Is Private School the Best Way to Set Kids Up for Financial Success?
What if I gave you a choice: Your child can receive an investment account with a million dollars when they turn 25 that they can use to buy a house, save for retirement, or start a business, OR they can attend private school for grades K-12? Sound crazy? Parents make this choice every day when they forgo public school in the U.S.
I can almost hear the heads exploding. What? That’s a straw man argument, a false dilemma, or . . . some other logical fallacy! Private school is obviously better! What about crime in public schools? What about left- or right-wing indoctrination? Have you even heard of bullying? What about getting accepted to an Ivy League school? It isn’t all about money, you know! Don’t you care about your children at all?
If your head is still intact, this article will focus on the time value of money when it comes to private school tuition and fees, purposefully ignoring all the subjective reasons a family might choose private school over public.
Personal History
I am a lifelong product of the U.S. public school system. In kindergarten, I rode the big yellow bus. In elementary school, I washed down rectangular pizza with chocolate milk, won a spelling bee, and periodically faced the humiliation of public lice checks in the gymnasium. In junior high, I fist-fought rivals at 3 o’clock high, got cut during basketball team tryouts, and straight-arm slow danced for the first time. In high school, I took sex ed from the basketball coach/history teacher, wore a letter jacket, and ran personal errands for the Driver’s Ed instructor.
On the other hand, my wife attended a small private school in Brazil until she entered high school. We both attended public universities for our bachelor’s degrees, but it is safe to say that we had very different experiences and now have different expectations when it comes to the education of our children.
Assuming you live in a state that doesn’t have an educational voucher system for which you are eligible, the financial burden of private school can be immense. My three children have attended private school since pre-school, and we plan to continue this trend through the end of high school. My financial brain cannot help but project what all this money will be worth in the future and what my children could do with it if we made different decisions.
My Costs
Below is a calculation of what I have already spent on private school and our projected costs through the end of high school. I calculated the costs by the calendar year, not the academic year. I included Pre-K years since, in many schools, you need to participate in those programs to receive a spot in elementary school. Additionally, my wife stays at home, and we had an Au Pair, so this really was about school for us, not daycare.
What If?
My conservative projections are that I will spend just under a million dollars for K-12 private school education for my three children. I have not factored in the tuition inflation that will likely occur over the next decade or other “soft costs.” This is just tuition and fees.
If we had chosen to put our children in public school and had taken the tuition we saved and invested it for them in an S&P 500 Index Fund instead, how would that affect their financial lives? To answer that question, I used actual returns from the S&P 500 through the beginning of 2025 and projected forward using a fixed 8% return.
I recently wrote about my children’s stock portfolio, which was primed by money from my mother’s life insurance policy. The table above shows how much each child could add to that total at various ages if I had included their tuition and fees since 2017. According to the U.S. Federal Reserve, the median American net worth was $192,100 in 2023. By attending public school, my children would be worth more than half of the people in this country by the time they hit puberty.
By the time they graduate high school, they would all be “Coast FI”, meaning they would never have to put money into a retirement account and still be able to retire comfortably. If they didn’t touch the money, by 25, two of the three would be millionaires.
By 40, they might be able to retire. If the target rate of 2% interest holds over the next 29 years, their portfolios would each produce the 2025 equivalent of around $63,000 per year using the 4% rule. If they held on, by 65, they would each be rich. Even adjusted for 2% annual inflation, child 1 would have $6.6 million in today’s dollars, while the other two would have over $8 million.
Am I Exaggerating?
These are our actual expenses and the actual stock returns through Feb 2025. If anything, the numbers are light because I didn’t include all the fees nor the “optional” donations that private schools ask for. While there are less expensive options, our children attend a school just above the average price for Austin. Here are examples of two others we considered.
There are schools in other states, such as New York, California, and Hawaii that are even more expensive. I know that an identical school to ours in California costs an additional $10,000 per student per year.
What is the Purpose of Education?
Here is where we can get philosophical, debating the true purpose of education. Is it to expand our minds, increase our experiences, learn facts, or perhaps discover how to think critically? Is it to learn social dynamics and how to assimilate into American society? Or is it simply a means to an end, a mechanism to get into college, get a job, and eventually make money?
Since this is a financial discussion, I’ll go with a means to an end. I assume that as medical professionals, we can teach our children facts and how to get along well with others. If our goal is to set up our children for their future with the skills to get a higher education so they can get a “good job”, then the ultimate end is money.
If your child has a million-dollar war chest by age 25, do they need to attend an Ivy League university? Do they need to make multiple six figures annually if they never need to save for retirement? If the purpose of an education is to make money, then there is a potentially eight-figure argument for sending your kids to public school.
What Are the Financial Benefits of Private Schools?
This discussion is incomplete without discussing the financial outcomes of private school graduates versus their public school counterparts. Is this similar to comparing the long-term wealth of MDs vs PAs, where MDs get a later start and take on more debt, but their higher income eventually makes it worthwhile?
Unfortunately, I didn’t find any direct income data on this subject. It seems clear that private school students fare better on standardized tests, but even this outcome seems to be best correlated to family attributes, such as parents’ highest education level and income. Medical professionals have the diplomas and income to provide their children with an advantage on test scores regardless of what school they attend.
There is some data to support that private college graduates earn more than those who attend a public college. One study showed that private college graduates earned an annual average of $8,188 more. If this is accurate and consistent throughout their career, an average private college graduate would have an additional $343,896 in lifetime earnings. If 88% of this were saved (after paying a 12% tax rate) and invested at an 8% annualized return for 42 years, the private college graduate would have an additional balance at age 65 of $2,192,075.
While not directly applicable, if we extrapolate that to students attending a private school for pre-K through 12, you can see that these numbers pale in comparison to those we calculated for the public school students whose parents invested their tuition and fees.
Conclusion
I fully understand that the private vs public decision is not just about numbers. Nothing regarding children is. There are myriad subjective arguments that can convincingly be made about the benefits of a private school education. I know because my wife convinced me.
Fortunately, I can afford to send my children to private school, save for my retirement, AND save for their future. However, in many cases, parents have a mutually exclusive decision to make. Even most medical professionals can’t do all three. Since saving for your own retirement is not optional in my mind, this leaves you with a difficult choice.
Sending our kids to private school may be another purposeful financial mistake that I am making. Or it may be the best decision for our children given our fortunate financial situation. If you can’t afford to do both, you may do well to choose public school, especially if you are a highly educated parent making an above-average income focused on your child’s financial outcome.
Please note that this entire argument hangs on two suppositions. One, that you actually save/invest the money you would have spent on private school, and two, you educate your children about personal finance, so they don’t just blow the money on a new Ferrari when they turn 18. If you’re reading Business Is The Best Medicine regularly, you’re well on the way to accomplishing both.
I purposefully omitted homeschooling as this was not an option for our family. Neither my wife nor I have the temperament to be teachers; helping my children with their homework is more than enough for me. However, homeschooling and magnet schools are viable alternatives to private schools with financial benefits similar to the public school option.
Thank you for reading BBM. How do you handle your children’s education? Let us know in the comments below. If you haven’t already, please subscribe to access to our downloadable resources and receive our weekly email.