said...

To my questioner: Thank you for writing more of your thoughts. I have to concur with you that regardless of whether a person has the money or not, the tuitions have reached the rate of seriously ridiculous. And I'm glad you found value in the advice to try to best position yourself in a position where you can make choices.

More later, but I'm one busy person today.

tesyaa-You are correct that I have often made the point that staying home can be a great choice and a financially sound choice mothers. I think the variables are quite different in this case.

Another commentor asked why I didn't recommend a modest simcha for the sake of modesty. I do believe in modesty and have almost always repeated the mantra to "tone it down." I was recognizing that sometimes there are pressures that need to be dealt with, and if someone feels it really is a need to make a large simcha, that doesn't mean frugality need to be abandoned completely. One can exercise prudence within different boundaries.

I have a feeling that this family will exercise the choice to make a more modest simcha.

Anonymous said...

rynj is about $15,000 per year if you have one kid in the school

Anonymous said...

questioner - Thoughts like that make me want to scream parents using all their disposable income on frivolities. What I take from this is to live way beneath your means, when possible.

You sound almost exactly like us! Except with a higher income (only I work outside the home) and fewer kids (we have 5 k"ah).

Mark

Ezzie said...

To the letter writer - Very interesting comments. (Former auditor here, also have little tax knowledge.)

FWIW, where we are in KGH, Queens a nice house is about $600k as you said. (And if you're stuck in NY-NJ, Queens is great in terms of it being very "out-of-towny", or as people put it here, "live and let live".) Our friends just bought a semi-attached 18-ft. home in a very good location for I believe it is for a little over 500k, so a detached would run a bit higher than that.

Ezzie said...

Tesyaa - All seriousness, on give up, here are the options:

1) Keep trying to plug away hopelessly (what we'd probably do).

2) Screw it, live however we want, then ask for scholarships, etc.

3) What most people do, I'm guessing: Don't live extravagantly, but no longer feeling that it's worth trying so hard to get ahead. Just live normally, nicely, nothing too crazy, and if that means needing a small scholarship, that's just how it is.

Sadly, I think that's exactly how much people feel forced to approach things for sanity's sake.

Avi said...

@Anon 8:05PM -

Yes, RYNJ tuition+registration fee for K - 5: $12,250. Annual family obligation: $2,625. So it depends on how many children you have in the school. One is $15K, two is $13,500 each, etc.

@letter writer,

Your best bet is to buy a nice starter house ($400K in today's real estate market buys a nice 3 bedroom cape or an 'OK' 4 bedroom split), live well beneath your means, and then improve the house over time out of savings rather than take a bigger mortgage on upfront or additional loans. It seems insane to live so modestly on your income, but you can pretend that you're Warren Buffet if it makes you feel better. Another way to look at it is that if you take out a smaller mortgage, you're more able to ride out any bouts of unemployment. I don't care how big your income is, I wouldn't be comfortable with $500K in debt (plus student loans, plus another car which didn't figure into your calculations).

Alexis said...

The problem with blaming the "bells and whistles" is that they are not responsible for the high costs of MO schools. The bulk of the budget is personnel costs. MO schools are expensive because they pay their teachers relatively well and give them benefits. Keep in mind that average per pupil costs in public schools in the NYC suburbs can be $12K, and they only need one set of teachers.

Sure, there are some schools that have very fancy new buildings and what have you (and one I know of also has a hefty $8K/family building fund charge) but in terms of yearly budget, it's the teachers that are costing you, not the clubs and the gym.

Commenter Abbi said...

"Many who went to Ramaz end up going to CIty or State University of NY. "

This is quite true and I don't see the contradiction at all. Ivy League schools are not for every kid and not every IL is what it's cracked up to be.

I went to Ramaz and then to Stern. To this day, I value my education from Ramaz and found it better then my college education by leaps and bounds. College was a piece of cake and I didn't get much more out of it then what I got at Ramaz. And it wasn't the "bells and whistles". It was simply an excellent education, including comprehensive, basic English composition so that almost everyone leaving the school knew how to write coherent sentences and papers, critical thinking, literary analysis, exposure to all the classics of English literature.

The Tanach education was excellent. The Gemara left a lot to be desired and I didn't really learn how to learn Gemara till graduate school. Them's the breaks.

The secret to this great education? Almost all the subjects were taught by people who had PhD's in their subjects and who dearly loved what they taught.

Commenter Abbi said...

Sorry, I didn't read Alexis' comment before writing my own. I agree and will add to my comment on the PhD's: You get the personnel that you pay for.

PhD's with 20 years of teaching experience will cost more than a girl right out of Beis Yaakov seminary.

Lion of Zion said...

ABBI:

you don't think a phd is overkill? (as is semicha for a 1st grade teacher.) a lot (if not most) of those ramaz phds work there only because they can't get an academic position without leaving the new york area.

Commenter Abbi said...

LOZ: Overkill for what? I'm not saying that it's absolutely necessary for a school to hire PhD's in order to offer a great education. I'm explaining why the Ramaz education was so great (ie: it wasn't the extra curriculars or school trips - it was the personnel).

As for the reasons why so many of the teachers are PhD's: so what? Why does it make a difference to the students or to the school that they couldn't get an academic post without leaving NY? If I was in the same position, which I almost was if I had followed my heart and filled out my GRE application at the time to pursue a PhD in English, I would gladly have taken a well paid post at Ramaz with benefits vs. a crappy adjunct job a U of Timbuktu with no benefits.

