If you’re like most parents, a major goal when it comes to your kids and money is simply to ensure, by whatever means possible, that your children are a little better off financially than you were. In other words, you want to guarantee that your kids will see some upward economic mobility and, ideally, that they’ll move out of your income bracket altogether. Whether this actually will happen is pretty complex.
On the one hand, there’s a college education. Almost all experts point out that a degree is increasingly necessary to get a job. Additionally, statistics show that the amount of postsecondary education a person has usually correlates to their income: As education goes up, income increases. The United States Census Bureau, for example, shows that, in 2012, those with less than a high school diploma made just $471 a week and had the highest unemployment rate (12.4%). Those who earned a bachelor’s made $1,066 with 4.5% unemployment, and those with doctoral and professional degrees earned $1,624 and $1,735, respectively, with unemployment rates of 2.5% and 2.1%. In other words, your child has a better chance of having a job and better income—and perhaps moving to a better income bracket—if he goes to school.
Yet, funding for education is worrisome for most parents. The cost of a degree is higher than ever and is only going up. Funding is available to help low income families, often in the form of scholarships, grants and financial aid, but many families find themselves in between a rock and a hard place, with incomes too low to cover college but too high to qualify for aid. Debt is often associated with getting a degree as a result.
Looking at education from a slightly different perspective, even though statistics show that income can go up if a person can manage to finance a degree, many of the world’s richest people didn’t go to college. This is especially true in technology areas, with gurus Steve Jobs and Bill Gates both being examples of individuals who didn’t complete college. Additionally, according to a 2012 report by the Credit Suisse Research Institute, more than a third of Forbes billionaires (69%) are self-made, meaning that they didn’t inherit the majority of their assets. The Harrison Group also supports that inherited money is dying out, stating, “70% of the nation’s big family fortunes are less than 13 years old…the people who amassed them are, first and foremost, entrepreneurs — risk takers for whom wealth is a byproduct of pursuing their passion.” This isn’t to give a license to young people to not learn and prepare themselves, but rather to say that a good idea, when well developed and marketed, can sometimes be another route to wealth.
Then there is the fact that upward mobility differs by location. Cultural elements can make it easier to get a job, save or invest in some regions. Pew Charitable Trusts’ Economic Mobility Project, for example, shows that upward mobility is higher in areas such as Europe, compared to America. The implication is that switching locations might give your children (and their children) better odds.
In short, multiple factors can make becoming financially secure tough for your kids. Even so, they are not necessarily destined to live in your financial shoes, provided you stress the importance of working hard, pursuing good ideas and developing smart money habits. If you aren’t sure how to do this, it’s more than possible to learn, and resources like books, seminars an