Can’t afford to start a family? Benefit advisers can help
For the first time in decades, financial wellness is one of the most important factors in an individual’s decision to have children, according to a study conducted by Bank of America Merrill Lynch and market research firm Age Wave. But benefit teams can help aspiring parents navigate the financial challenges of starting a family.
The study shows 73% of potential parents in this decade considered their financial situation before deciding whether or not to become parents. Finances were only a deciding factor 41% of the time for parents in the 1990s, and 31% in the 1970s and earlier. Financial advisers and researchers say a rise in personal debt, especially student loans, is to blame for the trend.
“Finances are a huge reason behind choosing to have, or not have, children,” says Ken Dychtwald, CEO and founder of Age Wave, a market research firm that focuses on issues that affect the aging population. “My parents likely didn’t think about the cost when they decided to have me. Now, people who want to be parents are increasingly deciding not to because they think they can’t afford it.”
In 1960, the cost of raising a child from infancy to age 18 was $25,000, according to Age Wave estimates, and the current cost is $230,000. Dychtwald said nine out of 10 parents are surprised it costs that much to raise one child, but the total price is even higher because more than 70% of today’s parents provide financial support to adult children, according to Age Wave’s joint study.
According to CPI calculations, $25,000 in 1960 comes out to roughly $215,000 in today’s dollars.
However, despite the exorbitant costs, 93% of parents say parenting is the most rewarding aspect of their lives. But since 63% of those parents report experiencing financial difficulties, Merrill Lynch advisers suggest enlisting your organization’s benefits team to get a head start on financial planning.
“To prepare, pay attention to financial matters and plan at the very start of parenting,” says Lorna Sabbia, head of retirement and personal wealth solutions at BAML. “Expect career interruptions to interfere with your savings, and start an education savings account.”
Sabbia recommends new parents open a 529 Educational Savings Program to start a college fund. Talking to your organization’s benefits team about HSA contributions is a strong way to have a savings account for family emergencies, she said.
“HSA contributions are pre-tax and don’t disappear after a year,” Sabbia says. “Plus you get the added bonus of having money saved for both medical emergencies and your retirement.”
After an employee becomes a parent, their company’s financial wellness program can help educate the next generation on spending. The study by Age Wave and BAML suggests there’s a disconnection between what parents think they’re teaching their children about finances, and what teenagers actually learn.
“The numbers show most teenagers feel that they don’t understand finances at all,” says Lisa Margeson, head of retirement client experience and communications at BAML. “Financial advisers can help you find age-appropriate ways to teach kids how to be responsible with money. Older children can even attend your meetings with a planner and ask their own questions.”