Are you financially ready to have children?

Finances are one of the main reasons Millennials have fewer children than previous generations. In fact, the birth rate in the United States fell 4% in 2020 to its lowest level on record, around 56 births per 1,000 women, half of what it was in the 1960s, according to CDC data.

What does your financial situation need to be to feel good about having children? To get a feel for it, I asked Eric Roberge – a CERTIFIED FINANCIAL PLANNER ™ and new dad – a series of candid questions about the financial side of parenting.

Q: As a financial planner, I imagine you often consider the financial impact of your decisions. How much has finances been a part of your decision to start a family?

A: Our family’s finances weren’t the primary factor in deciding whether to have children, but they certainly played a big part in determining when. As we increased our financial stability, it freed up mental space and energy to start discussing whether we really wanted to become parents. We were able to talk more about our real desires and not be swayed by external factors – including money, but also things like pressure from society and comments from other people or family members.

Q: Some people may want to start trying for a child, but they are not sure if they are financially ready. What should a potential parent have checked first?

A: If your income or career is volatile or sporadic, for example, I might prioritize building a steady income with a reliable job before focusing on the kids and working on building a money cushion in case of emergency.

Obviously, real life isn’t always smooth and predictable. Things go wrong and we face curveballs all the time. You can’t know exactly what to expect, but you need to build a financial foundation that is strong enough to face some setbacks. We talk about having a “rock-solid balance sheet” – a financial plan that includes a margin for error.

Q: Before the birth of a child, there are all kinds of costs to expect – hospital costs, a crib and, of course, child care. Is there a sum of money that parents should have set aside before the birth of a child?

A: We wrote a detailed blog post on this same issue: You need a little bit of savings to prepare yourself financially for having a baby. What parents need and want will vary a lot, so estimate a cost for each of the following expenses:

  • Your share of expected medical bills. Talk to your insurance company for details on your maximum amount.
  • Material items you need (or want) for the baby (dressing table, clothes, diapers, etc.).
  • Prenatal and / or postnatal services (doula, housekeeper, lawn care, etc.).
  • A larger budget for temporary extras (take-out, etc.).

Keep in mind, however, that having children is much more about cash flow than setting aside a fixed amount of money. Having a child is not a one-time expense – it creates an ongoing demand for cash for at least 18 years!

Q: What are the ongoing costs of being a parent? Expenses that most people don’t see coming?

A: We use a baseline assumption of $ 15,000 per year per child, based on actual USDA numbers. We are also adjusting their estimate upwards, as most of our clients are middle-aged urban professionals with gross household income of $ 300,000 or more.

The “expense” that many people forget to think about is knowing how to have children. will put more pressure on their cash flow. For example, many parents feel pressured to buy or upgrade a home. Most people watch their running budget to determine how many homes they can afford and buy as much as possible. Adding the cost of a baby to a mortgage that was manageable before now causes extreme stress on cash flow.

Q: If someone isn’t sure they can afford all of this, any advice?

A: If you’re not ready to parent now and finances are a factor, that’s okay.

If having a child as early as possible is most important to you – but you’re not sure you can afford it – then look at how you are currently using your money. Are your expenses aligned with your # 1 priority? If not, you may need to make some changes and narrow down some areas so that you can free up some cash to prepare yourself financially for parenting.

Remember, there isn’t just one way to be a good parent. Above all, a baby needs your love, your care, your presence and your commitment. Save money where you can by accepting help and gifts. I would also recommend considering the flip side: what can you do to increase your income?

The decision to start or expand a family is not just a financial decision. To help you focus on all other things, consider working with a financial planner like Eric Roberge and his firm, Beyond your hammock. You can also search for the XY planning network to find hundreds of financial planners who focus on the needs of millennial clients.

Assistant Professor of Financial Planning, The American College of Financial Services

Matt J. Goren is an assistant professor of financial planning at the American College of Financial Services which focuses on the interplay of personal finance and psychology. In addition to teaching and developing content, he provides strategic advice on financial literacy initiatives and hosts a personal finance radio show, Nothing Funny About Money, which has been named the most popular source of consumer financial information. most remarkable of 2018 by AFCPE.

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