Today’s twenty-something has a much different perspective than even peers just a decade older. They’re waiting later to start families or even get married. They spend their time prioritizing other goals like travel, buying a home, encouraging financial freedom, and pursuing further educational goals. These millennials are likely disinterested with building the financial foundation of their adult years and they also carry more student debt, both of which are obviously troubling for financial analysts.
There have been studies showing that student loan debt leads to delays in starting a family or buying a home. Those who do have children put their focus on budgeting and view student loans as a lower priority. Those without kids held paying off student loan debt as a higher priority, indicating that they were delaying starting a family in order to pay down, or pay off, their student loans.
There are some things, however, that clients can prepare for before starting a family. Here are some ways to help young clients make the transition smooth yet stay aligned with their overall financial planning goals:
1) Take note of big ticket items needed
Before clients start a family, it’s important that they take inventory of their optimal baby scenario. Will they need a new car? What sort of expensive items will they need to baby-proof their home? Will their home be large enough to accommodate a nursery or will they need to renovate? Adding up these costs and creating a plan to achieve these goals will put clients ahead of the game.
2) Plan for an increase in expenses
Those big ticket items aren’t the only things that clients need to take into account. They will have an entirely new mouth to feed after all. There are diapers, more than they think they will need, bottles, formula, clothes, laundry detergent, each will increase once the baby is born. Will clients have enough income coming in to cushion the blow of these extra expenses? Creating a budget early on in the little one’s life and before, if possible, will help clients stay on track financially and resist the urge to splurge on impulse baby buys.
3) Prepare for increased medical costs
Clients may have previously not had any issue with their health insurance plan previously, but what about coverage for maternity care? What about coverage for their preferred birth plan? What does their pediatric coverage entail? This is a great time to review policies to make sure that clients understand available options, co-pays and deductibles. A prudent financial advisor will include this as part of an overall financial plan. The ultimate goal is to analyze whether their current plan will provide enough coverage to cover needs of both parents and child completely and economically.
4) Do the clients qualify for any government subsidies or programs?
This is also a great time to evaluate client’s eligibility for specific government offerings through the IRS, state and other government agencies. Things like the Dependent Care Tax Credit and flexible spending accounts to cover childcare costs are ways to stretch their income and help alleviate the expenses of taking care of a child while working. Checking into these programs can minimize the impact expenses have on their overall financial planning efforts and assist with budget planning.
5) Re-evaluate long-term savings goals
A large majority of parents are concerned about paying their children’s future college tuition costs. This would be a great time to sit down with clients and reprioritize their financial planning goals. Will they try to enroll their child in private schooling? Will they need to downsize mortgage or car loan payments? Do they want additional children? Do they have plans for a large family? This is the time to start planning for the growth of their family and its related expenditures while making sure that they are continuing to accumulate wealth in the process.
Having a child is one of the most exciting times in a person’s life. It can also be one of the scariest. Welcoming a baby into a growing family comes with chaos, oftentimes there are items that are just plain forgotten or left unattended. In many instances, future financial planning is one. However, a prudent financial advisor is one who has spoken to clients beforehand, checking in often enough to know when the baby will arrive and working through the steps above, among others, to make sure that while the future is still small enough to hold in a client’s hands, that their financial future is being carefully just as diligently. Don’t forget the diapers.