Many studies have been published recently about the evolving structure of today’s American family. Among the most interesting developments, we continue to see an increasing proportion of dual-income and single parent families*. Though some studies attempt to address the psychological aspects of these family structures, a stark reality facing families today are the financial implications. As the Wall Street Journal published earlier this month, the total cost to raise a child for a middle-income family is now estimated to be $245,340 from birth to age 18. A leading contributor to the rapid increase is a spike in child-care expenses, which have outpaced inflation 2-to-1 since 2009. Child-care costs have moved near the top of the household expense report and now rank as the second largest child-rearing expense (18% of total child-rearing costs) behind housing. This, compared with child-care representing only 2% of a household’s budget in 1960**. As the structure of the family unit evolves, many families find themselves leaning more than they may have anticipated on grandparents to help cover those costs and to assist both physically (in a child-care capacity) and/or financially. Here are some considerations to ponder, both as parents and grandparents, on this topic:
For Younger Families: It’s more about awareness than prevention. If you’re one of the many in a situation where childcare is the magician that makes your checking account balance vanish, you may not have many options to change that reality. It is, however, important to stay in tune with your decisions and consider their implications. Those cute children have a way of blinding parents from the long term implications of decisions, such as sending your child to private primary schooling vs. public schooling. The right answer is a value judgment unique to each family, but you should go into those decisions with your eyes open to understanding what child-care and education expenses, particularly discretionary ones, do to your retirement and other life goals. You should also be sure you’re optimizing childcare expenses to the best of your ability. Be aware of the various tax benefits such as the child tax credit, and the possible availability of a Dependent Care FSA through your employer, which allows for pre-tax direct deductions from your paycheck to go toward qualified childcare expenses.
For the Grandparents: If you work with a financial planner, you likely sat down at one point to think through what your spending needs in retirement would be. In many cases, that was 2 or 3 grandchildren ago, and quite possibly under a lower expectation of involvement. Spending in retirement is often one of the biggest levers to the success or failure of your financial plan, so it’s crucial to revisit those needs, and your overall plan in general, on a regular basis. Holiday/birthday gifts, 529 contributions and dinner bills have a way of sneaking into your checkbook in meaningful ways.
In both cases, creating and reviewing household budgets are very low on the list of fun things to do with your Sunday morning, but the nature of child-rearing expenses lend themselves to budget creep. Keep your eye on it and consult with your Certified Financial Planner as life changes occur.
*Pew Research Center analysis of the Decennial Census and ACS IPUMS files, 6/18/15
**Wall Street Journal, ‘Soaring Child-Care Costs Squeeze Families’ 7/1/16
The opinions expressed in this article are those of author and should not be construed as specific investment advice. All information is believed to be from reliable sources, however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.