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Monday, June 07, 2010

Dear Orthonomics: When do you use your savings?

Dear Orthonomics,
Here's my financial situation. I'm married with 3 kids, expecting a 4th, live in a high tuition area and have two in school. The third is starting school next year. We have a combined income in the low $100Ks, I work full time, wife works part time, and her salary goes mostly to babysitting and taxes. After taxes, babysitting and commuting, there's barely anything left. She works primarily to keep her job for when all kids are in school (and she can work without paying a babysitter).
Now my question:We have been managing up until now, because we have a small mortgage, live very frugally, and basically spend NO money on non-essentials (read vacation, entertainment, trips, toys). The yeshiva gives us small tuition breaks, and up until now, we've been getting by.
With a third tuition next year, I project that our expenses will now surpass our income by several thousand dollars a year. Tuition burden will be approximately 30% of income. We have a nice amount in savings (expenses for about one year) but don't really add much to it, and starting in September, will add nothing to it unless we get a windfall.
It is reasonable for a yeshiva, or reasonable practice in general, to use savings to make up the difference in living expenses year and year?
My firm belief is NO. I consider yeshiva a living expense, and all living expenses should be covered by income. If income doesn't cover it, you can't afford it. Savings, in my opinion, is either for emergencies or special purchases that one saves for (car, house, smachot, etc.).
Am I living in a dream world, thinking that a savings account is sacred or is there is a reasonable expectation that savings are to be used to cover shortfalls in income? The danger, of course, is that expenses rise year after year faster than salaries do, so after enough years of doing this, savings will be depleted with no hope of recovery, and then there's no way to cover expenses either.
Please weigh in. Thanks!
Y. Doe

Dear Mr. Doe,

First off, wishing you a ba'shaa tova on your good news.

I am not going to address whether a Yeshiva asking a family to spend down their savings before receiving assistance is reasonable. Each yeshiva/day school is free to set its own policies regarding tuition assistance and schools have to worry about their bottom line, as do parents. In the long run, I think healthy finances for organizations and families go hand-in-hand. But most of our organizations simply aren't in the long-term macro planning mode. So instead of debating that question, I think it more important to address questions pertaining to familial finance.

Like you, I consider savings sacrosanct and believe that in all but emergency situations, savings are not there to cover day-to-day expenses but to carry a family over when there is an unplanned (but temporary) emergency, one-time purchases of big ticket items, and long term prosperity. Some have to budget their cash by the week or month, others in periods of 3 or 6 months. Whatever your time frame, if you cannot meet regular expenses with regular income (i.e. earned income) you have a developing issue.

Your instincts are perfectly correct when you state that tuition really should be met by a regular budget, not savings. I think tuition is a bit of a confusing issue for people. After all, don't regular Joe's spend 18 years saving for each child's college tuition and then dip into savings to cover that tuition? Yes, they do. They also have a small number of children and only expect to pay college tuition for a small amount of time. But Yeshiva tuition falls into a different category for the average Orthodox family. The years of paying tuition extend for large periods of time and for a large number of children, thereby pushing them into the "day-to-day" category.

Since you mentioned savings for smachot, I think we should take a brief look at this category of expense. Particularly, when must these expenses be covered by regular income and when can they be covered by savings? Here I think there are two factors to consider: 1) what is the occasion of the simcha? and 2) what is the family dynamic?

I'm going to differentiate between the "bar" and the "mitzvah". If a baby boy is born and the family simply doesn't have the cash from regular income to cover the basics of a brit milah (i.e. paying the mohel to perform the circumcision and serving a minimal seudah), then it will be necessary to turn towards savings. A circumcision is a must and it must be paid for. Same would go towards purchasing a pair of tefillin for a bar mitzvah boy (although I imagine one could borrow tefillin from a shul or gemach in a particularly dire situation, but I'm not really addressing a dire situations). With the exception of mitzvah purchases, I'd say that the rest of the simcha and its cost and how it is funded will vary depending on the family dynamic.

Within the Orthodox community we have families of different sizes, as well as differences in income. Those factors, and family size plays in heavily, will play into how a family living on a budget approaches budgeting for smachot. Above we considered some factors that make an expense a regular day-to-day expense or an irregular expense for which touching savings unreasonable.

A nerdy person might create an average simcha frequency by projecting the amount of time one has to save between the birth of a first child and the approximate date of the final simcha divided by the number of large smachot they need to plan for (if you only plan to throw a slightly nicer kiddush for a bar mitzvah, you might not need to calculate simcha into your projected frequency ). I would say that if the average simcha frequency is 2 years or less, what you spend on smachot would best come from current cash flow. If the simcha frequency mirrors the period between buying the next family vehicle, it wouldn't be completely unreasonable to dip into savings. If you are in between both frequencies, a hybrid approach could be a reasonable "rule of thumb" approach, but the lower the frequency, the more imperative it would be to avoid dipping into savings as part to maintain healthy personal finance. Like you mention with tuition, regular expenses cannot drain a family to the point they can't recover. I mention smachot because these too, can drain a family and put them past the point of no recovery.

The letter writer is looking forward to reader comments knowing that their family situation is not unique. I'm sure my readers will deliver.

With only good wishes for your family and your new edition which you can "afford" although I'm not sure you can afford tuition at this point and may have to think out of the box (you are not alone there!).



