Tuesday, October 27, 2009

What Do You Do When There Is An Incentive To Be Irresponsible?

I have a friend (I'll call him Steve) who manages an IT group at a Midtown company. I don't know Steve's salary, but I have to imagine that he makes a decent salary -- certainly above the median for New York.

Steve also has three kids, the oldest of which is three years old. The kids are, obviously, not yet enrolled in a yeshiva, but at some point in the not too distant future they will be. I don't know where Steve would want to send his kids, but from what I know of him hashkafically and the location of his house (not in Brooklyn), I'm fairly certain that he'll be facing steep annual tuition bills. Assuming he has to pay his mortgage and other bills, it may well be beyond his ability to pay despite his above average salary.

For the moment, however, Steve's kids aren't yet in school. Steve is a pretty astute guy when it comes to finances. He's not a CPA, a financial planner or anything like that, but he has enough common sense and brains to be able to analyze a situation and a see what lies ahead in the future.

Let's assume (since I don't know this for sure) that Steve has the ability to put away some money from his job each month for savings. Simple logic would tell you that a person facing a long road of expenses in the future but with a current surplus would be wise to start putting away some money for that future expense. That's the entire basis of some of the various savings plans (IRA, 401(k), 529, etc.) that are out there - you put away now when you have excess to pay for a later expense (be it retirement, college education, etc.). So, if Steve can sock away a few hundred each month now to pay for yeshiva education for his kids later, he should do it. That would be the responsible thing to do.

The problem is that unless Steve's salary is very, very high, he actually has a disincentive to save.

If Steve's salary is very, very high, and he's able to carry the three tuitions in full (plus the tuitions of any other kids he may have in the future) in addition to his other expenses then he might have an incentive to save. But, in all probability, Steve does not have a salary quite that high. Three tuitions can easily add up to $25,000 a year or more -- quite a big hole in just about anyone's budget. So, in all probability, Steve (along with lots of other people) will be asking the yeshiva for a discount.

When Steve sees the financial aid application, there will probably be a question on there about how much he has stocked away in a savings account. Assuming that Steve has been responsible, he'll probably have been saving up and have a few thousand stashed away by the time his oldest hits first grade. The administrators will probably take this into account when they evaluate Steve's application for a reduction in tutition.

Now, Steve is an honorable, stand-up kind of guy. He's the type of guy who, if he could pay full tuition, would. He's not out to deliberately "cheat" the schools out of money that they owe. He's also not going to use the money that he would have otherwise put into the savings account to go on an expensive vacation, buy a big screen television, or go on a gambling trip to Atlantic City. He would put the money to use in ways that most of us would consider responsible -- he might pay off a high-interest credit card, or make an extra payment on his mortgage. But he probably can't help but notice the difference between himself and his less responsible neighbor - let's call him Mike.

Steve and Mike earn the same amount. Their houses are roughly the same price and they pay similar amounts in mortgages, bills, etc. Both have young children coming into the yeshiva in the next few years. Steve, being responsible, knows that he should begin saving now for the big upcoming expense. Mike, however, doesn't have a long-range vision. He knows that he's going to have to start paying tuition in a few years, but for now, it's not "on the books yet." He can take his discretionary income and spend it on whatever he needs or wants. So, Mike's family goes on a vacation this year -- because he knows that in a few years he won't be able to. He may purchase large-ticket discretionary items now. Heck, he may even be responsible and take the money and pay off his credit card bills. But whatever he uses it for, it's not going to be there when he enrolls his oldest in the local yeshiva.

Steve looks at Mike and his purchases and wonders to himself how he can buy these things. Doesn't he know that his kids have to go to yeshiva in a few years? He's just about positive that Mike doesn't have some outside source of income. He figures (correctly) that Mike isn't saving any money to pay for yeshiva in a few years. A casual conversation with Mike about the subject a few days later confirms his suspicions -- unless Mike hits the lottery in the next few years, he's planning on asking the tuition committee for a break on his kids' tuition when it's time to enroll.

