By Edward Reilly CRPC®, CMFC®, AAMS
You may regularly invest in your retirement plan. If you own a house, that can also be one of your most important investments. But both of those can pale in comparison to the money that needs to be invested in your children. We all know that having mouths to feed adds to a family s living expenses. But many parents discover, usually several years into the span of their primary child-rearing years, that the costs really do add up.
The investment can be looked at as a two-part commitment from parents. The first is absolutely required " paying the living costs as children grow up under a family s roof, up to the age of 18. The second part, sometimes considered optional but becoming more common given the expense involved, is helping children pay for their post-secondary education. More families realize the importance of good planning to be fully prepared for the financial challenges that come with having kids. Good planning can help combat the significant expenses associated with raising children.
According to the U.S. Department of Agriculture in March 2008, which analyzes child expenses by families in the U.S., the total cost per child through the first 18 years of life can range from nearly $150,000 to just under $300,000, depending on the family s financial status.
According to this survey, even a family of the most modest means may spend $7,800 to $8,800 per year on expenses related to each child. The USDA survey shows that the cost tends to rise as children grow older, another fact not lost on parents who watch teenagers become more focused on fashions, video games and their newfound freedom to drive a car.
These numbers, of course, are averages and will vary from family-to-family. It also matters how many children are in the home. The government study says that families with only one child tend to spend 24 percent more on that child than families with two children will spend on each. As the number of children increase, the amount spent per child tends to decline.
Keep tomorrow in mind
Parents should consider the future. For your children, financial challenges tend to increase when they reach adulthood at age 18. This is particularly true for those who plan to pursue a college degree.
College costs have been rising quickly, typically faster than the rate of inflation. According to the College Board in March 2008, the average in-state (for residents of that state) tuition, fees, room and board for a public university tops $17,000 today. If that amount increases by four percent per year, a child born today will face a total college bill of nearly $150,000 in the future (the College Board says that for the ten years ended with the 2007-08 school year, tuition and fees at four-year public institutions rose an average of 4.4 percent per year). Keep in mind that this represents the potential future cost of a four-year education at a public university. A private school could cost twice as much. This is a formidable challenge that cannot be taken lightly. Short of placing your children in deep debt upon their graduation from college, it is suggested that you begin to invest in their future as soon as possible.
Fortunately, there are more ways to do that today than ever before. One of the most popular tools is a 529 college savings plan. This is a savings vehicle that is set up for the purposes of accumulating dollars that can be applied to pay for qualified higher education costs (including tuition, books, room and board at a college or other post-secondary educational institution). Among the most appealing aspects of a 529 plan is that contributions can be made by parents or grandparents. Contributions can total $300,000 or more, in some cases. Earnings through the savings plan are exempt from federal taxes if used to pay for qualified educational expenses, one important way to save on the costs of providing financial support to your child in the future.
Helping to fund a good education is a great way to cap a lifetime investment that you ve made in your children. A financial advisor can help you create a financial plan and help you reach your financial goals.
Edward Reilly CRPC®, CMFC®, AAMS
Chartered Retirement Planning Counselor
Advanced Financial Advisor
Ameriprise Financial Services, Inc.
333 Earle Ovington Blvd., Suite 1010 | Mitchel Field, NY 11553
Office: 516.228.0100 | Fax: 516.228.0101
Ed runs a comprehensive financial planning practice with Ameriprise Financial. He graduated from Siena College in upstate New York with a degree in finance and international business. Ed helps his clients with retirement planning, as well as other areas, including investment planning, estate planning and college education planning. He currently works in Garden City and resides in Long Beach. Ed is extremely committed to his clients and helping his clients achieve their goals. He also enjoys playing hockey and beach volleyball in his spare time, as well as watching the Mets and Islanders.
This column is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.
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