Anonymous said...

I've said it before and I'll say it again. Having children is a choice. Putting them into expensive private education is a choice. Living a frum lifestyle (shul dues, yamim norayim seats, kosher food) is a choice.

Sometimes, we can't have everything that we want and we must choose.

$200k Chump said...

yeshiva tuition is the big killer here. I know that to be the case in Bergen County. We are looking for alternatives to help families like you. Good luck to you my friend.

Anonymous said...

First, I want to commend this woman for staying in the work force even if currently she is not netting much right now. This is a wise decision on her part as she will be far better positioned to increase her earnings in a few years than if she had dropped out of the work force for 3-10 years.

Second, it looks like this family has alternative options to dipping into savings or asking for scholarship money. For example, it sounds like they have been paying for a babysitter for one child at home. Why not team up with another family and split the cost of the babysitter, or team up with three families and pay 1/3 even if its 1/3 of a higher fee due to there being more kids. Maybe Dad could get a second job. Maybe Mom could go full time earlier than she planned. No, those aren't perfect options, but if they want private school for all of their children, its something they might need to get used to.

Anonymous said...

The writer states that he lives in a NYC suburb with high tuitions. Maybe this family should think about moving to an area with less expensive schools while the children are still young. It gets harder to move as the children get older. The writer says that the family lives frugally, but selecting a town with high priced schools might not be so frugal.

Anonymous said...

Good suggestions from the commentators.

Don't dip into savings to pay tuition. Perhaps there is a cheaper jewish school nearby. Or perhaps send to public school the young ones.

Lion of Zion said...


"The letter writer is looking forward to reader comments knowing that their family situation is not unique"

it definately is not unique. i think this is part of the problem. we look around and see everyone with the same problem, yet for now, on the whole, everyone somehow manages to get by (even if just so). so instead of real introspection and honestly reappraising our long-term financial trajectory, we throw our lot in with everyone else. hey, they seem to manage (even if under great duress), so will we.

i'd be interested to hear more of your take on savings in general. but i don't think you can respond to this type of a letter by ignoring the giant pink elephant sitting in the living room.

one question: if savings is meant for emergencies, i assume this includes covering mortgage payments in the event one can't pay them (for any reason). so is there then a difference between savings for emergency mortgage payments or using savings to decrease the mortgage burden even during good times (e.g., either with a larger down payment or early payments). maybe this family can use some of its savings to pay down the morgtgage (which will decrease the amoung "wasted" down the road on interest and build up equity? since i think (?) a house represents savings equity (i'm not saying to take a home equity loan), is shifting money from savings to the mortgage that bad?

Lion of Zion said...

(my question wasn't the pink elephant)

Lion of Zion said...

also, paying dopwn the mortgage now means there will be more $ available later for tuition

Anonymous said...

LOZ: Even if you put some of the savings into paying down a bit of the mortgage, you are still in serious trouble if there is a financial emergency, whether due to job loss, illnes, or whatever, because the mortgage payment is stil going to come due, along with the car insurance bill, the electric bill, the gas bill, etc. The mortgage holder isn't going to say, "gee you put some extra money into principal last year so we will let you slide on your payments for 6 months." That is why there is a need for emergency savings sufficient to carry the family for 6-12 months. If you have the 12 months of savings, then you can think about what the best use of the money is -- college accounts, IRAs, stock market, or paying down the mortgage in light of a host of considerations, such as interest rates, tax bracket, comfort level in having funds you can't access. I won't comment on paying down the mortgage to empty the savings account to become eligible for scholarships.

Anonymous said...

SL: Related to LOZ's question, I am in my 50s and getting anxious about retirement savings. We have about 50-60% of savings in equity and the rest in safe holdings like the extremely low interest rate CD's available now. I am afraid to put more in mutual funds and index funds. Does it make sense to use some of the CD's when they mature to pay down the mortgage. I have about 6-7 years left on a 15 year mortgage at 15% and am over the amortization hump so that a larger portion of the payments are going to principal than interst.

JS said...

Y. Doe,

I think you're instincts are correct regarding savings. Spending out your savings now can set your family on a downward spiral from which it is very difficult to recover. It is essential that you have a few months of expenses saved and that you don't touch them until that expense goes away (eg your mortgage is paid off).

In terms of smachot, I'm not sure why SephardiLady put so much effort into this category. For me, it's simple. A simcha is a small, but nice, kiddush in shul or in the home. There is absolutely no need (and it is a huge waste of money) to spend for anything more. If you really want professional photographs for a bar/bat mitzvah, then hire just the photographer and have everyone get dressed up (or ask a friend who is handy with a camera). I know very few people who are doing more than this locally and I think it's about time people got their heads on straight.

Your wife is smart to continue working, especially if she has opportunities for upward career mobility. Otherwise, you may want to consider homeschooling - it's a big decision, but can be worthwhile if someone is in a career with no real upward mobility such that tuition costs and child care costs will always be more than the earned income. There are also careers where taking many years off doesn't really matter. Something to consider.

You should push back on the yeshivas as much as possible to get he largest scholarship as possible. This is how the system works and you'd be a fool not to play by the system's rules. That said, if you still can't swing it, you need to consider alternatives.

