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Financially planning for your children's futures
What happens when couples are together at the office in addition to at home?
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Tess Vigeland: One more look at the topic of kids and money. Only this one is pre-partum. We heard about this hospital in Maryland that was holding a financial planning seminar for expectant parents, and we immediately thought of reporter Nancy Marshall Genzer for the assignment.
Her twin boys are 18 months old now. Given that she's part of the Marketplace team, and we are all -- of course -- complete and total experts with our money, it's the kind of thing she would have covered a long, long time ago, right?
Nancy Marshall Genzer: When you're pregnant, you get all kinds of unsolicited advice: Let them cry it out. Pick them up before they cry. No pacifiers. Nurse them for six months. A year. Two years. And whatever you do, get your financial life in order and start saving for college. Now.
Oops.
Babies shouting
The boys are toddlers now. My husband Jan and I are decent savers. But we're even better procrastinators. We don't have a solid financial plan. So even though I'm a financial reporter, I jumped at the chance to trek out to a hospital in suburban Maryland to cover its financial planning seminar for expectant parents. Maybe I would learn something.
Before things got started, I sat down with Stuart Ritter, the financial planner from T. Rowe Price who would lead the seminar. He began with a body blow: How much it actually takes to raise a child from birth to age 17.
Stuart Ritter: The total cost according to the Department of Agriculture is about $222,000. And not to scare you even further, that does not include any savings for college.
Marshall Genzer: Ugh.
Ritter: OK, Nancy's going to need some oxygen. Do we have that anywhere?
I recovered in time for the seminar.
Ritter: OK each of you has a piece of paper that says, "prioritizing exercise."
Ritter told me and about a dozen couples to get our finances together. I was feeling guilty enough about being behind. Then I met Lanyn and Duwayne Taliaferro. She's not even pregnant yet. But, here they are, doing their homework ahead of time, sitting in the front row. I tried not to hate them. After the seminar, Duwayne told me they're both scientists and planners.
Duwayne Taliaferro: I think as scientists we're used to planning ahead and doing the research before we actually act. And so that kind of fits into who we are.
Our research falls into the realm of "Hey, we're out of diapers!" The seminar put me into full panic mode. Stuart Ritter had given us a checklist to take home, a grim list of obligations marches down the page. Retirement. Wills. Guardians for our kids. Life insurance. College savings.
A couple nights later, I showed the checklist to Jan, my husband. We were sitting down in the kitchen to have "the talk." The one we should've had before the twins were born.
Nancy: So, I went to this seminar. And I got a bunch of information.
Jan: That's wonderful. Was it entertaining?
Nancy: No, it was kind of scary.
I go over the checklist with Jan. First thing: Retirement. Ritter says we should be sure we're saving for retirement before socking away college money. Otherwise, we'll end up broke, moving in with our kids. Ritter says it's like what flight attendants tell you: Secure your oxygen mask before helping your child. We are actually saving for retirement. I want to check that off. But Jan reminds me:
Jan: We're planning, but we don't have enough in there. We're not going to be able to live on that.
Nancy: Well, at least we're doing it. At least we're saving. We're not saving enough but we're trying. So I'm going to --
Jan: Is this where we can ask for a raise?
Nancy: That's a good idea.
Moving right along. Life insurance is next on the list. We have some. We definitely need a lot more. As in, if you have little kids, about 10 times your salary. And assuming we don't die young and leave our sons a mountain of insurance money to pay for college, we'd better start a college savings plan. I guess. Some parents don't save anything. I kind of like the sound of that. They think the more savings, the less financial aid they'll get. Wrong. Most "aid" is actually loans. It's like saying you're not going to save for a car, because if you do, you won't get as big a loan from the dealer. So, the question now is how much to save.
Nancy: We have to decide what our priorities are and whether we want to live the good life now or do we want to save for college.
Jan: The good life? I'm happy if I have a chair. It's a vacation. That's a good life.
We decide to go for broke. Literally. Pouring every extra cent we have into a college fund. Here's another body blow from Stuart Ritter: In 17 years, when our twins are heading off to school, the average private university will cost almost $96,000 a year. Times two for twins.
Now, we have a choice on college savings plans. We can pre-pay tuition, but that requires a big block of money. We opt for 529 plans, which allow you to save gradually. Sold.
