Careful financial planning offsets the cost of raising children
STILLWATER, Okla. – Few moms and dads would deny the pride and joy they feel at being parents. But, there is a practical side to raising kids, and according to the latest U.S. Department of Agriculture figures, it comes with a sizable price tag.
The USDA estimates a middle-income family with a child born in 2011 can expect to spend about $234,900 on food, shelter and other needs over the next 17 years. The number was highlighted in the annual Expenditures on Children by Families report released by the federal agency in June.
The figure isn’t cause for panic, said Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist, but it is a reminder of the need for solid, long-term financial planning.
“People see a large number like the USDA’s projection and immediately think there’s no way they’ll ever be able to save enough,” she said. “What families should really focus on is establishing some financial protections to make sure they are covered over the long run.”
The estimate in the USDA report, which is based on data from the federal government’s Consumer Expenditure Survey, reflects a 3.5 percent increase from 2010. Transportation, childcare, education and food registered the largest increases from the previous year, while housing, clothing, health care and miscellaneous items posted smaller jumps over the same time period.
The calculations do not include costs associated with pregnancy, obtaining a college education or pursuing education beyond high school.
In an effort to prepare, St. Pierre said families should start by asking a financial advisor how to maintain the household if a parent dies or is permanently disabled. Basic estate planning includes creating wills and naming guardians for minor children, as well as looking at trust considerations, especially for special needs children or children from previous marriages.
“Life insurance is critical for all families, and particularly in the case of single-parent homes,” she said. “Families also may want to explore their options for long-term disability insurance, which covers 50 percent to 60 percent of income in the event a parent becomes permanently disabled or unable to work.”
A family’s second priority should be discussing with a financial advisor whether the household can manage a short-term financial crisis such as job loss or a health challenge, St. Pierre said. Besides ensuring they have adequate health insurance and exploring the possibility of purchasing short-term disability insurance, creating a monthly spending plan will better position families to handle unexpected financial emergencies.
“Track all your income and expenses each month for several months,” she said. “Pay attention to the timing of irregular expenses and, because you can’t always just work more, look for ways to trim spending.”
In addition to closely watching the budget, having at least 3 to 6 months – or more if there are several dependents – of living expenses tucked away in an emergency fund offers an added layer of protection. For households carrying heavy credit card debt, split any savings between paying down the debt and padding the emergency fund.
Finally, only after these long-term and short-term priorities are addressed should a family think about specific financial goals like saving for retirement or building the kids’ college funds.
“Raising kids is rewarding, but not without its challenges. Worrying about long-range family finances doesn’t have to be one of those challenges,” said St. Pierre, while acknowledging that these days many families have their hands full just trying to make ends meet, let alone trying to anticipate future short- and long-term financial needs.
“It’s all about planning ahead,” she said.
Oklahoma State University, U.S. Department of Agriculture, State and Local Governments Cooperating: The Oklahoma Cooperative Extension Service offers its programs to all eligible persons regardless of race, color, national origin, religion, gender, age, disability, or status as a veteran, and is an equal opportunity employer.
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