Kids Are Expensive: A Guide To Paying For Parenting

While for many, one of life’s greatest joys is being a parent, there is also an underlying financial burden that comes with the job. Julie Meissner, founder and CEO of Garrison Point Advisors in Walnut Creek, Calif., outlines some practical tips that can ease the financial load and expectations that come along with children.

Larry Light: When planning for a family, new parents won’t always be focusing on the financial aspect. What factors should they be thinking about?

Julie Meissner: There’s a lot to think about from diapers and baby food during infancy, to dance classes and flute lessons during their teen years, costs quickly add up. Then there’s the big-ticket items, which for some families could mean conceiving in cases of infertility, education, and weddings, just to name a few. Every parent wants what is best for their children, so we want to focus on ways to ease the financial burden.

Light: How do you start to prepare?

Meissner: When it comes to the future of your family, there is no downside to being over-prepared. Always assume that the costs associated with having kids will be higher than you expect and save more than you think you need. Additionally, it’s important to note that these needs can change over time as your family enters into different life stages.

Because of this, it’s a good idea to revisit and make changes to your plan over time. While nobody ever thinks that the unexpected will happen to them or their family members, it’s much better to have the peace of mind that comes with being prepared and to never have to fall back on that plan.

Light: What do you recommend?

Meissner: Once you have children, a life insurance policy is the best way to ensure your family can continue living their normal lifestyle if something were to happen to an income earner in the household. Another way to make sure you are prepared is to have a will or trust in place. If something were to happen to someone in your family, this enables you to select where your assets go and who becomes the guardian of your children, instead of letting the courts decide.

Having a great family healthcare plan is another way to ensure that your family is covered in the event of something unexpected—accident, injury or illness.

On a smaller scale, prepare to face the day-to-day challenges head on. Having the savings, you need to pay for the extra tutor or developmental specialist will also provide peace of mind that you are ready for anything as a parent. When it comes to your family, it’s always better to have the support that you don’t need than to not have the support that you do need.

Light: Are there any other factors to consider?

Meissner: Where you choose to live and the childcare option that you select are the two biggest factors when it comes to childcare cost. In the very beginning, check to see what your paternity or maternity leave policies look like. If your family is lucky enough to have two leave policies, it may make sense to stagger them to spend more time at home with your new family member

Additionally, the proximity to close family and friends who are willing to step in when you need help could be an important factor in determining where you choose to raise your family. As your child gets older, this becomes a question on education. If you plan to help your child pay for higher education, open a 529 account as early on as you can. Your contributions can grow tax-deferred and are distributed income tax-free as long as distributions are used for qualified education expenses.

Light: Should parents expect the expense to increase with each new child if they are planning on a large family or is there a way to mitigate the cost?

Meissner:  There’s an economies of scale factor to keep in mind when you have your first child. Each additional child that your family welcomes will be slightly less expensive than the previous one. Even though it may be exciting to splurge here and there on your kids, remember that they really only fit into their clothes and play with their toys for about six months to a year before moving onto the next size or toy. If you keep a lot of the baby clothing and large-purchase items gender neutral, they can be re-used if you decide to have more children.

This also should be considered when choosing what childcare option is the best for your family. At a certain point, it may be more affordable to hire a full- or part-time nanny versus paying for three children to attend daycare or afterschool programs. Not only does this apply to cost, but it also can be applied to your time. If both of your children can play on the same sports team—or at least practice at the same place or time—attend the same school, or participate in the same afterschool art class, it will save you the extra trip.

Of course, each child may have different needs and interests so you will want to prioritize which economies of scale will work for you and your family and which ones simply aren’t a great fit.