Your child will be better off long term with parents who are financially sound and could save for retirement or maybe even their college education than going to the expensive yeshiva and being completely broke and in debt. Whether this is moving somewhere else, public school, charter schools, home schooling, or something else, really think about this. Just because other people aren't thinking or say it "must be done" doesn't mean it's true.

JS said...


How do you have a 15% mortgage? I didn't even think this was possible in today's age of low interest rates. Have you tried to refinance?


I, too, would be very interested in a post about savings in general. For example, in what order should one fund various savings vehicles (emergency, retirement, college, large purchases, etc). What should be done with excess income once all savings accounts are being full funded?

JS said...

Y. Doe,

I'd also add you need to act now while it's still manageable to some extent. The 3rd will be entering this year. The 4th a few years later. In the meantime, yeshiva tuition increases far above wage increases every year. Further, each successive grade gets more expensive with the huge jump for high school.

It's gonna get worse before it gets better. Find a solution now. Don't ruin your family's finances for years to come over indecision or fear of the unknown.

Anonymous said...

Js: Sorry. That was a major typo and failure to proof read. The mortgage is 4.5%.

Anon 9:55

JS said...

:). That sounds more like it.

I believe the basic rule of thumb is to go with whatever provides the higher interest rate with the least amount of risk. So, if your choice was between money in a 2.5% CD or a 4.5% mortgage interest savings, you'd go with the latter. Taxes and deductibility of mortgage interest slightly complicate things.

Personally, I think the above is fine mathematically, but makes little sense practically. I'd take a paid off house any day of the week over some investment account. You can live in a house, you can't live in a CD or mutual fund. The security for me is worth far more than an extra few hundred bucks in interest.

JS said...

Also, I'd start winding down your equity. You're exposing yourself to way too much risk given the fact that retirement is likely less than 10 years away (I assume this based on your age, if not, you can likely hold in equity a bit longer). I really don't believe in market timing so I wouldn't "wait till the market goes up again" - I'd just start moving some percentage every year from equity to bonds or CDs or whatever other safer vehicle you feel comfortable with.

In terms of the equity, I hope you're in a low-cost index fund instead of either a high commission mutual fund, or worse, individual stocks. There are also index funds for bonds as well.

Anonymous said...

Mr. Doe: Without knowing what your mortgage is, its hard to know if it is truly "small" since that is rather subjective. If your mortgage and taxes and homeowner's insurance is not equal to or less than what you would pay for an average three bedroom apartment in your area, it might not be so small. Are there any three bedroom homes in your area that are less expensive than yours that you can scale down to? Larger homes mean more taxes, higher utility bills and sometimes, more upkeep. One or two generations ago it was common for large families (i.e. 5+ kids) to live in 1200 square feet or less, or to be life long renters. Now everyone thinks they must own and own a 2000 square foot house. I'm not saying that Mr. Doe falls into that category and is over housed, but private school tuition and homeownership/large homes don't go hand in hand other than for the very wealthy.

Anonymous said...

Thanks JS. Yes, we are very sensitive to fund fees and costs. Most of the savings that are in funds are in the 401(k). What I would really like to know more about is your reference to a 2.5% CD. I can't find anything that high. And yes, retirement may be within the next ten years, depending on health. Do you think 50-60% in the market is too high a percentage?

Anonymous said...

I should have added that I am sorry to deflect the discussion away from Mr. Doe's question which focuses on the starting out years. However, the preretirement and retirement years creep up very quickly. The decisions you make now will have a big effect on those later years and whether you will be able to retire without being dependent on your children who may or may not be able to help you out. Mr. Doe does not mention whether or not he has any savings in any retirement vehicles like a 401(k) or IRA. Do the scholarship committees require those to be tapped?

JS said...

I made up the 2.5% number for illustrative purposes - sorry to be misleading. I believe most 1 year CD's are a bit less than 1.5%. I think 2.5% might be obtainable for 5 years, but I don't think that's really worth it. You might want to consider bonds - some come with tax incentives than can make the lower rates more valuable.

In terms of retirement, it sounds high to me based on the following:

Say half your money is in equity. Lets say the recession isn't really over and the market gives up all it's recent gains or even continues going down (not such an unreasonable scenario). Say the total drop over the next 6-12 months is 25%. You just lost 12.5% of your retirement savings. You need to think about that rationally and emotionally. Firstly, do you have enough money still to retire? Do you have time to try to make up the loss? Do you still want to take the risks necessary for that? Secondly, will you have a heart attack if less than 10 years from retirement you lose 12.5% of your savings? Will it alter those dreams of retirement and all you'd be able to do?

I'm not a doom and gloom kinda guy, but when it comes to retirement you need to be, sort of, and think of a worst case scenario. It boils down to this: is it more worthwhile to accept X amount of risk for Y potential rewards/Z potential losses or is it more worthwhile to have next to no risk and have minimal rewards.

Offwinger said...

Disclaimer: This is not professional advice.

I also think 50-60% in equity when you're nearing retirement in 10 years or fewer is a way too much risk.

As for Mr. Doe:

You are right not to allocate your savings for yeshivah tuition. You'll need that money to cover a major illness, a layoff, or any big ticket item. The yeshivah world may not agree with you, but you are the reasonable one. So you should definitely explain how much you are able to afford to pay (without tapping your savings) and if they accept it, great. If not, then you need to find another option.

