Yahoo Finance The Rich Spend More on Parenting — Why Experts Say This Matters For Future Wealth
There’s no denying that when it comes to kids — people will spend a small fortune on raising them. And this is especially true of wealthy parents.
“From private schooling to Ivy League college, wealthy parents spend as much as $2 million on a single child,” said Ethan Keller, president of Dominion.
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“Often, the gifts don’t end with the education; they extend to a trust fund created right after birth, first apartment, car and entertainment experiences — adding up to a million or more.”
According to Keller, generational wealth means the kid can start from a clean slate without the burden of student loans, rent or the pressure of becoming a first-time homeowner and auto loans.
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“Also, the free ride to education havens helps affluent children build connections to top-notch companies or take entrepreneurial risks — ensuring surefire career success,” he said.
In contrast, Keller said a middle-income family spends $300,000 on average on a child for basic college schooling. “As this amount doesn’t cover the full fees of college education, college kids are burdened with student loans or have to pick an institution with lower costs.”
As a result, he adds that graduates join the job market with immense pressure: rent, loans and the struggle to get a well-paying job.
“Since kids from middle-income families need quick cash, they either take out an aberrant amount of loans (credit cards or personal loans) to temporarily pay off the student loans and basic needs or live a life of the rich and wealthy,” Keller said. “Hence, they get financially ruined from the very beginning and it takes years to overcome them by pinching pennies for years.”
It’s clear the rich possess greater advantages — and a lot of it comes from how much money went into raising them.
Below are some ways the rich spend significantly more on parenting and why this matters for future wealth.
Top Notch Education
According to Dennis Shirshikov, head of growth at Go Summer, wealthy families often have the means to provide their children with resources that are not typically available to middle-income families.
These include, but are not limited to, higher-quality education, access to extracurricular activities and increased exposure to culturally enriching experiences.
“For instance, a wealthy family might spend thousands of dollars on private schooling, music lessons, language tutoring and travel, each of which can significantly enhance a child’s cognitive and social development,” Shirshikov said.
He said the cumulative effect of these expenditures is not just about immediate benefits but how they compound over time. “The rich, by investing heavily in their children’s education and development, essentially buy an ‘opportunity premium’ that provides their offspring a distinct advantage in the competitive global economy.”
“This can lead to a generational cycle where wealth begets wealth, not merely through financial inheritance but through the accrual of social and human capital,” he said.
Paul Walker, financial consultant and owner of Paul J Walker, says the rich can afford private schools which can often cost over $50,000 a year or $600,000 before their children apply for college. “Not only is the education much better but often the private schools are feeder schools for the most prestigious universities in the nation.”
In addition, he said public university acceptance committees know that private schools produce college-ready students which increases their chances of getting admitted. “Once in college, students can focus on their education rather than balancing work and school. Not to mention they graduate debt-free.”
Investing In Enriching Experiences
Beyond education, wealthy parents invest heavily in experiences that shape their children’s futures, said Justin Godur, finance advisor and founder of Capital Max. “Luxury family vacations to cultural hubs, costing upwards of $20,000 and exposure to various global experiences can provide children with a broader worldview and valuable connections.”
In contrast, he said middle-income families might focus on more modest local experiences, which, while enriching, do not provide the same level of exposure or networking opportunities.
Dayten Rynsburger, chief revenue officer at Niche Capital CO, agrees.
“Travel may come more freely to wealthy families — much of which is spent during annual family travel, ranging from $10,000 to $100,000 or more — giving their children greater horizons and, ideally, greater global sophistication,” Rynsburger said.
He explained this is a considerable expense that is more frequently in the range of $2,000 for trips closer to home for families of middling income. “These investments — in education, experience and financial assets — can pay off big for a kid through better career prospects, greater financial literacy and social capital.”
Godur equally explained that the payoff is huge.
“In my experience, the key difference lies in the level of access and opportunity that wealth can provide,” he said. “While money isn’t everything, it certainly opens doors and sets the stage for future success.”
Health and Personal Development
“We see that wealthy parents also allocate considerable amounts for health and personal development,” said Rhett Stubbendeck, CEO and founder of Leverage Planning.
“I’ve assisted clients who spend thousands annually on specialized training in sports or arts for their children, enhancing talents and opening doors to unique opportunities,” he said.
Helping Their Kids With Investments
“Many wealthy families help their children get started with investments,” said Melanie Musson, finance expert with Clearsurance.
“For example, they may give their child an investment property. That property then helps the child earn passive income so that they can reinvest in more properties,” she said. “An investment property could cost anywhere from $100,000 to $1 million.”
Whereas, she says children of middle-class families start life with debt and work most of their lives to climb out of that debt.
Cultivating Networking Opportunities
According to Rob Macoviak, president of Oyer Insurance, wealthy parents often have the resources to provide extensive networking opportunities and early career exposures that are typically out of reach for middle-income families. “These can include internships, first jobs through established connections and even startup capital for entrepreneurial ventures.”
He said the cumulative effect of these advantages is a vastly different starting point in adult life, setting up a cycle of wealth that tends to self-perpetuate across generations.
“Thus, the manner in which high-income families are able to invest in their offspring’s development, education and networking unarguably plays a crucial role in setting them up for sustained, long-term success and wealth creation,” Macoviak said.
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