We're at the end of the list.
Nancy: I think we're done. I feel pretty good. Do you feel pretty good?
Jan: I'm sitting.
Nancy: Other than that. This is good for us. We're going to do this.
Jan: Absolutely. Let's go.
A little more enthusiasm would be nice. And I wish he'd stop talking with his mouth full. But, at least we have a plan. If I ever run into those perfect, pre-planning scientists again, I can be proud. Our boys couldn't care less.
Kids giggling
In Washington, I'm Nancy Marshall Genzer for Marketplace Money.
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Hello
I am a daily listener of NPR and Marketplace despite the fact that I am french living in France. But don't be fool we are siblings in many many ways.
It would be great to have a comparative study of costs between countries, how much a household can save during a life time and how much can be dedicated to rising and educating children.
Sure now you have to think twice for a kid in an environment where we will lost most if not all the subsidies from the states and have to pay for the fridge my mother, the boat or truck my father got bought in the 90' and so on for 3 decades; environmentally, financially and socially.
thank you
Among the bubbles we've seen in the past decade or two (technology stocks, commodities, residential housing) you can add college education to them.
We're going to discover very soon that the price we pay for higher ed is WAY out of line with the expected return.
I'm afraid higher education is dead and that our children are going to have to go to Plan B (whatever that is).
Witness the number of recent college grads who are either out of work or work in jobs that don't require a bachelor's degree. I would argue that this isn't just an outcome of the Great Recession. Those jobs ain't coming back, unfortunately.
it's worked out so far for my two kids. The youngest one home schooled herself and got a full ride scholarship for college. Now in med school; she got accepted at all the schools she applied to except Baylor, where she really wanted to go. She's borrowing about half of what the student loan offices say she needs; I pick up much of the rest out of current income ($45K, which is a bit below the Texas median). The other one just graduated with a AA in engineering. Also paid with current income. Now all he has to do is land a job.
In the "5c category" :
Don't raise kids in the US !!
Other countries have taxpayer supported health care and college ed.
Sure the taxes *might* be higher (not always!!) but those taxes will rise less than the cost of health care and education in the American system. Also most other countries are hated less for being such a beacon of hypocrisy on human rights etc. Plus the world is so much more of a global place and having kids that learn multiple languages will certainly not harm them!! Oh, and there are so many other countries that have better educational and health outcomes for normal citizens than the US.
Once again you get F- for your advice. I knew you were growing a new generation
of incompetent commentators - and here she is. While most financial advice is very specific to situation of the person(s), there is ALMOST NEVER any deviation from FIRST CONTRIBUTE THE MAX TO 401Ks AND IRAs, then consider alternatives. Reasons appear above. So here is staff, presumably listening to this program, giving this awful advice. Why are we - or anyone else - listening to this program? Shame on us as much as them.
You are so wrong about saving for college.
1- below a certain income/assests level the school assumes you can't pay and can't afford a loan and so you don't pay you get a grant.
2- If you go to a state school tuition is much more reasonable and you can often become a resident by living in that state for a year (take a gap year and save a bundle on a top out of state state school of your choice).
3- The top tier private schools now avoid merit scholarships (except for sports)and guarantee to cover any cost they feel your family cannot afford WITHOUT LOANS -so the less you have saved the better if your kid is a rocket scientist.
4- Small second tier schools often do give "academic scholarships" to make up the gap between what the family can afford (according to the college) and the tuition bill to compete against state schools and other schools that can't offer "bank" for desirable students.
5- 529 is a sucker bet! Why? because 100% of 529 assests are calculated to go to college costs whereas above a certain income level they assume 20% of assests-income/year can go to college costs -so at the right income levels you are better off without the 529 plan. Not to mention the returns on most 529 plans are poor.
6- Retirement funds and your house don't count toward how much you have to pay so rather than putting the money into college savings hide it in your house and your IRA/401-k (which you can borrow against to fund college if there is a gap and pay back the money to yourself).
7- If you have a very high income or potential for high income you're going to pay regardless so might as well keep the money in your own name and control.
Bottom line with a lot of foresight you can find an avenue where not saving for college is the best way to pay as little as possible for that sheepskin.
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