Money Grows on Trees?
Money Grows on Trees?
Last week, I received a newsletter from my local bank giving parents financial tips for their college students. Some of the items were common sense, but, if their children have never had to handle a budget, balance a checkbook, or hold a job, those students could be in for a huge shock. Topics included principles of spending, value in balancing a checkbook (as overdrafts can add up), and credit card management.
Many young people had to complete a record book of their dairy project each year for 4-H or FFA. These records show milk income, feed costs, and veterinary expenses, just to name a few. Each month, students could track trends in feed costs and milk prices, as well as calculating profit and loss each month.
Since I was raised on a dairy operation where all feed was purchased, it was an easy task to calculate the monthly feed costs. I really liked math and always looked forward to getting the nutritionist’s feed costs, the monthly DHIR reports, and the milk statement, so I could calculate how my dairy project was doing financially.
While no actual money ever changed hands for feed costs from milk income, there was a valuable lesson in learning about the tight margins that existed in the dairy business. And, on occasion, when a displaced abomasum surgery was needed on one of my cows, that cost was added to my expenses. How was “my herd” going to make a profit when a vet call, fair expenses, and registered animal fees seem to surface when income was at a low point? I am sure this is not an unfamiliar situation for many of you on your own operations.
Now, I realize that not every young person is given the access to these types of (financial) records, but my parents thought it was important for me to understand how money came into the business and how it left. At the age of 9, Dad showed me how to read the nutritionists report (ration and cost per cow) and DHIR test sheets. Mom showed me the milk statement, where to find the cwt, and how to calculate the milk income based on how much each cow gave on test day.
I kept a monthly record of all expenses for my project for the next 10 years for my 4-H record book. So, when it was time to think about college, I knew there would be many costs, and I needed a source of income to cover those expenses since my parents informed me that I would be paying my college expenses. I thought of various options to keep my expenses at reasonable levels. The decisions I made in order to minimize the debt I would incur while earning a college degree included starting at a two-year community college, living at home for two years, and completing numerous scholarship applications.
If my parents had not taught me about understanding budgets, income and expenses, I am confident that I would not have be as conscientious about controlling expenses and would have graduated with a great deal of loans and grants to repay. Instead, part-time jobs and several scholarships allowed me to graduate with a four-year degree without incurring debt at graduation, while still enjoying numerous college activities like dairy club, judging and athletics.
However, that was many years ago, and the cost of college continues to increase. Recent statistics show that a child born in 2009 wanting to earn a four-year degree from an in-state public college will be $158,000. And, that is in addition to the $222,000 it will take to raise that same child to age 18. While college may be expensive, it is truly an investment in the future of that young person. Studies continue to show that people with degrees beyond high school earn significantly more income ($500,000 more for two-year degrees and $1 million more for four-year degrees) in their lifetimes than those with just a high school education. This, too, is a lesson to be learned in managing expenses in relation to potential income.
Are you teaching your children about expenses? Do they expect a new vehicle at age 16? A high school graduation trip to another country? A four-year college degree (in unlimited years)? Do they understand your operation’s flexibility or inability to adapt to these types of costs? While most would like to be able to reward their children with gifts like these, the realistic resources to do so are limited for many dairy producers. Have you prepared your children for topics such as buying them a car or paying for college? And do you have sound reasons for your response? Have you given them the tools to effectively handle money? Or do they think money grows on trees or flows from rivers of milk?