Anonymous said...

PART 1 of 2

Hi,

I’m the original letter writer, back again for more fun. I’m somewhat surprised that I’ve raised such interest. Maybe that’s a good thing. It’s especially surprising when you consider that I live an extremely anonymous life, and that’s how I like it. Let me offer some comments to some specific commentators. I need to split this into two for length purposes.

To SephardiLady @ 7:52: You can be assured that our simchas, God willing, will be modest. I cringe when I hear people spent $100,000+ on a wedding. My wife and I got married five years ago and had a very low key affair with 200 people and we spent approximately $65 per couple. I’m reminded that my father has said when he was Bar Mitzvah in Williamsburg, Brooklyn millions of years ago, they had a couple of plates of marble cake, kichel, herring and maybe kugel at the Kiddush. No DJ. Magician, 8 piece band.

To Anonymous 9:51 pm (Mark): We’re exactly like the commentators on the blog who struggle with financial decisions, even though we’ve been very blessed. The fact that we might have more money than most folks doesn’t make us snooty or wasteful. From my standpoint, being blessed as we are means that when I’m in the supermarket I don’t insist that I buy whatever is on sale, even though I’ll always look for what’s on sale. My largest recent extravagance was a $1,700 ceramic crown for my cracked tooth.

To Ezzie at 10:14 and 12:02: I actually would like to move to Queens for the reasons you’ve described. I’m not sure that I can convince my wife. You also say ask for scholarships. I’m all for asking for scholarships if someone really can’t afford tuition. There’s no shame in that. But there’s an extraordinary problem if 1/3 or ½ or 2/3 of the parent body can’t pay full tuition. Doesn’t that say something about the relationship of income and tuition? If a family is earning $100,000 per year, maybe they can pay full price of $15,000 for one child. But beyond that it’s an enormous squeeze. But remember that Yeshiva is really a necessity, not a luxury. If someone can’t afford a Lexus, I’d say buy a Honda. But if you can’t afford a Yeshiva, public school isn’t a great option.

Anonymous said...

PART 2 of 2

To Alexis @ 2:51 am: I fully agree with you that the bulk of schools costs are personnel. But there’s still something very wrong. I don’t know if schools have too many teachers, are paying them too much or have too many administrators, but consider the following: During my last year of elementary school, 1984-85 (Yikes!!!), tuition at my MO no frills school was approximately $2,500. In today’s dollars (about 25 years later) that’s the equivalent of about $5,100. Even if Yeshiva costs rise somewhat faster than the rate of inflation, why is tuition 4, 5 or 6 times that what it was in 1984? Maybe parents should ask their administrators this question. I’m reminded of the Gemara that describes how exacting God is with the money of Tzaddikim. I can’t help but say that school administrators are hardly being exacting or even moderately careful with the parents’ money.
If you look at what people earn nowadays and what schools charge, it doesn’t take an Albert Einstein to figure that the model is not sustainable, regardless of what the public schools spend per child.

To Abbi @ 3:47 and 3:52 am: I take strong issue with those who say that unless you go to a prep school you’re destined to a life of mediocrity. My point about Ramaz was that many Ramaz students end up in the same place as many students who went to other schools, although students attending other schools have probably saved over $150,000 in K-12 tuition. You can be very successful in life not having gone to Ramaz, and you can also do poorly even if you go to Ramaz and Harvard. You’re also correct that PhDs will cost more and be better teachers than Bais Yaakov seminary graduates. But that’s setting up a slanted equation to prove your point. There’s a lot of room between a PhD and a Bais Yaakov seminary student. My overall point is that I’m sure you did get a fine education at Ramaz, but paying $25,000+ for a first grade education (and more for high school) is absurd beyond belief. If you want to go spend that type of money, that’s your option. But I hope you realize that even one Ramaz tuition is WAY MORE than most families can afford to pay. And considering that Yeshiva is a necessity, you can’t have a system where costs are so high that they exceed most people’s ability to pay.

My final thoughts: I’ve been left wondering why tuition costs have spiraled out of control. I’m beginning to wonder whether we’ve been obsessed with following the “goyim” and their prep schools with clubs, and athletics, and multiple teachers per classroom. I get the feeling that as we as a people became more successful, we’ve felt a need to emulate what society does. Otherwise, how do you explain that the tuition question is such an enormous problem right now? Let’s have a poll: how many of us over 35 went to a school that had a drama club, basketball league, multiple teachers per classroom, numerous layers of administration? I think the answer is not many.

Thanks!!!

Commenter Abbi said...

Hmm, I really can't say much about where students do or do not end up after leaving Ramaz and since I graduated in 93 when tuition was still around $9000, I can't really speak to the reasons for why it spiraled so out of control. I was only reflecting on my own experience of the quality of the education, which was excellent. I didn't go on to Ivy League nor did I end up in a high powered, six figure salary career. I'm a work at home mom living in Israel.

Despite this, I still greatly appreciate my Ramaz education, much more so then my YU one, even though I seem to be living a life of "mediocrity", as it were.