If you want to be financial responsible, you're going to have to choose between the following priorities:

- Moving somewhere cheaper in the same region, if such a place exists that is commutable to your job
- Moving somewhere that is more affordable (OOT)
- Not having more children
- Choosing something other than yeshivah to educate your kids (e.g., homeschooling?)


Miami Al said...

Mr. Doe,

If the Yeshiva requires you to spend down your savings, and you refuse to do so, you have two choices:
1. Play chicken with the Yeshiva, but if this fails, your kids need to enroll in public school for that year while you build a plan B. Depending on your world view, this may or may not present too high a risk of explosion.
2. Game the system. You would need to take your savings and pay down the mortgage and open a HELOC against the house. This provides you with the cash flow cushion, and protects the savings from the Yeshiva. However, a HELOC can be closed at any time, so there is a risk that when you need it, the bank will close your HELOC.
3. Further game the system, if the school is taking more and more of your income, as a result of your now reduced mortgage payment, you may need to trade up. If the school gives you a $1 for $1 increase in aid for every $1 in your mortgage, it makes sense to get the biggest house you can on as short a mortgage as you can get. A 15 year mortgage has a lower interest rate than 30 years, but a larger payment, which is towards principal. The payments towards principal builds your family's equity (leverage issues aside), while interest payments are a cost. However, if you are on scholarship, the Yeshiva is paying your mortgage payment by increasing the aid.
4. Think about the future. You may need a pile of cash for college down the road, as your income may rise and preclude your children from getting aid. Look at how the Yeshiva handles assets in your children's name. You may be able to shelter your cash in college funds for them. If the school looks at those, then talk to an estate planning attorney about setting up a trust, revocable or non-revocable, considering the tax and Yeshiva consequences.

If you aren't permitted cash, then you need to hold your assets in a form that they won't touch. The house is the most obvious, simply because the Yeshiva permits it. Less ideal is vehicles, because they depreciate so quickly. However, if you buy late-model used cars (1-2 years old) on a 3 year loan, you'll lose 30% of the value in those 3 years, you can then sell for cash and buy a new car on a 3 year loan, you just need a safe place to hide the cash.

S'machot are NOT the problem, you have a year of expenses saved up, based on your income, $60k-$70k, while you are relatively young. That is a substantial amount of money for someone so young, and you shouldn't just be resigned to signing it over. If you hide your cash in your home, you can always downsize when it comes time to pay for college, possibly pre-paying all 4 years when the first kid enters.

Also, look into prepaid college systems. Florida let's you prepay today's rates all at once or over time (but the rates go up over time). Presumably, the Yeshiva can't touch your pre-paid college "asset." You should also look into a high deductible health plan with an HSA account, presumably, you'll be able to hide $5k/year in there untouchable by the Yeshiva.

Good luck!`

Lion of Zion said...
This comment has been removed by the author.
Anonymous said...

Al: What about prepaid life insurance and prepaid cemetary plots?

Lion of Zion said...

a) i find elements of what offwinger and js wrote and everything that al wrote depressing. (or am i being naive?)

b) while the general subject of savings is interesting and i hope SL will return to it, i really think that in this context it is defelecting from the core problem that was described.

even if we all agree that yes, they should deplete the bank accounts and pay for tuition, how long is this $ going to last? and what then?

Anonymous said...

I have lurked on this and other similar blogs for many months now, but feel compelled to finally join the conversation by the comments of JS and Miami Al.

LZ, the word "depressed" cannot even begin to express how Al's and JS's comments make me feel. I am nauseous and filled with rage. I am a full paying parent of three kids in Yeshiva. (All-in cost for the coming year is just over $42,000.) My salary combined with my wife's salary (she works 20 hours per week) have us probably doubling the earnings of Y. Doe. We are squarely in $200k Chump range. We have no real savings to speak of. Certainly not 12 months of expenses. Yet, we make choices and sacrifices to pay full tuition and we budget every dollar of income. (For instance, I drive a 17 year-old car and my wife an eight year-old minivan--we budget for repairs.)

Apparently, I am a "fool" (in the words of JS) for not "Gaming the system" (Miami Al).

How is the advice to move money around to make yourself eligible for Tzedaka (because that's what a tuition break is) ethical, moral or at all in line with the very decision to send your children to a Yeshiva? Take the advice to the next level, perhaps Y. Doe should move to an all cash business and simply not report half his income. Al, frankly I am shocked. Your comments have almost always encouraged responsibility for the individual's choices. While your advice here may have been thourough and well thought out from the financial perspective, you clearly forgot morals and ethics when you logged on today.

Anonymous said...

What is depressing is that we live in a communal economy where the predominant individual strategy is wastefulness and institutions hope for the rich to "pull them through". There was a point in time when I realized that gaming the system and hiding assets from yeshivos was akin to defrauding the government. However, the yeshivos are not looking out for me - I am looking out for me, so I need to do what it takes to let me sleep at night. (Yes, having savings helps me sleep more than committing "yeshiva fraud" keeps me up.)

You can be sure that most people on scholarship are not tapping themselves dry either. You can also bet that the administrator and other staff have engineered their salaries to qualify for government programs while hiding their assets from the gov't. Quid pro quo.

