Many couples are choosing to start families later in life compared to their parents and grandparents. According to the National Center for Health Statistics, the mean age of first-time mothers rose from 25 in 2009 to 26.3 just five years later.* And, increasingly, mothers are waiting to have their first child at age 35 or older. This trend has financial implications. On one hand, parents may be more financially secure and have clear priorities for the future. On the other hand, these parents are closer to retirement, so balancing kids’ expenses with saving can be a juggle.
If your kids choose to have their first child later in life, here are four key dos and don’ts to help them manage their finances with confidence:
DO establish a solid financial foundation. Their household expenses will likely increase once they’re paying for childcare, additional checkups at the doctor or dentist and other items for their child. With this in mind, they should consider using the discretionary income they have today to shore up their financial position—prioritize paying off student loans, build an emergency fund (three to six months worth of expenses is a good benchmark) and consider paying more toward their mortgage if they own a home.
DO boost savings. Creating a habit early of saving for major goals can help maintain savings momentum while they are focused on adapting to their new addition. They should harness the power of compound interest by contributing to their retirement accounts with each paycheck and setting aside funds for major goals, such as an annual vacation or home remodel.
DON’T prioritize the child’s college education over retirement. Will they be making tuition payments in their final years of work or in retirement? If this is a possibility, it’s imperative that they create a plan to balance saving for both goals right away. The reality is many couples need to push back their retirement date, figure out how to earn additional income with a different job or cut back their travel plans to pay for their child’s education. While it’s understandable that they will want to provide for their child, keep in mind that health, layoffs or other circumstances outside of their control could change their retirement date. Their child has other options to pay for college — including scholarships, loans and work-study programs — that are not available to them if their retirement savings come up short.
DON’T forget to update the estate plan. Ensuring they have adequate insurance coverage becomes a bigger priority when they have a child in the picture. If your son or daughter (or spouse) were to sustain an injury or pass away prematurely, they would need to ensure that their disability and life insurance coverage will cover their financial commitments and goals. They should also consider purchasing long-term care insurance to cover potential healthcare expenses in retirement.
It’s exciting to dream and plan for an expanded family. But if your kids want a second opinion on how to juggle their financial priorities, they should meet with a financial advisor.
MICHAEL W. K. YEE, CFP
1585 Kapiolani Blvd., Ste. 1100, Honolulu HI 96814
808-952-1222, ext. 1240 | michael.w.yee@ampf.com
Michael W. K. Yee, CFP®, CFS®, CLTC, CRPC ®, is a Private Wealth Advisor, Certified Financial Planner ™ practitioner with Ameriprise Financial Services, Inc. in Honolulu, HI. He specializes in fee-based financial planning and asset management strategies and has been in practice for 32 years. Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser. Ameriprise Financial Services, Inc. Member FINRA and SIPC. ©2019 Ameriprise Financial, Inc. All rights reserved.
*Mathews, T.J. and Hamilton, Brady E., “Mean Age of Mothers is on the Rise: United States, 2000-2014,” National Center for Health Statistics Data Brief No. 232, January 2016. https://www.cdc.gov/nchs/data/databriefs/db232.pdf.
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