Baby, That’s a Lot of Money Part 2

Family Financial Planning financial planning Higher Education Preparation Retirement
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babyI recently posted about the U.S. Department of Agriculture’s estimate of the costs associated with raising a child born in 2013; the average was close to a quarter of a million dollars, not including college.

According to an article in usatoday.com, parents may need to spend as much as $245,340 to raise a child. But what if you had invested that same amount over 18 years (at $13,630 a year), at an average annual return of 8.00%, it could grow to a little over $600,000. Of course this is just a hypothetical example and doesn’t assume taxes or fees for investing. The rate of return and principal value of investments fluctuate over time.

I am certainly not suggesting that people not have children. There is no price that can be put on family; the rewards are incalculable. But this reinforces the point of my previous post on the subject that today’s young parents face much greater challenges for planning their financial futures than their parents probably did when defined benefit pensions were more common and government safety nets were more robust. It’s a double-whammy on new parents: the costs for children are going up, even when adjusted for inflation, and, because of the reduction of safety nets, the need to save as much as possible for retirement is even more important. It’s a reason why new parents and grandparents may be concerned that the children being born now might not be able to enjoy many of the same opportunities and experiences their parents did; and it’s a reason that both generations, parents and grandparents, have to coordinate their efforts.

I think part of the response to this challenge is two-fold: The role of communication between generations is more important than ever and inter-generation conversation about planning for everyone’s financial future needs to start as early as possible and be maintained on an ongoing basis and, as part of that planning, that adequate steps be taken for income protection and life insurance for both generations.

Take Away: New parents face a two-fold financial challenge: the costs associated with raising children and saving as much as possible for retirement.

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