Anonymous said...

Anon 1:33,

Tuition breaks are not a form of tzedaka until the yeshivos come out in the open about how much of "full tuition" is my share and how much is forced subsidy of others. Meanwhile, the break that I am looking for is to get out of forced subsidies. They are already twisting my are with their shady practices of "building funds" "capital funds" "wardrobe funds" (jk) "scrip" "fundraising obligations" and so on. Why not just come out and say you have to pay X towards a "subsidy fund" too instead of being shady and deceitful?

Anonymous said...

Anon 1:39,

Forget the labels that are placed on portions of your tuition bill, the total amount is your "Cost". So, as long as you are paying less than the full Cost, some one else is paying full Cost, and scholarships are coming out of operating budgets (which they are), you are taking Tzedaka.

By the way, there are schools which are moving to the all-in number approach to tuition to avoid the very issue you are harping about. You owe the full amount whether you like paying any individual portion. (The biggest issue has always been "Why do I have to pay the Dinner Fee, I will not be attending the Dinner?")

JS said...

Lion, Anonymous,

I'm not sure why my comments were depressing or would fill someone with rage.

First of all, I completely disagree with what Miami Al said. I think it is 100% wrong to game the system or to hide assets or engage in other forms of fraud or deceit. As was pointed out, it is completely antithetical to the reasons you're even sending your kids to yeshiva in the first place. I think Al's advice was a bit tongue in cheek (I hope) and was referencing what, unfortunately, happens all too often in the yeshiva system (heck, someone above admitted to hiding assets).

My point was to not spend down the savings. I think it is a huge mistake. In case it wasn't clear, the savings should be disclosed to the yeshiva if they ask for this information on a scholarship application. I assumed they were okay with the savings as Y. Doe mentioned he is already on scholarship, but the 3rd kid throws things too far out of budget. I was only saying he should push back on the yeshiva's "initial offer" of scholarship and see if they'll provide more. I don't see why there is anything wrong with this. It's not clear to me that scholarships are tzedaka in the first place, so I see it as a negotiation with the school to arrive at an agreed upon price. Is that wrong?

Finally, my point was that yeshiva is not the be all and end all of Jewish education. I mentioned other options. To bankrupt one's family for yeshiva or cause other familial issues is foolish in my opinion. Anonymous, I'd seriously be concerned about not having any savings. I know I wouldn't sleep very well in that situation. I'd strongly encourage you to ask for some kind of scholarship or come up with an alternative arrangement for one year so you can build up some savings. Your kids will appreciate the security far more than a single year in the yeshiva system.

Down the road all these yeshiva educated kids are gonna be wondering whether their student loan debt for good colleges/grad school or sub-par education with no loans, having to support their parents, not being able to live near their parents, not being to afford yeshivas for their own kids, etc was all worth a few years of yeshiva.

miriamp said...

Once again, I'm so glad to live OOT where the tuition is still high but there aren't these games.

Anyway, stop jumping to conclusions. Reb Doe already said he currently has savings and has gotten "small tuition breaks" from the yeshiva while maintaining these savings which certainly weren't built up in one year. This means they are being reasonable about his maintaining savings -- it's just with a third tuition added, he anticipates that he might have to dip into savings and doesn't want to be forced to do so.

My advice would be to go to the yeshiva and find out what they expect and if something can be worked out that would better fit their budget without tapping their savings. Maybe one of them has a skill they can offer to the school, or could volunteer in some way for the school in exchange for a bigger break?

As an example, I supervise an after school "homework room" 1 day a week (staggered dismissal means younger kids need something to do until older sibs are dismissed if their parents aren't home yet) -- I bring my newborn, 3 and 4 yr old kids with me and my younger school age kids then stay for this homework room, so I don't have to pay a babysitter for that time. The other parents are paying the school for this privilege, but they don't have to pay me in actual dollars -- definitely a win for the school.

Miami Al said...


Sorry that I disappoint you. My views are very simple, as a father, I am responsible for making the best decisions I can to take care of myself and my family, within the limits of the law, ethics, and halacha, in that order (your order of priorities may differ, I don't really care how you prioritize those three).

Y. Doe is a father with 3 children and a 4th on the way. He has lived prudently, and planned ahead, and worked hard to support his family. That savings that he has from doing so it his, and I believe he has every legal, ethical, and halachic right to preserve that asset.

When I bought a new vehicle a few years back, we paid under invoice. We did so through haggling, timing, planning ahead, and being prepared to make a deal or walk away. By paying less, my family's net worth is higher and monthly cash flow is higher. By paying less, the dealership made less profit, the manufacturer's shareholders made less money, and since this was an American company later bailed out, the taxpayers ponied up more money to bail them out.

At no point am I obligated to pay more than the minimum I can fairly negotiate for a good or service.

Y. Doe is not responsible for the poor decisions that are made by the Yeshiva boards, nor by the parents that cannot afford the schools but pay in full otherwise. Y. Doe is responsible for his family.

He has chosen to utilize a private school and wishes to continue doing so. The "price" of this school is the lesser of "rack rate" X number of children OR "what you can afford." He is perfectly entitled to "play the game" by making "what you can afford" as low as possible. The Yeshiva is entitled to either accept his payment and enroll his children, or say "sell/mortgage your house" and he is entitled to either do so or pull his children.

