Parents are likely to list the birth of their first child as one of the most pivotal days of their lives. Priorities change when someone else’s life is completely dependent on you. Most new parents have appropriate expectations that their personal lives will change (goodbye sleeping in, brunch and late nights out; hello play-dates, stroller joggers and story time), yet few parents are prepared for the financial impact that comes with having a child. Hint, hint: It’s more than the cost of diapers, baby food and clothing. Here in this post, we’ll give you our thoughts on the major money issues directly related to your little and not-so-little ones.
Planning for Childcare
The list of decisions to make when having a baby is endless. It’s no wonder people say you’re never fully ready! Of the many possible decisions perhaps the most financially significant is whether one parent will stay home (on a full or part-time basis) and what type of child care makes the most sense. This is a personal decision and not one that we would try to make for you. Instead, because the cost of childcare is a primary factor for many parents to-be, we want to provide a roundup of the three most common options and related costs* for your consideration.
Nanny: $17-20 per hour (at least $680 weekly or $35,360 annually, if full-time)
If you prefer to have your child stay at home for care, consider hiring a nanny. A trusted friend might provide a recommendation, or agencies such as Care.com, 4nannies.com, Enannysource.com can also do a great job of running background checks, checking past experiences, and obtaining referrals. Interview multiple candidates and trust your instincts.
Day Care: $9-$11 per hour (at least $360 weekly or $18,702 annually, if full-time)
Day care is typically less expensive than a nanny and might provide a more structured environment of established school routines, reliable hours (no need to take off work for a sick nanny), and more public monitoring of care. Many parents also like exposing their child to group learning activities and a more social environment.
Au Pair: $8-$10 per hour (at least $320 weekly or $16,640 annually, if full-time)
An au pair is a domestic assistant from a foreign country working for, and living as part of, a host family. The key takeaway here is “live-in.” Typically, au pairs take on a share of the family’s responsibility for childcare along with some housework in exchange for a monetary allowance. An au pair tends to be the most flexible of childcare options and can work well for parents with unpredictable schedules. Of course, you need to be open to an added roommate and have an extra room for privacy. You can get more information at sites such as culturalcareaupair.com or aupaircare.com.
Prioritizing College Savings and Costs
The annual cost of a four-year public college in 2019 is $25,290 (in state tuition assumed) and for a private institution it is $50,900. That’s tough, even today, if you have an 18-year-old, but if your child is a newborn and costs inflate by 5% a year, the total cost could be $200,000 for public school and $400,000 for private! The chart below summarizes the expected costs for the average public and private school costs for tuition, room and board.
Even on a monthly basis, these numbers can be scary, particularly when you have other goals (for example, not working forever). Consider saving to a 529 college savings plan (a tax-advantaged savings plan) to help make this goal more attainable, and keep in mind that many families do not expect to cover 100% of college costs. Work with your Beacon Pointe advisor to determine how much you can afford to cover, while still saving for retirement, or use savingforcollege.com’s calculator to develop your general savings target. If fully funding college and reaching your retirement goal are out of reach, here are some alternatives to consider:Pay for Part: Pay what you can afford while saving for other goals. Consider ways to cover the balance, like having your child take out student loans or work during breaks and during the school year.
Be a Scholarship Sleuth: There are plenty of scholarships available, and the small ones can really add up. Know that your child will lose out on 100% of the scholarship opportunities for which he or she does not apply.
Be a Smart Consumer: At some point, the marginal value of attending one school over another wanes. Consider the value of in-state colleges, which cost less to attend, living at home, and whether your child’s dream school has a practice of accepting transfer students from less-expensive community or junior colleges.
529 Savings Plans: If you are interested in learning about the benefits of a 529 college savings plan and want to learn how they work, check out our piece FAQ’s About Saving for College.
Teaching Good Money Habits
There are plenty of ways to teach your children how to be responsible with their own finances. You can even start at a young age! Check out our piece on Tips to Raise Financially Responsible Children.
Financially Savvy Gifts
We feel fairly safe in the assumption that the gifts our children usually remember are the bigger-ticket items or the ones that provide a longer-lasting experience. So, we asked ourselves, “What kind of gift can we get our loved ones that could have an ever-lasting impact and be a present that is literally unforgettable?” We’ve come up with a few unconventional gift ideas that can leave both an everlasting memorable impact. Check out our piece Stuff Their Stocking: Holiday Gift Ideas for some unique gifts for every occasion!
No matter if you are just starting off in your parenting journey or are already pretty far along the way, it’s never too late to start thinking about the financial impact your children can have on you. Planning ahead and thinking about the ways you can allocate your money effectively can ensure you give your children the life they need while also keeping yourself on track for retirement and your other financial goals!
* For illustrative purposes only; childcare costs may vary depending on geographical location and other additional factors.
Important Disclosure: This material has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. When referenced, Beacon Pointe does not endorse and is not responsible for the content, product, or services of other third-party sources. Beacon Pointe does not offer legal or tax advice. Private legal counsel alone may be responsible and relied upon for these purposes. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any tax advice included in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of avoiding any federal tax penalty or promoting, marketing, or recommending to another party any transaction or matter.