You're speaking to two separate issues- the quality of the education itself and the results of a school's education (what you your tuition money "buys" you) ie: "good Jew", "frum Jew" "successful adult", "critical thinker" "Ivy League graduate", "high salary earner". A Ramaz education does not guarantee any of the above but neither does any other school.

Does it provide a very high quality education, l'shma? I would say, in most cases, yes.

SephardiLady said...

Alexis-We've discussed the "dual curriculum" argument before. I still don't buy it. In the public school price per child they pick up a pricy athletic program including a lot of transportation, a "dual" vocational program with auto, wood, and metal shops and staff, nice benefits for their staff including some sort of retirement or pension, English as a second language, alternative schools, and (a real biggie) special education costs which can be massive to say the least.

I think it is simply a numbers game. The public schools have a large student body and share resources. Our schools each make Shabbat for themselves and there is a lot of duplication.

JS said...

In terms of why tuition has spiraled out of control, here's my theory:

1) I just got an "update the alumni" magazine from Frisch and it's just page after page after page of crazy extracurriculars that didn't exist when I was there. They also go on and on about all the technology labs they have and how every kid designs a "wiki." The drama club has a professional looking set. They have SMART boards. You get the idea.

2) Related to #1, the schools aren't using donations properly and/or aren't properly directing donors in their gift-giving. A school shouldn't be accepting $250k (for example) for SMART boards when tuition is so high and so many parents can't afford the school. It's a useless extravagance and doesn't substantively add to the level of education.

3) A snowballing effect that if you're paying so much for school you should get more for your money. This of course leads to the school providing more and realizing they need to charge more.

4) More and more parents not earning enough money and more and more parents not willing to try to earn more money because all it means is less scholarships.

Anonymous said...

I am not the original poster, but I am in a similar situation. My wife and I are in our mid to late 20s and have a combined income of about $325,000. We don't have children yet and are looking to buy a house.

It is incredibly upsetting and depressing to be making so much money on paper and still feel so limited in the choices we have to make in terms of what kind of house we can afford and the fact that despite our earning power, things will be tight.

When we think about children it's not even a possibility that my wife will be able to stay at home (we earn roughly the same). We simply won't be able to get by on only one income when tuition is considered.

Miami Al said...

I think that there are lots of luxuries that can benefit children, and people choose those that they value. Camp provides a sense of independence, opportunity to explore, outdoor activities daily (I went to a non-Orthodox camp, I don't know that the Orthodox camps offer that), etc., and is a wonderful benefit.

A family trip to Europe with its sights and history would be of benefit to children. Heck, going out to Asian restaurants enough to teach children to use chop sticks is a form of cultural learning.

Living in a nicer home, with more room for kids to live... kids seeing parents get dressed up to go to charity events and learn how to function in high society is a benefit.

A happy couple, that shows children that parents can be loving of each other in addition to children is a benefit. A hot breakfast and hot dinner every night is a benefit to children. A child, having chores around the house, and a job after school, can foster independence.

Every family needs to choose what advantages to give their children with the resources at their disposal. The "old boys network" of prep school, elite colleges, and charity events is part of how the elites keep the next generation elite, that's a benefit if you want that for your children.

I think that Jewish Prep schools that compete with the gentile ones are VERY important. HOWEVER, rather than over charging and under delivering with scholarships, they should use multiple child discounts to help MO Families have more children, but they need to exist.

The MO "Master of the Universe" needs to be able to educate hit children as well as the Protestant "Master of the Universe" sitting next to him. They aren't the problem, the Orthodox Prep schools AREN'T in a tuition crisis.

Pointing out what they can spend money on is pointless, focus on the rest of them.

No school guarantees anything (including that your children will marry Jews and/or remain observant). However, to pretend that elite high schools don't help because some kids go to crappy schools is absurd. My secular prep school had a class of around 180... 8 kids went to Harvard, 10 at the rest of the Ivys, and another 10 at "Ivy caliber" schools (MIT, Stanford, Duke, the military academies etc., regional schools at the Ivy level)... Dozens went to small private liberals arts colleges of dubious value but then came back to take over family businesses.

To pretend that the elite schools offer nothing is absurd. Now many posters here don't value that, and that's fine, but for those of us that value it, it's important.

My family isn't terribly "frum," we run in our business and professional circles and the social scene that matches... but we have a nice family Shabbat. That's not what most posters here want for their families, and I respect that... what I don't respect is those that want to earn a middle class income and live an upper middle class life... you want the "good life," earn it, and try to enable it for your children.

We may need community supported Yeshivot for the poor families with 8 - 12 children... but the model for that is the Catholic schools for poor students, not the MO Palaces that get derided here.

Anonymous said...

BH there are a few of us in this boat so let me share my experiences with the group.

Married, 30, $200K+ income, 3 kids.

1) I often get the question about how a young couple with kids can make $200K+ per year. This simple answer is G-D, and this is so true! From a Hishtadlus standpoint it is School! My wife and I both have graduate degrees and did not stop our schooling until we knew we had enough. By going to state schools, 1 Ivy League school, some help from parents (less then $25K per set of parents) and student loans our monthly student loan bill is $263. Definitely worth it when you look at our earnings.

2)You can make great money in any profession as long as you are convinced you will be really good at it, an expert. Our professions don't matter, what matters is that by choosing professions we truly enjoy we have been able to do work our way up quickly to expert status. Choose wisely.