There are no prizes in life for paying retail, whether the owner on the other side of the table is Jew or Gentile, sole proprietorship, corporation, partnership, or 501(c)3 Non Profit.

Give Tzedakah, pay as little as possible, live frugally, and improve your net worth. Have the means to help your children down the road.

To the chumps, you know the system is set up to screw you. Opt in or opt out, nobody is obligated to screw themselves to help you.

My advice was NOT tongue in cheek, and I believe it was COMPLETELY consistent with my views of personal responsibility.

I also take every tax credit and deduction I qualify for under the tax code, even if that means I don't pay "enough" by someone's redistributionist philosophy.

Lion of Zion said...


the whole pushing thing, whether the parents on the school or the school on the parents is just depressing (and i assumed miami al was being sarcastic)


i personally don't go to the school dinner. but what's the point of making it optional or getting rid of it? if so, they'll just make the money up by increasing something else. so breaking down my cost with a separate dinner fee doesn't bother me per se (but see below)

"By the way, there are schools which are moving to the all-in number approach to tuition to avoid the very issue you are harping about . . ."

how does this work? genrally the extras (building, dinner, etc.) are per family and not per child. so how does a school convert from base child + family obligation to one whole tuition figure?
(of course if i ever have 2 kids in the same school then i will prefer to keep some of costs separate as family obligations :) )

better_off_with_fees said...

We're actually all better off with a separate dinner fee, capital fund fee, building fund fee, scholarshipe fee, whatever, because many if not all of these can be considered as donations and then deducted on your your income taxes.

If they change to a bill where it's one big tuition cost instead, you'll lose the ability to deduct part of what you pay.

Anonymous said...

Al: We understand your views of personal responsbility, but isn't the orthodox world partly about community and not just doing what is best for your own immediate family and doing the right thing even if its not expedient? For example, I am fortunate enough to make enough to pay a lot of taxes. I could advocate for cuts to Medicare, Medicaid, Section 8, aid to Haiti, etc. but I don't even though I and my family and people I care about don't benefit from those programs. Instead, I support more aid to the needy because I believe it is the right thing to do.

Anonymous said...

Better Off: If those fees are mandatory, then they may not be deductible no matter what they are called.

Miami Al said...


Yes, the Orthodox world is heavily about community, where community is NARROWLY defined as shifting the results of fairly earning income to those determined to be more deserving by the rabbinic leadership that often has a conflict of interest.

In so far as the "Orthodox world" violates the law, ethics, or Halacha (in this case, Halacha), I am faithful to those three, and not a nebulous "Orthodox world."

I give Tzedakah primarily through Jewish charities that help Jews in need. That is my obligation as part of the Jewish community. I am not obligated to overpay for a service because the owner is Jewish, that is a layman's understanding of "Orthodox community" and is at odds with the actual Halacha. You are obligated to give Parnasah to the Jew over the Gentile, but not obligated to hurt yourself in the process, so it only applies when the costs and services a equal. The halacha is WAY more narrow than people make it out to be.

Doing the right thing, for Y. Doe, is to continue doing what he has been doing, living frugally, and using that money for his family in the future. The "right thing to do," is NOT to take that money and hand it over to his neighbors of similar income ranges that have not lived frugally.

That form of redistributive justice is rotting the core of the Jewish community, for reasons that I have listed in other posts.

Y. Doe has paid his fair share along the way, he is not obligated to pay more than his fair share as punishment for being frugal instead of extravagant, and that mindset is how the Orthodox world has become a nation of consumers instead of savers.

conservative scifi said...

Re Anonymous and 50-60% in equities.

I think you need to consider how long you'll need the money. The assumption that you'll retire at 65 and die at 70 will, most likely (iyh), not hold true for you. Thus, if you are 50 now, and your parents are alive at 80, and your grandparents passed away at 95, you are looking at a 45 year investment time window. Certainly, it is likely that either you or your wife may make it to your 90's. In that instance, you may need the increased return that historically is associated with equity investments for a comfortable retirement.

Of course, if your parents and grandparents have, unfortunately, passed away at young ages like 60, then you may have a lesser risk of outliving your assets.

My ultimate point is that there are risks either way, and the simplistic advice to simply reduce your equity exposure may not be correct for your situation. You need to look at your total assets, your risk tolerance, and your expected lifetime, among other factors. If you have a low risk tolerance, small amounts of assets, and shorter life expectancy, the advice to reduce equities may be correct. However, even if you have a low risk tolerance, if you have fairly sizable assets and a long life expectancy, you may not be wise to reduce equities relative to fixed income investments.

conservative scifi said...

Re Miami Al's comments.

While I am supportive of taxes (since I like roads, parks, police, firefighters, hurricane, tornado and weather advisories, courts, disease control, prisons, stable currency, safe drugs, safe food, nondiscriminatory housing, among many other services),

I do agree that when schools or other Jewish Institutions create false "prices" which do not reflect their costs to you, but rather reflect subsidies of others, you should be able to choose whether, and how much, to provide the subsidy. While as an actual consumer of these services, I've always paid full price, part of that is that I earn enough (along with my very successful wife) to do so. So I can afford the subsidy without impacting my ability to care for my family or my other tzedekah obligations. But for those who can't afford it, they are not being irresponsible by not subsidizing others in the mandatory "full tuition is a joke" game (in my opinion).