Steve has to wonder to himself. He has the ability to make sacrifices to his lifestyle and to scrimp and save perhaps $30,000 over the next three years to pay tuitions. Of course, as the younger ones start enrolling and the savings account begins to deplete, he'll eventually have to ask for a tuition break himself - but for the first few years, if he really watches the pennies, he can probably pay the full tuition for his oldest. And that would be the honorable thing to do. But then he looks at Mike and thinks to himself -- "why should I save all that money when Mike will probably get a discount because he has no money in the bank? Why should I be "punished" financially for being responsible and being a roeh as haNolad*?" And so, Steve not only has no incentive to save -- he actually has a disincentive to save -- because if he does save, he'll either have to pay the entire tuition out of pocket or else the administrators will see the savings account on Steve's financial aid application and reduce his tuition based on the fact that he can draw on those savings.

In short, we've created a system where people are often rewarded for not being responsible and people end up worse off, financially, for doing the honorable thing and being responsible. And, perhaps, that's part of the problem that we have with the "tuition crisis" today.

The Wolf

* Literally "one who sees that which will be born." Figuratively -- somone with a longer-range vision than next week.

Furthermore, if what Steve hears about tuition committes are true, then he might be in even bigger trouble once the savings account is depleted and he has to start asking for a discount. Most committees are loathe, from what he hears, to give up their "full payers."


Anonymous said...

And what can anyone do to fix this?

E-Man said...

middle class Jews are usually messed over when it comes to tuition. either be really rich or a rebbe, otherwise you are oigng in debt.

I think what could be done is consolidation of Yeshivas and eliminating a large amount of administration. I see many jewish day schools with deans, principals, vice principals and so on. That is so ridiculous.

Also, why do we need so many schools in proximity to one another. If they were consolidated there would be more kids in the school. The problem with that is that people might be unhappy with the haskafa discrepencies.

Once the school is in the black then they can start to deal with the discrepancies that have been created between rich and poor and how to make it fair.

Critically Observant Jew said...

My daughter is 8 weeks old, and you know, I want to be like Mike; only a little smarter. Until tuition hits me, I will try to get rid of as much debt as I can (by refinancing into a 15 yr mortgage, and paying off additional principal); I'll purchase my upcoming cars in mostly cash, and I'll keep liquid assets low (but enough to cover if I or my spouse is unemployed). I'm sorry, but if I'm going to be suckered by our fine educational institutions, at least I'll make the best of it.

harry-er than them all said...

The issue of tuition is only exasperated by people who think like Mike. One can think about what type of lifestyle he can live, or one can do the communally responsible thing and make tuition a priority.
How many people would rather give to an organization like Chai Lifeline, Oorah, or A.T.I.M.E, rather than pay their tuition?

There are ways to cut back in education, my proposal of merging school administrations, like having a Jewish school board overseeing many schools is seen as too politically naive. But i think that is one way to help.

SuMMy said...

Mike (and Steve) are also making the the tuition crisis worse by making the price higher for everyone else who must subsidize them.

Here's a simplistic story that explains it:
The Ant and the Grasshopper: The Yeshiva Tuition Crisis

Garnel Ironheart said...

In my kids' school they don't give out a financial info form. They ask for a copy of your last tax assessment and base your tuition on that. It seems that this method would be the great equalizer between Steve and Mike.

Besides, what about university?

Joseph said...

Wolf (or anyone):

How do the schools verify savings? I mean even of they look at the tax returns, it doesn't show savings. And if they look at bank statements, there is no way of knowing if the applicant hasn't reported savings in a different bank.

Anonymous said...

Joseph: Tax returns will show interest from savings accounts, cd's etc. that will be a big tip-off on what assets are held, just like dividends and capital gains reported on a tax return will be a flag that there is a stock/mutual fund portfolio.

Dave said...

Wolf - I assume your post is mostly relevant to high priced Yeshivas like the modern orthodox have.