3)DO NOT BUY A STARTER HOME! Buy a home that you can afford, ask your accountant and mortgage broker what you can afford. We almost made the same mistake many of our friends made and ended up purchasing a lower end home. These tends to be a money pit. We bought a home on the higher end of our affordability spectrum and now have a home we will not have to put any money into for the next 15 years. That means we don't have to save up for home repairs (new kitchen, bathrooms, basement, floors, roof, AC). We can save up for college, simchas etc.

4) RW yeshivos want cash and are willing to negotiate their tuitions based on an understanding that they will not have to chase you for tuition. I open up our books and the administrator and I come to an agreement as to what is reasonable. I give him my debit card number and he is thrilled. I have beend doing this for 4+ years now.

Dave said...

We're back to the elephant in the room again.

Secular families who send their children to elite prep schools (with comparable tuitions to those being discussed here) have small families.

What is affordable for two children is not affordable when you have five or more.

((And even then, part of the reason there were issues in the New York Public Schools this fall is that families were pulling children out of private schooling because of fears of tuition and the economy))

Anonymous said...

What I think is sad is that even on high income families, tuition is a source of challenge (to a certain respect). Even more so, for the "regular middle class" or the poor.

My husband and I earn close to $150k/year with one kid and another on the way. We can afford to send one kid to yeshiva, possibly a second. Beyond that there is no way - and we arent big spenders.

Miami Al said...

So do we want bigger families, and more Jews, or smaller families with private school education? That's the choice with limited resources. A no-frills/no-scholarship solution would help upper middle class modern Orthodox families with 3-5 children, provided those no-frills schools are able to place them into competitive college environments.

More children, less income, more expensive schooling is a disaster. Economics is the study of unlimited wants and finite resources, what is the priority.

Our failed leadership wants lots of children, but tells parents to spend more money per child... that's not viable. If you want more children, the cost/child needs to go down, not up.

Camp is a luxury for the rich, private school is a luxury for the rich. Time to explore Charters and Talmud Torah, or stand around while the system collapses.

Offwinger said...

I'm also in the same general income/lifestyle bracket as the the guest poster. We don't have any kids yet, but we've each independently and now together made career and lifestyle choices that place us in a similar situation thinking about the future.

I've already written in other comments that I'd like to see more creativity in educational approaches.

What I would ask the guest poster is: what amount would you feel, in today's dollars, is the "right" amount or "enough" to devote to your future child's Jewish education? That is, assuming your income level stays roughly the same, and given how you prioritize other experiences & opportunities, where does this fit?

Let's say we agree that $10,00 is "enough" for any child K-8.

Without getting into the tax issues (which obviously change the numbers), imagine that you have three different families with 2, 3, and 4 grade school children each. Nine kids total.

If these families pool together, they now have $90,000 to hire someone to tutor or educate their children. Or maybe they can split the money between two teachers $45,000 each. But each teacher would only have to spend half a day with the 9 kids.

The numbers here are sketchy, of course. You can't pay people and not have to withhold & deduct taxes. There will be other educational costs, such as books and computer software, maybe some trips/transportation. There also is a LOT more parental involvement necessary. For the most part, you would be using the same clubs and extra-curricular activity options available to kids who homeschool. Some of those might have some costs, though plenty are cheap/low-cost.

Some states will let you set up a "co-op" school, which is really the same as homeschooling, but using more tutors and being able to educate someone else's child. Other states are more restrictive. From what I gather, NJ is an easy state to do this, NY would be very hard.

The key, though, is not that I've solved the tuition crisis. It's that for someone who is saying "I can afford $10,000" per year for education for 2 to 4 or 5 children, you are in a different situation than someone who can not afford anything beyond $5,000 per child or even that.

There are options in this co-op type model to explore that are not:
(1) traditional yeshivah or MO school;
(2) homeschooling alone; or
(3) public schools.

Personally, I think the $10,000 figure is even high, once you average out the hours over a 35 week school year, because a child in grade levels K-2 isn't or shouldn't be expected to be "in school" as many hours as a child in grade levels 6-8. And once you hit the high school age, my instinct is that you'll really want to involve your child in making a decision about what type of schooling they want. If your child WANTS to go to the local MO school, that may affect how you feel about it.

Prior to that point, though, I'm willing to say "$30,000" of my income is going to educate my 3 children, and then I'll be more active to steer how that happens. I think it's time to realize that a small group of families making this choice together can have more options and more voice than going it alone.

Anonymous said...

Offwinger -

I totally agree with you from a RW standpoint. The current yeshiva model is built to sustain those who cannot afford full tuition. If any parent with 3-4 kids would sit down and think about what full tuition would cost them over the next 12 years they could easily find reasonable alternatives.

This is the biggest fear that yeshivas currently have, because the families that can't afford tuition now also won't be able to afford any type of alternative solution either.

Offwinger said...

Anon -

I'm not sure whether the yeshivahs really are afraid of this. Maybe it depends which yeshivahs we are talking about (small RW? MOs? etc.).

I also think that there is a lot of fear-mongering going around trying to deter people from coming to these conclusions about reasonable alternatives. It's one thing to be creative about education in theory. People are very afraid about gambling with their OWN child's future.

