Parents, Don’t Fall Into the Sunk-Cost Fallacy With Youth Sports

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Perhaps you have heard of the concept of the sunk-cost fallacy. What that means is, you continue to invest in something merely because you have already spent so much money or time or other resources on it that you continue do so, and convince yourself of the need to do so, even though it’s clear you will never see a return on that investment. Think of staying in a bad relationship, or continuing to invest financially and emotionally in a dying business, or, because I’m bringing this up, dreaming that your youth sports investment will pay off big when any objective observer would conclude that will never happen.

The sunk-cost fallacy isn’t mentioned by name in a survey of parents recently released by LendingTree that finds 81 percent of them think what they’ve spend on their kids’ activities — sports or otherwise — may lead to future income for their children, and that the more parents spent, the more likely they were to believe this. The online survey of 724 Americans, commissioned by LendingTree’s Comparecards.com credit-card division, was conducted April 2-10, 2019, has a margin of error of 3.6 percentage points.

Not every one of those 81 percent are all-in on activities turning to future cash — the split was fairly even with 40 percent saying they will, and 41 percent saying they might. The survey didn’t reveal what form that future income could take, so perhaps college money counts; 40 percent is also the figure TD Ameritrade found when it asked parents whether their kids’ sports would lead to a college athletic scholarship. Here is more from the survey:

The more you spend, the more likely you are to think it will pay off – 90% of parents who spend at least $4,000 per year think their kid will one day earn money off of it, compared to 75% of parents who spend less than $1,000.

94% of parents currently paying off debt for their child’s activity think it will lead to future income. …

More than half (52%) say they spend more than they can afford on their child’s activity – but 48% don’t regret it.

On the other hand, 64 percent of parents said they are stressed about paying for their child’s activities, 62 percent have gone into debt to pay for them, and 46 percent spend more than $1,000 annually on the activity, and 27 percent spend more than $2,000. Those latter numbers are actually lower than I suspected, but every family can’t, or won’t, go all-out to buy, say, a top-of-the-line bat for their 7-year-old softball player.

One thing I wish the survey covered was how these answers are affected by the age of these parents’ children. I suspect younger parents would be more likely to think activities will turn into future income, just because their children may not have reached a competitive level where it’s abundantly clear you can’t spent enough to bring them up to the talent of the one kid dominating everyone. But then again, there are plenty of parents of high-schoolers who can’t see that.

Having the ages would also help determine if my hypothesis of sunk-cost fallacy as a spending driver holds water. (One reason for spending I do know of — fear of not keeping up with other parents’ investment.) I know anecdotally from my time as a sports parent and a youth coach that it’s hard for parents to let go when they have put a lot of money into an activity only to find their child is not going to go pro, or worse yet, is just no longer interested it.

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