What if a parent with 5 kids is making $70,000 (combined) a year? Do they throw the kid(s) out of the Yeshiva for not being able to pay?

Orthonomics said...

Joseph, call up some local yeshivas and ask for their assistance form. The schools want to know all of your assets and income sources down to food stamps and your own children's babysitting earnings. They want to know how much equity is in your home. They want to know what type of cars you drive, what renovations you have made in the past x years. Some ask what the grandparents give. Often you have to answer how much the tuitions are for kids in other schools.

You can't extrapolate this much informaiton from a tax form.

Orthonomics said...

I guess a person could omit savings, but that wouldn't be honest. . . . . .

Mike S. said...

Hey Wolf,

I have paid full tuition for 4 kids for a total of 46 kid-years.

You should have picked some other name for the irresponsible parent.

Mordy Ovits said...

Wolf, The words you're looking for are "moral hazard:"

Moral hazard is the fact that a party insulated from risk may behave differently from the way it would behave if it would be fully exposed to the risk. [...] Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions.

Larry Lennhoff said...

This happens (albeit not as badly) in the secular world too. My parents sent me to college and paid full tuition because they had been saving money to send me to college since I was born. All of the cash gifts at my bar mitzvah went into the college fund etc. Meanwhile my cousin and his family went on ski vacations in Montreal each winter, etc. and when the time came for his two daughters to go to college they got large amounts of tuition assistance(*). My cousin apparently could not understand why my father behaved as he did.

(*)This was the 1970s - far more money was given as grants rather than loans then. If his daughters followed the same strategy their kids are going to have a mountain of debt.

Lion of Zion said...


sorry, but your comparison is flawed. steve is certainly more honest than mike, but by no means is he much more "responsible" and he doesn't seem to possess the financial common sense you write about.

along the way he made 3 decisions that question the positive attributes you ascribe to him:

1) he chose a profession that promised him only a "decent" salary
2) he had 3 kids
3) he bought that house

each of these decisions on their own is excusable, but the fact that he made all 3 decision and then

4) he selected a high-priced schooling option

puts him--for practical purposes as far as relying on the larger community--in the same category as mike.

Dave said...


Perhaps you are not, but many people are religious and do not engage in birth control.

Anonymous said...

Lion: You are being a little hard on Steve. Nothing wrong with having three kids, a house and a career with a "decent" income. Nothing wrong with buying a house if you buy a modest one, instead of being a renter. Steve makes above average and is the manager of an IT group at what is probably a relatively young age. You can't expect everyone to become a neruosurgeon or hedge fund manager. The problem is not the steves, but the people with 5 or more kids they can't support, the ones who didn't get any higher education or training (or aren't working at all) and the people who go overboard on homebuying.

Baruch said...

The number of kids is a gift from G-d one must not refuse, financial considerations notwithstanding. Some folks put G-d's will first.

Lion of Zion said...


"many people are religious and do not engage in birth control."

1) what does religigious have to do with not engaging in birth control? the vast majority of frum people engage in birth control. there may be different shittot regarding method, at what point and duration, but the majority do it.

2) besides, i did not advocate that anyone should limit family size or otherwise practice birth control. i simply stated that it is not responsible to have a large family *and* buy a house in an expensive area (and where the cost of living is high) *and* select expensive schooling.

Lion of Zion said...


you accuse me of being hard on steve. why are you excusing his decisions because he had *only* 3 kids, etc.

there is no magic number of how many kids, what type of home, etc. someone can afford. everyone is different. and for steve's income he made the wrong decisions. i simply don't understand. how did he think he would pay for tuition when he had his third child? i was talking to a friend recently and he said that there is no way people could have projected 10-15 years ago how much tuition would have increased. fine. but steve's kids are all under 3, so he knew already that tuition was going to be out of his range.

Dave said...


No idea where you came up with that, but most Bnei Torah do NOT engage in birth control. And I'm talking about the working frum.