There are the institutional leaders and representatives, who stand to lose now if the system is changed. Yet for all the kvetching about the tuition crisis, some of the people insisting on a yeshivah education for every child & shooting down any alternative, are precisely those people who ARE being subsidized by others. This "system" - that of universal yeshivah private school education for every child - is collapsing. We can all see that. Whether it's the reality for next year or five years or ten years, this path is not sustainable.

It might not be a popular communal position, but I'd rather find my alternative solutions now, before I'm asked to throw lots more money at the "crisis," even if it requires me to be different from everyone else or a pioneer in this regard. I just hope that by the time I have a school-age child, I'll have found a small community of similarly-minded friends or acquaintences to share in this path.

Anonymous said...

There seems to be some notion that the higher tuition is due to extra-curricular activities being offered by the school. I live "ou-of-town" in Maryland. Middle school tuition is about $17,000 and high school jumps to about $19,000, with no extra-curricular activities. Most of the judaic classes are taught by graduates of the school, maybe with a seminary degree. I believe the cost of tuition keeps increasing because the majority of the students are on scholarship. Tuition increase each year for those paying full tuition, in effect subsidizing the others.

Anonymous said...

Perhaps current health insurance costs for teachers (and thier large families) is part of the reason for the hike in tuition in recent decades. Does anyone know what percentage of tuition goes to health insurance funds?

Anonymous said...

Anonymous 4:24 PM is correct. Tuition keeps rising exponentially because so many folks are on scholarships. So the price for those who can pay needs to rise at a significant rate to cover those who can’t afford to pay. I understand the concept, but what are you going to do, keep increasing tuition every year at a rapid clip? Tuition is somewhat like healthcare in that those who are paying, end up paying high rates to subsidize those who can’t afford to pay.
Anonymous 10:43 PM is also correct. Healthcare costs could easily be 15-20% of payroll. So health costs are certainly part of the problem, but the bigger problem is the inability of most people to pay.

JS said...

Question for the original poster:

I'm curious what bothers you most about the tuition situation:

1) That you're being asked to subsidize other parents.

2) The fact that even though you're making so much money, you have to be very budget conscious (such as with the purchase of a home).

3) The fact that your tzedaka contributions will likely have to go down (unless you consider subsidizing others to be tzedaka).

4) The fact that you don't feel the school is worth that much money

5) Something else.

I'm also curious if there's anything that would make you consider a non-yeshiva approach to your kids education.

Anonymous said...

Hi,

I’m the original letter writer back to respond to a reader’s question.

To JS @ 9:57 am: There are a number of related things that bother me about the tuition situation, so let me comment on your points, 1-4.

1) To the extent that we are so fortunate I can’t begrudge subsidizing other parents who aren’t as fortunate to a reasonable degree (whatever that is). I do begrudge that schools will look at us and similar families as cash cows to the exclusion of getting their own houses in order. After all, if you’re running a school and can just hit up the wealthier parents for more and more money each and every year, you don’t have incentive to be very exacting with the parents’ money.

2) Being budget conscious hardly bothers me. Our lifestyle is extremely no frills as I’ve pointed out earlier. As I said we drive a seven year old used car, we don’t take fancy or expensive vacations or have expensive clothes. The only time we really eat meat during the week is if it’s left over from Shabbos. What does concern me is that although we’re hardly on a shoestring budget, God forbid, if something were to happen to us we’d have lots of problems, most specifically a $60,000 annual tuition bill and mortgage. Maybe our cushion is greater than most but it’s not enormous. Most of us are just a small step from disaster and only exist through God’s mercy.

3) Having our tzedaka contributions go down bothers me. I think I may have earlier that last year we gave $35,000+ to tzedaka. I don’t say this to gloat: its just reality. Also and trust me on this one, we get no recognition from any charities: no plaques, honors, dinners etc., and that’s the way I prefer it. We’ve got so many people who are lacking basic necessities that for us to spend so much on tuition to the exclusion of tzdeaka really bothers me.

4) Not that much, as long as it’s a decent education. Living in NY we get ripped off on everything on a daily basis.

Overall what bothers me most is how schools are not being exacting with parents’ money (which probably has some aspects of 1-3 above). If a principal were to say to me that it costs $20,000+ to educate each child and tuition is a bargain at only $15,000, I would say anytime you’ve set up a system where an average family can’t afford to pay tuition for three kids we’ve got a big problem. And as I pointed out earlier, the way in which costs have risen over 25+ years really demonstrate how out of touch some of these schools are. I'd feel the same way if I were earning $1 million per year.

Regarding your question about a non-yeshiva approach to education, I’d be open to it. Honestly I haven’t thought enough about it. I don’t know under what circumstances it would be appropriate, but certainly it could work. My first inclination though would be the lower cost no frills school.

PS: What in the world is a SMART board?

JS said...

A SMART board is one of these new digital whiteboards that allows for full interactivity - it's like a huge touchscreen monitor that you can write on and save and pull up content. Nice to have, but necessary? It's these types of frills that bother me. It's just wrong, imo, to buy expensive technology when a significant portion of the parent body can't afford tuition. More needs to be done to stop these ridiculous purchases and redirect donors to give to more worthwhile causes.

Definitely agree that administrators are out of touch. They see nothing wrong with a cost of $22k for high school and don't care if 1/3 or more of the student body is on a scholarship as long as there are enough people to pay full tuition and enough people to donate. This is such a foolish model and I really hope (as horrible as this is to say) that the economy stays down long enough for these people to really hurt and get the message this model is not sustainable.

