Lessons Learned

    Back-to-School Budgeting

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    No matter how you slice it, the cost of going back to school is expensive. Notebooks, pens, pencils, paper, backpack, calculator, computer, tablet, and you know the rest of the story. If the annual inflation rate of 7.3% for back-to-school costs stays the same this year, then according to the Huntington National Bank’s annual Backpack Index, the average costs for sending kids back to school in 2015 will be – insert drum roll of doom here – $688 for an elementary student; $985 for a middle school student; and $1,377 for a high school student.

    As with many family decisions, annual back-to-school shopping presents both a financial burden and a valuable teaching moment for American families. There are many creative ways to lessen the financial impact, but two of the most effective cost-cutting techniques involve recycling and smart shopping.

    With any luck, there are some items left over from last school year that you can use for the coming year. Comparison shopping is also important. Make sure to look at generic items whenever possible, and shopping at discount or dollar stores for school supplies can save your family a good deal of money. Don’t forget about online shopping either. This is often the fastest and easiest way to shop, since you save yourself a trip to the store, and many retailers offer free shipping options.

    Since this financial outlay comes around every year I would be remiss if I did not bring up the dreaded “B” word at this point: budget. Budgeting is the most effective financial tool that can help someone prepare for large annual purchases. So why then, do over two-thirds of Americans not operate on a budget? I believe the answer lies in the mind frame that the word budget elicits. The word budget has become synonymous with saving money, instead of what I believe budgeting should be associated with, and that is planned spending.

    Think about it – why do we even save money in the first place? So we can spend said money at some time in the future, whether that be on retirement, cars, jewelry, clothes, vacations, or school supplies. Without a specific purpose or purchase in mind, saving money becomes a burdensome notion that everyone is told they should be doing more of. If saving is done with an end purchase in mind, then saving money is no longer a burden. It actually becomes an activity with a positive outcome.

    The annual teaching moment occurs from the simple fact of the expense itself. Early in the process, just understanding the concept is enough. Relate the annual back-to-school cost to things in which the child sees value or enjoyment. For instance, the average cost for an elementary student is the same as a brand new iPad, or not one, but two weeks at her favorite horse camp.

    So just having a child recognize and appreciate that you had to earn money to pay for them to go back to school is a great start. From there, you can move to explaining how you saved the money for the large expense, that you put away $13 per week or $26 per paycheck or $57 per month into an account with the specific purpose of paying for back-to-school stuff.

    Then you could use this opportunity to explain the positive emotional aspects of budgeting, the fact that you didn’t have to deplete your savings or put all the expenses on a credit card to pay for school supplies this year. I like to call this guilt-free spending. Just changing the connotation of budgeting from negative to positive can have long-lasting ramifications for the child.

    Ultimately, whether you’re shopping for one child or ten, families can use back-to-school time to teach a life skill and instill the behavior of budgeting as a positive behavior to promote saving to meet financial obligations.

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    Jeremy Shipp

    Jeremy D. Shipp, CLU, RICP, has worked in the financial services industry since 2006. He is managing partner of the retirement and estate planning firm, O’Dell, Winkfield, Roseman & Shipp, LLC. This material does not constitute legal or tax advice, or individual investment advice; you are urged to speak with your appropriate professionals before making any decisions.