When a couple discovers that they are expecting a child, they are often overwhelmed with feelings of joy…and anxiety. According to recent data from 2015, the USDA estimates that a child of a middle-income married couple will cost $233,610 ($12,980/year) from birth through age 17. These statistics include expenses for food, shelter, and other necessities, but do not factor in the costs of higher education. These numbers can seem daunting, but with proper planning a couple can both prepare for this life changing experience and protect their financial security from unexpected events. Below are some topics that expectant parents should contemplate:
Know the Details of Available Benefits
Financial planning for children starts before the child is born. If a company offers maternity or paternity benefits, be sure to fully understand what those benefits provide, along with what health insurance covers. If a new parent qualifies under the Family and Medical Leave Act, they can request up to 12 weeks of unpaid seniority-protected leave. While spending those first weeks with a newborn is priceless, that is still 12 weeks without income. A short-term disability policy may cover a portion of lost wages, typically for 6-8 weeks, but it generally will not replace 100% of lost income. Therefore, it is advised to have money saved to cover any gaps in benefits, unanticipated out-of-pocket costs, and daily living expenses.
A pregnancy is an opportune time to discuss life insurance. Couples might discover that they are underinsured, if they have any life insurance at all. The amount of coverage needed can vary individually, but when lost wages, education costs, and childcare are included, the death benefit could range from about $500,000 to over $1,000,000. At these levels, term insurance is often a more economical way of achieving the desired coverage. As a pregnancy progresses, women can develop health conditions that can increase the cost of insurance, so it is important to review life insurance coverage early in a pregnancy in the event that coverage changes are necessary.
It is difficult to think about, but expectant parents should create a will deciding how their assets will be distributed, and who will care for their children if both parents pass away prematurely. If there is no will to provide final instructions, the courts will decide how the estate should be settled and will appoint the guardians of the children, which may not be in accordance with the final wishes of their parents.
It is important to discuss if one or both parents want to either reduce their workload or leave the workforce completely once the baby arrives. The day the baby is born is not the time to talk about daycare options. Even if a parent decides that they will stay home, it is still a wise decision to research local childcare centers in case plans change. Childcare can be costly, averaging close to $1,000 a month for an infant, and could be more than double that in metropolitan areas. By having a clear idea of what local childcare costs, it enables parents to make better decisions regarding what is best for their family.
Ultimately, expecting a child is one of the most exciting and complex times in a couple’s relationship. There are many variables that go into preparing for a baby, but with the proper planning, it is easier to manage the unexpected.