Lastly, I find it interesting you use the word "fortunate" to describe your and your wife's income. While there is of course some "luck" and of course all parnasa comes from Hashem, it seems you're diminishing how hard you and your wife have worked and how you've had to sacrifice and plan and be diligent to get to this point. Obviously not everyone can be earning 6 figures, but I see over and over again that most parents aren't even willing to try. They'd rather have an easier life and don't care about being reliant on parents and scholarships (maybe this is part of the problem in that we have a type of welfare state). A lot of people never consider graduate school or never even think that there might be another related job that pays more. My wife and I work very long hours and many of our friends and community members think we're crazy. We also have you beat in that we drive a used car that's more than 10 years old. We also don't have cable, we have an antenna. Again, think this is odd or just strange. So while I don't mean to criticize your use of "fortunate" necessarily, maybe you're just being modest - I think a lot of other people do think it's just luck and don't see how their actions have led them to where they are now.

Lion of Zion said...

ANON POSTER:

i'm very impressed with this very healthy answer that you gave to JS:

"Not that much, as long as it’s a decent education. Living in NY we get ripped off on everything on a daily basis."

personally, i would like to switch my son to public/charter school (not that we're really considering it) because i feel like we're getting ripped off. i'm sure i'd have complaints with a public school as well, but at least then every complaint would not be followed by "i can't beleive this is what i'm sacrificing [fill in the blank] for"

Avi said...

JS, I'd like to take a stab at this, too. We don't earn nearly as much as our letter writer, but face many of the same issues.

1) Yes. I'd happily give to a separate scholarship fund - and, actually we do, on top of paying full tuition. But I object to scholarships being built into tuition because a) it pushes many people who could afford tuition into asking for scholarships, so it's simply counterproductive, and b) we work awfully hard and have lower quality of life (dual income, long hours, frequent travel) to be able to pay full tuition, while we end up subsidizing people who live better than we do. The goal should be that everyone pays full tuition, and that goal seems farther off every year.

2) Yes. This really bothers me because I freely admit that I'm materialistic. I earn enough for our President to call me rich, why am I living like I'm barely middle class? I beat both of you on the car - mine is 11 years old - though we do have basic cable (channels 2 - 13).

3) A little. We can't give as much to Chai Lifeline and YACHAD as we did in the past because we're giving more to the schools. OTOH, there are always more tzedakas to give to, and local Jewish education is certainly a noble cause.

4) No. I actually feel like the school we send our kids to is a good value. There are some things I would change academically, but we chose it in large part because of the character of the parents who send their kids there, which reflects in their children, which reflects in their middot.

I'm also curious if there's anything that would make you consider a non-yeshiva approach

While I might actually be OK cycling my kids (or at least some of them, some of the time) through public school, my parents would step in and demand to pay for day school, even though it would mean that they wouldn't have enough to eat or be saving for retirement. Since they don't actually have enough money to do that for more that a tuition or two (and I have four kids), it would be more of an issue of kibbud av v'aim. So pure public school is out. And I do value the yeshiva education - assuming it was affordable, that would be my preference regardless. Since it's not, I'd certainly be open to a charter school + after school learning (+ religious home environment).

Offwinger said...

What I appreciate about what the guest poster is saying here is that:

There is no transparency in the cost or business structure of yeshivah education & tuition. That is what makes the subsidization aspect to tuition frustrating to those of us trying to follow the letter & spirit of tzeddakah giving.

There are markets in which we expect everyone to pay the same amount, and there are markets in which pricing is more variable.

When I go to buy Cheerios at the supermarket, it doesn't cost me more dollars per box because another shopper is able to get Cheerios for free or on sale. To the extent I subsidize Cheerios, the discount doesn't come from the supermarket. It comes from my taxes, which then supports food stamp programs. Without getting into a complicated and tangential post about efficiencies in our welfare state, I'm generally "ok" knowing how it goes. And if I have problems with how the government redistributes wealth, it has nothing to do with the supermarket or General Mills!

When I purchase airline tickets, I know that very few other passengers will have paid the same amount per seat. Some people will have paid more for their tickets, effectively "subsidizing" the fuel costs for those who have paid less. Again, without getting into details about efficiencies in airline travel, I'm ok knowing that this is how the system works.

The problem with yeshivah tuition is that it pretends to be the former system like the supermarket & treats the ideas of scholarships or financial aid as though it was a separate "government-like" system of food stamps, but in reality it winds up being more like the latter one of airlines.

The two problems, though, are that we're noticing that the price of Cheerios has gone up way more than can be explained by inflation or the cost in farming/processing oats, and the reality is that we're in a situation where many people simply can not afford to fly at all.

I, for one, would prefer a system of transparency in which the price of Cheerios or a plane ticket was related to its actual cost, with options for people who want lower and higher cost alternatives (e.g., organic Cheerios vs. regular or first-class vs. coach). At the same time, a scholarship fund/tzeddakah could be created to provide for some people who can't afford Cheerios or flying otherwise. And I could choose whether to give to that tzeddakah, as compared to other tzeddakah options available, based on that charity demonstrating it is well-run & worthwhile.

