By Emma Johnson, MSN Money"Congratulations!" my friend Tracy wrote in an e-mail upon learning my husband, Emmanuel, and I were expecting a baby girl. "Your life will never be the same."
No big surprise there. While I try to anticipate how this little chick will affect our social, professional, romantic and home lives, I'm also trying to be practical about how she will hit our bottom line.
It sounds like just one more cliché one hears upon conception, but facts are facts: Kids are expensive.
Though there are some parts of welcoming a child into your life that you truly can't plan for -- overwhelming love, unprecedented fatigue, intimate interaction with your kid's poopy pants -- finances are simply not one of them, experts insist.
"Doing nothing is never the right answer," says Michael Rubin, a financial adviser in Plymouth, N.H., and the author of "Beyond Paycheck to Paycheck."
5 tips for expecting parents
Step one is obvious: Start saving if you have not already. Build a cushion in your bank account to help the family weather the storm when a parent gets sick, loses a job, has an accident -- or worse.
You should also create wills and define powers of attorney. These let you control who would care for your children and assets, particularly in the event both parents die -- keeping your family's fate out of the hands of state agencies.
Those in the know offer these additional, often-overlooked steps for wise financial planning in anticipation of a new baby:
Assurance through insurance
Medical, life, disability -- you know parents are supposed to have insurance, but when do you get it, and how much do you need? The time is now, and the amount is probably "more than you have," Rubin says.
Even if you already have life and health insurance through your employer, that might not be enough for your growing family. "One of the most important things you can do to prepare for a baby is buy life insurance," Rubin says. "Before you have a kid it might not even be necessary to have life insurance at all, but that changes immediately after conception."
Things to consider when talking to an insurance agent:
1) Add up both parents' incomes, including bonuses and benefits. The goal is to ensure that your family will be able to maintain a lifestyle comparable to the one you now enjoy, even after a loss.
2) Don't overlook the contribution of a stay-at-home parent. In 2007, the average cost of full-time care for an infant ranged from a low of $4,542 in Mississippi to a high of $14,591 in Massachusetts, according to the National Association of Child Care Resource & Referral Agencies. Could your family afford child care if the stay-at-home parent should die?
3) Take disability insurance seriously. Sure, you're young and healthy now, but accidents and illness happen. "The state is not going to cover your time away from work. So unless you have a pot of money someplace or a wealthy family, you need disability insurance," says Michael Kay, a financial planner in Livingston, N.J. For most families, Kay advises relying on that all-important rainy-day savings account for short-term disabilities and buying coverage for more serious or permanent conditions.
4) Make sure you have the right health insurance and that you update your plan after the baby arrives. You might have an immune system like a horse, but even healthy kids need lots of checkups and vaccinations, while postnatal moms require additional gynecologist visits.
5) Look into flexible-spending accounts. Many employers offer this tool to let workers pay drugstore bills, co-pays and child care with pretax dollars. Many first-time parents are clueless about the mountain of out-of-pocket expenses a baby can bring. Such accounts can reduce the annual damage by hundreds of dollars.
The career/child-care balance
The percentage of mothers working outside the home soared in the decades after World War II, but the numbers have been dipping recently. According to the Bureau of Labor Statistics, 57% of married mothers with preschoolers worked for paychecks in 2007. That is 4 percentage points lower than in 1997 and 1998, when the number of working moms peaked.
Though gender pundits and economists debate the root cause of this trend, Kathleen Connell, an investment adviser and former California state controller, cautions new mothers to take care not to abandon their careers too quickly.
"Generation Y has no choice but to re-enter the job market," Connell says. "Each year a woman can stay engaged in her career has a tremendous impact not only on her current salary but on future earnings as well."
Connell points out that Americans of childbearing age have good reasons to focus on maximizing their earning potential:
1) Their baby boomer parents are living longer and are therefore more likely to require medical (and financial) care than ever before. According to Census Bureau figures, those age 85 and older are the fastest-growing segment of the population and expected to number 8.5 million by 2030. Do you expect to care for Mom and Dad in their old age on one income?
2) According to September 2007 census figures, more than half of the Americans who were married between 1975 and 1982 were divorced, separated or widowed. And divorce hurts financially. According to a 2006 study from researchers at Ohio State University, being divorced reduces a person's wealth by 77% compared with a person who stayed single. (Staying married almost doubles comparative wealth.) We'd all like to assume our marriages will last forever, but it's worth thinking about the consequences if they don't.
Connell advises young families to think about timing: The younger the first-time parents, the tougher it will be for them to re-enter the professional world, if they choose to care for their children full time. "If a woman starts her family at age 24, she has very limited work experience, and if she tries to come back into the work cycle at age 29 or 30, she has very little to recommend her to a strong-paying job," Connell says.
Consider your money memories
Often, childhood lessons and experiences determine how people will manage their finances through adulthood. Did your parents fight about money? Were you ashamed of shabby clothes? Were you proud of having the coolest toy on the block? These memories all play into how we budget and buy for our kids, and whether our decisions are in line with our incomes.
"Money memories are an interesting part of life planning -- and a huge weakness in most people's lives," says Kay, the financial planner.
Kay advises: "Think about your earliest money memory and what you learned from that message. How does that affect your attitudes and decisions today? Are you a spender, saver, avoider, worrier? Once you define those things, everything flows better."
That includes your ability to set and stick to financial goals, communicate with your partner about money matters and raise that munchkin to have financial sensibilities in line with your own.
Don't get sucked into trends
Fancy, imported Bugaboo strollers are tearing up the streets in baby-friendly neighborhoods. But do you really need to drop $1,000 to wheel your kid around?
How much did that stroller cost?
Those wee, pricey vehicles in affluent and not-so-affluent circles have become the norm. The Dutch-designed Bugaboos, priced at up to $1,000, are now available in 572 North American storefronts in 47 states.
So what does it say about us that these pricey brands are topping our priority lists? Are there really that many loaded people? Or are buying trends for babies totally out of control?
Related story: Kids are expensive
James Twitchell, a former advertising executive and the author of "Living It Up: America's Love Affair With Luxury," says the premium-stroller phenomenon is just an extension of the larger appetite for all things luxury. While expensive, an $800 stroller is a relatively affordable way to assert oneself in a world of blurring social boundaries.
"The usual flags and signs of social place have evaporated," Twitchell says. "We used to know who we were by where we had gone to school or church, or the clubs we attended. No one cares about these things anymore. No one even knows how much money we make. . . . But they do know what a Bugaboo stroller looks like from 30 feet away."
Published Dec. 24, 2008
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