Is it still a good time to invest in children?

About a millisecond after the kids go back to school, we parents are not asked to donate money to the school, as much as we are asked to "invest in our children".  Well, as a financial planner, I feel compelled to investigate that idea.  

Let's start with the classic definition of an investment, which is  an asset or item that is purchased with the hopes that it will generate an income or appreciate in value in the future.  

I'm not at all certain that kids meet these criteria. Whether or not we ever see a return, we don't purchase our children, and I generally consider mine as more of a liability than an asset.  Also, I'm not sure about appreciation, because children are hard to appraise monetarily, and we aren't allowed to sell our kids (despite frequent temptation).   But if we're really lucky, they might generate an income.  

If you're a farmer, having kids can probably be a good investment.  They help plow the fields, and such.  But it's hard to evaluate the investment quality of a child because we can't easily use the typical methods of comparing the returns to those we might expect on other types of investments.

And what kind of investment is a child, really?  To which asset class does a child belong?  Is a child like a bond?  Where you lend money that get's paid back year after year with interest?  Well, no, not really.  mostly you just pay and then pay some more.  So are kids more like depreciable business assets that get written down bit by bit over the years?  Hmmm, that actually sounds more like a description of the parent.

ok, so what about stocks?  Well, just like a stock, a child can presumably go up or down in value, but as mentioned earlier, you can't sell them to capture the gain in value, nor can you harvest a tax loss by unloading a child when his or her value has degraded.  Also unlike stock in XYZ corp, children generate constant upkeep and maintenance expenses.  We're talking about at least 18 years (and possibly quite a bit more) of payments towards an asset (i.e. the child) with a highly uncertain ability to create a positive cash flow.  Moreover,  a stock can go down to a value of zero, with the investor losing all the money he put at risk, but a child could potentially put at risk a great deal more than your initial investment, and leave you in a position of unlimited losses.  

Generally, investors would need the potential for tremendous returns in order to compensate them for assuming such risk. The odds are so long that your Return on Investment (ROI) would ever exceed the capital expense. 

But parents are irrational and we have some biological compulsions to breed, whether or not we consider the return on our progeny.

So it seems that a child is less like a stock investment and more like a very bad annuity.  You pay in to the policy month after month, as the premiums continue to rise, but with no guarantee that you will ever live to see a payout.  I don't even want to think about the surrender fees!  The annual appreciation is not monetary, but emotional (or as your credit card company says: Priceless), however, in the best case scenario, your kid will make enough money to take care of you when you're old.  Additional children are like additional insurance policies, increasing the probability that SOMEONE will take care of you (thereby lowering your risk).  If you've done your job well, your child can be like a little deferred annuity policy with a lifetime payment guarantee, shifting the risk from you, in the early years, to the child, in the later years, and it's a fairly effective hedging strategy against the possibility of outliving your money.  So in that sense a child is really the ultimate investment!  

So go write a big fat check to your kid's school!   Otherwise you'll feel terribly guilty when you're sponging off him later.