JS - I think "fortunate" is a good word, not that it should diminish hard work and investment in one's future. I also use that term, and I mean it in a Rawlesian sense. I feel fortunate in terms of the nature/nuture of genetic lottery that I have certain natural abilities & that I was born and raised in a family that placed a premium on education, hard work, and using my abilities/talents for my own good and that of others.

FWIW, my car is 14 years old, but I "married into" a much newer car last year. Hehe.

Lion of Zion said...

AVI:

"it would be more of an issue of kibbud av v'aim"

i was talking to a friend recently, and his main objection to public school came down to the fact that it would be stabbing his father in the heart. his father snuck his family out of hungary in the 80s so they could live in freedom (as jews and in general). not to go to public school.

i suspect my wife (also an iron curtain refugee) opposes public school in part for the same reason. her mother cleaned floors and her grandfather begged for tuition help so she could go to a day school. who are we to send our son to public school?

Anonymous said...

Avi - I earn enough for our President to call me rich, why am I living like I'm barely middle class?

Avi, you aren't "barely middle class" because middle class don't send their kids to expensive private schools! That's upper middle class or upper class. It's all a matter of choices, we choose to send our kids to expensive day schools, others choose fancy new cars, vacations, cutting edge electronics, bigger homes, etc.

LOZ - i was talking to a friend recently, and his main objection to public school came down to the fact that it would be stabbing his father in the heart. his father snuck his family out of Hungary in the 80s so they could live in freedom (as Jews and in general). not to go to public school.

This is an excellent point! One of the reasons why my wife and I are so afraid to put our kids in public school is that the likelihood of some of them ending up OTD would be much higher (at least in the case of our family).

Mark

Anonymous said...

Excellent points Mark.

Although OJ's view private school as a necessity, and maybe it is to keep kids jewish, with very few exceptions, the rest of America's middle class and even many upper class make do with public schools.

Most middle class people also can't give 35K/year to charity and I suspect that this couple is putting far more into their retirement accounts than most middle class couples.

Avi said...

@Mark,

Yes, I know. But with the exception of private school and a few things bought before the tuitions started kicking in, we don't live anywhere remotely close to approaching a point near our income level - because we can't. Private school is expensive, I get it. It is its own luxury, fine. And I don't expect to get private schools AND be able to buy a $50,000 BMW, but I would like to be able to buy a new car instead of trying to eke out another year (I hope) by putting $1,000 into the 11 year old Ford. That was today's fun decision. Yesterday, it was dropping down to the cheapest possible cellphone plan - the one T-Mobile doesn't even advertise because they don't want anyone to take it. We basically never take vacations, both because we can't afford to from a monetary perspective, and because we use up all our vacation time on chaggim, and providing childcare on the days before chaggim, the day after chaggim, and teacher service days. Our savings rate isn't what it should be. While I'd probably be working just as hard without the pressure of tuition, there are business travel opportunities I would love to pass on (but don't), and my wife would prefer not to work at all, never mind the number of hours she's putting in both during the day and at night.

I feel terrible for my friends with lower family incomes than ours - they have much harder decisions to make. All in all, we live well. We still buy premium toilet paper. We can afford takeout (cheap Chinese or pizza) every once in a while. Through a combination of hashgacha and some of our own good decisions we ended up with a nice small house, expanded kitchen, and a non-expanded mortgage. But we're already in the top 3% of incomes, and between taxes and tuition we have nothing left. My salary is getting cut, yet my tuitions aren't, and I can plot on a graph exactly when the numbers go from black to red: the day my oldest enters high school. It's never fun to hear rich people kvetch - but when rich people are kvetching you'd better listen.

Anonymous said...

Avi, Ist schver tzu zein a yid ...

... but the Olam Habah makes it worth it!

Mark

PS - I wish I had a solution to rising costs and falling income, but there aren't any (other than Mashiach coming, so let's do our best to make that happen)

Am Kshe Oref - A Stiff-Necked People said...

Not having read any comments, I'm just going to say something I've been saying for a long time: To be an orthodox Jew living in a Jewish area, regardless of geographic location (we don't live anywhere near the Tri-State area and tuition here is quite expensive as well, though not as expensive as in the Tri-State area - on the other hand, people here don't earn as much as they do in the Tri-State area; even high paying jobs are less-paying here since it costs less to live here) you simply have to be rich. That's it. It's the bottom line. To live as an Orthodox Jew and give your children a good or at least decent, Jewish and secular education, you simply have to be rich.

tesyaa said...
This comment has been removed by the author.
Anonymous said...

I just wanted to commend the original poster and those commenters who also are in upper income brackets for acknowledging how fortunate they are and for living modest, thoughtful lives.

This post and the comments are the scariest yet on Orthonomics. If families earning in the top 3-5% percent are squeezed, what does that mean for everyone else?

tesyaa said...

Anon 9:17, the lower earners have the hope of scholarships. Those in the high income brackets don't, plus their tuitions are inflating annually to cover the scholarships of the lower earners.

The suggestion of a "full tuition only" school really appeals to me, simply because I know my outlay would be lower than it is today.