F said...

Here in Cleveland, from my experience, many frum families “make it” with salaries in the low 6 figures (without scholarships, gov’t help, etc).
The Hebrew Academy here (apparently it’s the only place in the US where the Hebrew Academy is haredi) charges $8k/yr for elementary school and $10-11k for high school and provides an education that’s good enough to go to a pretty good college (like Cleveland State University).
My suggestion? Move to a smaller town outside the NY area and send your kids to a haredi school (you’ll soon realize that haredi schools out of town are much more open minded and have a completely different parent body than in the NY area – plenty of MOs send their kids to H.A. and they fit in quite well) .
Your kids can then go to a good local college that will provide them with enough income for the small town lifestyle.
You’ll also find out that most jobs around here (including well paid jobs) don’t expect workers to work more than 8hrs/day, and the commute is almost never more than 30min each way, so overall your lifestyle will improve significantly.

Offwinger said...

I don't think my advice and comments were depressing or should be viewed as such.

All I said is that you can't have your cake and eat it too and have some pizza and have some ice cream as well.

There are simply too many expensive priorities that are competing one with one another for limited resources, and you have to choose what's most important to you and your family. That's reality. Being a grown-up means knowing that you can't have everything you want. It's not depressing. I think embracing this is healthy and leads to happiness. Once you figure out what is the most important to you (A), what's secondary (B), and what's less important (C), you can appreciate your efforts in providing for A for your family and stop bemoaning your lack of C.

I flat out disagree with Al's advice. As to the ethics of it, YMMV. He is correct that if you just follow the rules of the system and don't do anything fraudulent, there is nothing inherently wrong with taking advantage of the loopholes in what econs call price discrimination.

Personally, though, I think it's a big mistake to structure your entire financial life around earning a discount tuition. First off, if you get laid off or encounter a major medical expense or illness or otherwise need money, the fact that you have these funds squirreled away and tied up in a higher monthly mortgage payment due or in a binding trust or a college fund is of no use to you. Any plan that reduces your short term liquidity is risky, and I just don't think the tradeoff is worth it. The tuition system is upside down. As Al is pointing out, you have a choice of playing to it by making more upside down choices - or at least making it look like you've made these choices as an accounting matter, if you feel ethically comfortable with that, or deciding that the risk involved is too high, even if you're just moving money in ways that are less about consumption.

Second, our brains and preferences are malleable, and the choices we make now affect how we perceive reality and act in the future. If you start down the road of making poor choices in the name of achieving tuition discounts, it becomes self-perpetuating. You may get so used to living without savings readily accessible that you forget how important it is to save, you don't save even if your income starts to increase, and you become blind to the risks you've absorbed and how your behavior has changed. It shifts you to a consume more/save less mindset, and it will become harder to regain a frugal way of being.

Anonymous said...

Al: No one is saying that you pr Doe have to subsidize others through tuition, the problem is that you are suggesting that Y. Doe take steps that would require other full tuition paying parents to subsidize him more than they might otherwise do so through their tuition payments.

Miami Al said...

Anon 3:47,

I didn't write the scholarship rules. I rail against them, think that they are immortal, and twist the Orthodox world.

That said, Y. Doe has savings from living frugally and is currently receiving scholarship with two children in Yeshiva and two more entering over the coming years.

He can sit on cash, which will be taken by the Yeshiva, perhaps they'll be generous and drain him over 4-5 years instead of in 2 by pulling his scholarship, but either way, the cash cushion will be gone.

I agree with Offwinger, not having a cash reserve is devastating. However, Y. Doe is asking, can I have a cash reserve, send my kids to Yeshiva, and pay fairly without spending my savings. My answer to that question is, no, he cannot.

Y. Doe's savings predate his utilization of the Yeshiva. Since the Yeshiva has a policy of charging you "what you can afford," I think it is perfectly reasonable, fair, and ethical for him to say, "I will pay what I can out of current income, I will not draw down my savings to pay annual costs."

He has a pile of cash from living frugally. His contemporaries have more "stuff," I do not find it unreasonable for him to want to keep that money for his family, since the families with "stuff" keep their stuff.

The methods for hiding it are based upon the reality that the Yeshiva will ask him to drawn down his savings, perhaps when the third child enters the Yeshiva, and I think that he is under no obligation to do so.

That money is his, just as much as the family that took Pesach vacations got to keep the enjoyment of the Pesach vacation.

In terms of "fairness" to those "paying his tuition," that is between those parents and the Yeshiva that writes the rules, not between those parents and Mr. Doe.

Offwinger said...

"I didn't write the scholarship rules. I rail against them, think that they are immortal, and twist the Orthodox world."

I'm guessing you mean immoral. Unless we're talking about vampire scholarships. :)

Miami Al said...


Yeah, saw the typo when re-reading it. The t is right next to the r...

OTOH, the scholarship rules, immoral that they are, appear to be immortal as well, that just wasn't the intention of my post.

Anonymous said...