In any event, birth control for financial purposes is assur. (For psychological problems it may be muttar with a heter.)

Lion of Zion said...


i won't claim to be as learned as you and i won't pronounce whether it's assur or muttar, but it is more common than you think.

feel free to email me at arisblog@yahoo.com for more information. also if we were to collobarate and conduct a survery of healthy FFB women who have reached menopause in the last 10 years, what do you think would we would find is the average number of children per family?

but anyway, you missed my point. i did not advocate for or against family planning, but rather for being responsible in the totality of decision making. if someone wants a large family (whatever that means) without a very high income, then they shouldn't buy a house and/or should get creative about schooling options.

Anonymous said...

Excellent post.

Anonymous said...

I think that the main incentive here is dishonesty - in whatever form. Some might fight the injustice by lying on the assistance forms, others by pi**ing money away to appear destitute.

The entire system is dishonest, because "full tuition" represents your child's tuition PLUS charity. The schools promote dishonesty by their own actions.

The fixes are possible, but difficult. The problem here is entirely with the schools, because the other factors are out of anyone's control (i.e. you can't tell families to not have children, you can't tell them to send their kids to public school, you can't tell them to get a higher paying job - if they could they would, you can't tell them to get educated - long term thinking is not in vogue).

One fix is to lower costs. There are many ways to do this. Another fix is to enforce a reasonable mandatory tuition with no excuses (e.g. 3500 - 5000 per kid, no extras), and rely on charitable tax deductible contributions for the rest. But fixing the schools is not the thrust of this article.

I have no solution for the Steves of our community. It's a dog eat dog world. And our "Torah principles" and leaders are telling us to allow ourselves to be eaten. By the Torah schools.

Some days you are the dog.
Some days you are the fire hydrant.

Joe from P.

Dave said...

Both are irresponsible, or neither.

If depending on the fact that the community will bail them out (to a greater or lesser degree) on tuition is irresponsible, then they both are.

If it isn't, then neither one is.

What is the case is that the community rewards profligate spending over financial responsibility.

Anonymous said...

I have written about this for years - the couple that, early in their marriage, buys expensive furniture and jewelry, and then buys a huge house they can't afford, is rewarded by the tuition committee a few years later. No tuition committee ever says, sell your house or sell your huge diamond ring.
The answer: in any given community, the schools should publish a list every year of the going rate for an average size house: i.e. in Teaneck, in 2010, the average 4 bedroom house will be available for 500K. Anyone who spends more than 550K on a house in 2010 will not be eligible for a tuition break in the next 5 years - think for yourself if you will face unforeseen circumstances like unemployment. Next, tuition committees should demand the right to ask families to sell their jewelry. Some women have 10-20K of jewelry. Finally, even if you don't believe a tuition committee can tell people what houses or jewelry to own, schools should demand that people who ask for breaks sign a letter that they will pay back the loan, not send their daughters to seminary, and not contribute money to ANY charity other than the school until the debt is paid. Also, it is not unreasonable to ask families not to send their kids to any extras unless it is for health reasons - meaning, if your kid is fat, you have to send them to gymnastics class, but art/karate/violin lessons for fun are out if you get a tuition break.

Anonymous said...

My experience was that yeshivas expect you to sacrifice everything to pay for an education that in two cases I found to be inferior to public school and Jewish after school classes. The yehivas seemed more interested in money than in education. When my kids were older, they went to prep schools and private colleges and for two years, the total tuition would have been more than half my gross income. The schools wanted my kids and through scholarships, loans and reasonable payments by me, all now have advanced degrees, make more than I ever did and are mentschlich, charitable, wonderful parents and we're all debt free. In retirement, I can at least live in the same modest financial circumstances that I always lived in.

ProfK said...

Sorry if I'm asking the obvious, but where are Steve and Mike's wife being figured in all of this? For the very short term it might make financial sense for Steve's wife to be home with three children under 3-years of age. But once tuition payment comes into play, where are the incomes from the wives? One cannot claim that traditional family organization is the best for the family while at the same time asking yeshivas for tuition assistance in large amounts.