Anonymous said...

you can be chasidish or chareidi and be frum and poor or middle class in the usa you can even be rz or mo in israel and be poor or middle class - in the usa - you must be rich to be MO - modern orthodoxy in the usa is a religion for the rich only - those that can not afford this expensive religion make aliya, become chareidi (passaic style), or leave judaism

Anonymous said...

you can be chasidish or chareidi and be frum and poor or middle class in the usa you can even be rz or mo in israel and be poor or middle class - in the usa - you must be rich to be MO - modern orthodoxy in the usa is a religion for the rich only - those that can not afford this expensive religion make aliya, become chareidi (passaic style)

Mostly true. However, both systems are rapidly reaching the point of instability.

The MO system is unstable because too few (I mean the donors and the people paying full tuition plus) are subsidizing too many, and as soon as some of those few opt out, the system comes tumbling down.

The Charedi system has a similar problem in that too many want to delay working for too long. Even now, there are kollels that are refusing entry to people that they would have admitted without a problem 3 or 4 years ago (and there are rumors of some kollels simply shutting down - all those bochurim are going to have to find something to do very quickly!).

Mark

tdr said...

What the orthodox community needs is elected leadership. If we had leaders that had to run for election, we'd be hearing all kinds of ideas of how to relieve the "crisis", but not from smart people who read a great blog, but from people in a position to actually do something.

We hear anecdotal evidence that people are suffering economic hardship, and that X amount of tzedakah dollars are flowing out of the community, and other interesting things, but if someone had to actually run a campaign, they would be hiring pollsters to find out what's really going on out there.

Of course it would have to be a leadership that is vested with real power. A real "Congress" of sorts and I can't imagine how anything like that could come about.

Avi, I can sooo relate to your last posting about how hard you and your wife work and you can't even afford a decent new-ish car. The car I have, but I don't do take-out and there is no vacation for us on the horizon. Every time I go to buy tomato seedlings for my garden, I find there's no extra money even for this little thing!

As Mark says, it's tough to be a yid...

Anonymous July1 said...

One more point: although the writer and his wife are clear that they don't take their earning power for granted, there are pitfalls they might not have considered. As the family size grows, it is hard for the mother to keep up her earning power, unless she is extremely career driven. There are times when a mother realizes she is hardly ever at school performances, hardly ever at a doctor's appointment, hardly ever there for an adolescent who needs to ask tough questions. (A lot of parents of young children don't realize that while toddlers need more physical care, older children need a lot of time and parental attention). When the number of children grows from 2 to 4, 5, or 6, the mother may decide to cut back her work to part time or even take a few years off. This will impact her earning power.

Don't get me wrong, I'm in awe of a family where both can earn so much, still have time for their toddlers, give a lot to tzedaka, etc. But all my friends who are doctors and lawyers are burned out after 15-20 years full time in their careers, especially those who are mothers.

So the family should plan their future financial decisions even more carefully.

Anonymous said...

Anonymous July1 makes good points. For many professionals, there are part-time options and telecommuting that can help. When chosing a firm or company to join, consider what types of part-time or flex time options they have. Keep in mind, however, that for many professionals, part-time often means 30 hours/week instead of 60.

Shalom, Cherry Hill said...

I graduated the Yeshiva of Flatbush HS in 1978--if memory serves, the tuition was $2000. An inflation calculator I looked at puts the present value of that sum at approximately $6600, but what is the actual tuition now--$20,000?

My wife and I have a combined income in the $130k- $140k range; if prices had stayed the same adjusted for inflation, we'd probably have kept the (4) kids in Yeshivah. We all know that in the first half of the 20th century the large majority of religious kids in America went to public school, and came out fine. As others have written, a community cannot sustain a model where one has to be wealthy in order to pay your bills. Whether people open up charter schools, or organize better after school Yeshivot, or find some other solution, it cannot go on as it is.

Partly because of my strong background, I am able to learn with my kids, the boys wear kippot to school, and I am very happy with their overall progress and midot. I hope that a better system will be in place for their kids, or they'll look into private tutors as an alternative.

Dan said...

Where are the local orthodox rabbis and community "leaders" in all this?

Why does this go on year after year, decade after decade, with no end in sight?

The answer is ....(drumroll, please)

THERE IS NO ANSWER!

The Yeshiva system is too expensive to be self-supported within the community.

We can quibble over yeshiva budgets, etc., at the end of day it does costs thousands of dollars per student to run a Yeshiva.

I submit, once again as I did about two years ago, there is only one solution, albeit a very difficult obstacle to overcome, get the Government of the United States of America to pay its fair share.

Our children are taught secular studies for a good three-four hours a day.

There is NO VALID REASON why the Government should not be responsible for covering the costs associated with that portion of the school day.

Yes, there's Separation of Church and State, the ACLU, and every other reason under the sun as to why this is difficult.

Nevertheless, this is the ONLY viable solution.

We as a community will never have the pockets deep enough to carry this burden on our own.

We are entitled to a Government funded secular education for our children just like all tax paying families in the US.

Let's get the message out to all NOW!!!

The quicker we start, the closer we get.

SephardiLady said...

Dan,
I am a believer in free market system and a believer in vouchers. But it just isn't happening. Even Utah's voters overturned a modest voucher proposal (search the blog for links).

The frum community has lobbied for many years for vouchers. There is strong support from the black community for vouchers.

Why do you think that making our voice louder will change the situation?

You may be right that our pockets aren't deep enough. If so, I'm afraid the free market will do its job and more kids will be enrolled in public schools.

Dan said...

Why can communities like Monroe have a system and us MOs cannot?

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