Al: You make some good points about families getting to keep their "stuff." Maybe the answer is to have some look back rules for scholarship eligibility whereby income for the past 5 years is considered (offset by reasonable living expenses and debt such as student loans), like there is for medicaid eligibility. For example, you can't give your money to your kids and thereby make yourself eligible for medicaid. I think Medicaid looks back 5 years for gifts to family, etc. But as long as the system penalizes savers and reward people who spend on houses, cars and stuff, then you have convinced me.

JS said...


I agree with your latter points. I also agree with Offwinger that "gaming" (actually following the twisted rules) the system is dangerous and not something I would ever engage in.

Fact is, the system is what it is and it doesn't look like it's going to change anytime soon. It rewards those who make what would traditionally be called bad decisions and punishes those who follow the advice of the financial experts. You need to decide if the tradeoffs the yeshiva system forces you to accept are worth it.

Over on 200k Chump's blog, a poster named "Shira and Joey" who does not want to be on scholarship is considering JFS. Good for her. However, she also notes the entire problem. Namely, her friends with young children aren't at all focused on what the yeshivas cost. They are only focused on which yeshiva is best for their children. That is the source of the problem right there.

Mike S. said...

Two comments on side issues:

1) To "better-off-as-fees" if a building fund "donation" is required to send your kids to the school, it is not tax deductible. To be deductible it has to be either voluntary or provide a purely religious benefit, like permission to dunk in the mikveh or high-holiday seats. Instruction doesn't count. The label (tuition vs fees) doesn't matter. What matters is whether it is required to send your kids to the school.

2) To those who think 50-60% in equities is too much for a 55 year old, I have to disagree. It isn't when you start retirement that matters, it's the full period you need the money, or if you are married when you or your it. Life at 65 is around 20 years. So if you are 55 it has to last for something like 35 years; that it is 10-12 years before you start drawing on the money is less important than how long it has to last. You need growth to provide income and keep up with even modest inflation over that period. Of course, the best advice for any individual depends on the totality of circumstances, (family and health history, pension vs 401K and who is on hook for the pension, ability and willingness of children to help out, etc.)

Mike S. said...

Two comments on side issues with some typos corrected:

1) To "better-off-as-fees" if a building fund "donation" is required to send your kids to the school, it is not tax deductible. To be deductible it has to be either voluntary or provide a purely religious benefit, like permission to dunk in the mikveh or high-holiday seats. Instruction doesn't count. The label (tuition vs fees) doesn't matter. What matters is whether it is required to send your kids to the school.

2) To those who think 50-60% in equities is too much for a 55 year old, I have to disagree. It isn't when you start retirement that matters, it's the full period you need the money, or if you are married when you or your spouse needs it. Life expectancy at 65 is around 20 years. So if you are 55 it has to last for something like 35-40 years; that it is 10-12 years before you start drawing on the money is less important than how long it has to last. You need growth to provide income and keep up with even modest inflation over that period. Of course, the best advice for any individual depends on the totality of circumstances, (family and health history, pension vs 401K and who is on hook for the pension, ability and willingness of children to help out, etc.)

Anonymous said...

Thanks Mike on the % in equities issue. Assume early 50's. The spouse with the higher income might not be able to work that many more years. The other spouse is in a field that is shrinking (i.e. risk of layoffs, hard to get new work in 50's/60's because of ageism). No support from children/relatives expected. No pension, just savings and maybe some social security if still around. Parents on both sides have lived from 75 - 83, last one still alive is 83). Also, only life insurance is through age 65.
A well above average but not earth shattering amount in savings.

Now, what mix would you recommend?

JLan said...

An addendum/statistical backup to Mike S.'s post:

The figures you'll see for life expectancy are usually from birth. In 2005, that was 75.2 for males (75.7 for white males), and 80.4 for females (80.8 for white females). But if we're worrying about retirement, then that's the wrong statistic to use. Life expectancy from birth includes everyone who dies before a traditional "retirement age," but we don't really care about them when it comes to retirement planning.

For those who make it to 65, additional life expectancy (in 2005) was 17.2 years for men and 20 years for women. That means that the average man who turned 65 in turn made it to 82, and the average woman to 85. And that's just the average; about 10% of those who make it to 65 will make it to 94-95.

With all of that taken into consideration, someone with no major risk factors who makes it to 65 should be financially planning on living another 30 years. To put this in perspective: if you're 55 and doing estate planning, you have to plan for the possibility that you're as far away from death as you are from 15 years old! 50-60% equities isn't necessarily inappropriate in that situation

Lion of Zion said...

what's with all this retirement talk? who here plans on ever retiring?


"What matters is whether it is required to send your kids to the school"

this is how i understand it too.
(YNJ did experiment with a voluntary component in its tuition ["torah fund"] but then made it mandatory again after it realized the voluntary response was very low

Mike S. said...

1) Yes, but the life expectancy for the second spouse to die at 65 is somewhat higher. Of course 1 person might need somewhat less income than 2.

2) I am not a financial planner, so don't take my advice as being worth more than it is. What makes sense for you depends on the ratio of your savings to what you expect to need to live on. The higher that is, the more conservative you can afford to be. Since I don't know your circumstances, all I can do is tell you where I am (early 50's) 80/20. I wouldn't act on that basis, but suggest running some numbers. I might have time to do an illustrative case tonight.

Adam said...

Very interesting post today on 200kChump's blog ( regarding the "winners and losers" in the Yeshiva Scholarship system.