Today's yeshiva tuitions aren't doable for even the higher end of the upper middle class when multiple children have to be paid for, not and have the other "perks" of that salary, such as a decent house in a decent neighborhood and even reasonable expenditures for household furnishings and household expenses.

And to the commenter who told the women to sell their jewelry, clearly NOT a married man and with no idea just how that would play out. (And most women own jewelry in the 10-20K range? I guess I'm owed some jewelry then.) Far more reasonable and safe to simply say that both husband and wife need to work when yeshiva tuition costs X and basic living costs Y.

Baal Habos said...

Excellent post. In addition to the issues you've raised, I've seen clearly the resentment this causes in some families, where in addition to the yeshiva handouts, the irresponsible spenders get bailed out by elderly grand-parents; to the chagrin of the responsible siblings who effectivly saved and are witness to see their parents' life-savings going down the drain.

SubWife said...


I see this time and again - it almost makes no sense for the wife to work. I work and every time we interview with yeshivas, I get that, "oh, so your wife works..." I would much rather stay home, but I know that I cannot, for financial reasons. So yeah, being financially responsible is not rewarded.

On the other hand, i want to second the opinion that it's not only yeshivas. colleges have the same system that rewards fiscally irresponsible. if i think more about it, I would probably come up with more examples... In general, responsible people get punished for being that way. Anyone who was rewarded for their good work with more work (and no pay, of course) knows what I am talking about.

Anonymous said...

Many (not all) young women who get engaged in black hat circles in Fltabush get a diamond worth 4-6K, and many men, a watch between 1-2K. That's almost 10K right there, not counting gold bracelets or necklaces (I am middle class and have at least 3 gold bracelets, easily worth $800, a gold necklace worth $200, and pearls my in-laws gave me worth $1K.
And I got very little jewelry as a kallah compared to my Flatbush friends!

Ahavah said...

Prof K:

Having your wife work puts you into a higher tax bracket, causes you to have to pay for afterschool and evening childcare (or all day care if she has more children, which most frum women would). Even at three kids it will already cost more than most women will ever make in a year to provide decent childcare. Decent childcare costs as much as tuition, especially for infants.

Not to mention having your kids raised in herds by strangers means your kids grow up with other people's values and not your own. If you want a pet, get one. If you want children, you should be willing to put in the time and effort THEY need, because they didn't ask to be brought into this world. If you decide that you have other priorities, you don't get to dump them off onto barely educated minimnum wage (often foreign and illegal) workers all day and then gripe about what they learn and what attitudes they adopt.

Other costs would include a "professional" wardrobe for mom, and likely more expensive convenience foods, take out, more dry cleaning, higher usage of gasoline, more oil changes, etc. etc. Unless hubby is going to spend his evenings helping with the housework instead of learning Torah, then they'll need a cleaning service, too. In other words, unless the wife is already educated enough to make six figures, the family actually loses money and shalom bayit if she works due to higher taxes and other intangible costs.

A woman also has to take off to deal with her children and often her parent's illnesses - and maternity leave, of course. Only career women with no children earn as much as men in similar fields and in similar positions for that reason alone. Daycares will absolutely not admit children with fevers, and trying to medicate them before they go will simply earn you a call to come get them in the middle of the day - you aren't fooling anyone and it's shameful to treat a sick child like that in the first place, not to mention exposing all the other children.

So what was the point of having children, exactly, if you see them for three hours every evening (6-9pm, maybe) before their bedtime, during which they have to eat dinner and do chores and homework instead of spending any time with you?

Is this your brilliant solution, to institutionalize children all day long and remove them from their parents care and influence? Is this not the main cause of the huge and growing problem of children at risk and already OTD? They are disconnected from everything that brings balance to their lives (quality time with parents, play, free time) and have nothing but pressure to perform in institutional settings for all their life they can remember? Really, more of this is good? I think not.