Financial Health for New Parents

Steven J. Halm, DO, FAAP, FACP

Having children is a great adventure and a huge responsibility, both in nurturing and teaching a child, but also in planning for their future financially.   As a parent, you are responsible for the financial security of your child.  This includes their health care costs, their educational costs, and setting them on the path of financial independence and success. 

Here is a list of important issues you should consider as a new parent:

1. Get a will.  The will should state who will care for your child in the event of your death.  Don’t let the court system make this decision for you – make it in advance.  Contact the person or couple you choose and discuss it with them in advance.   Plan for appropriate financial support to allow your guardian choice to be able to provide for the general needs of your child.  Talk to a lawyer to set this up right away. 
2. Get a life insurance policy on you and your partner.  ALL parents need life insurance to replace lost income and time caring for your child if a parent were to die.  NEVER, EVER purchase life insurance for your newborn or child – it is NOT important to have life insurance on a baby or child.  They have no income that the family depends on, so life insurance on newborns, babies and children is a complete scam and a waste of your money.    The people you need to have insurance on are mom and dad – to cover their income and child-care time (which equates to money if you have to hire a nanny to help care for your child in the event of a parent’s death).   Talk it over with a good insurance agent – and if an insurance agent tries to convince you that you need to buy a life insurance policy on the life of your infant or child, walk away and find another (more honest) insurance agent.   We suggest a term life insurance policy, as the up-front cost is much more reasonable and you get more coverage for your premium dollar immediately.  You want the most coverage you can reasonably afford – that means getting a term life policy and avoiding a whole life or annuity policy.  Trust us – this is the best money you’ll spend for insurance.
3. Get a Social Security Number for your child immediately.   The sooner you do this, the sooner  you can open a savings account (banks may require a social security number to list your child as a bank account holder along with your name).  To claim the child as a dependent on your taxes, you will also need a social security number for the child.  Apply NOW. 
4. Start a Family Emergency Fund.   Most advisors suggest everyone, with our without children, have an emergency fund of expenses for you and your family for 3-months.  With a new baby in the family, that 3-month expense account just increased in amount – so you have to save more!  Build this account now, so if you become unemployed, have a family emergency or catastrophe, you are prepared.  Don’t expect the government to be there to bail you out.  You are are a responsible parent now, and you need to plan to take care of your own!
5. Start a savings account for your young child and start saving with them.  Have them place a percent (you decide, at least 10%, hopefully 80%) of their gift money from parents, friends, grandparents ( e.g. - birthday gifts, Christmas gifts, etc) into this account.   Teach them early the importance of saving.  Reward them with keeping some of the proceeds for special purchases, but try to save a bulk of the money for their account.
6. Start an education fund – Start a general savings account for their education, or a special 529 Educational Account if you qualify. Start early – you’ll be happy you did! 
7. Teach your children to by money-wise.  At age 5, start paying them an allowance and expect them to do some family (and personal) chores for this money.   Have them save most of it (as above) and allow them to spend the rest on what THEY want.  When they are in elementary school, teach your child to understand the concept of interest.  Their money deposited in the bank allows them to make so much money, just for saving it! We suggest Clark Howards' web site at Clark Smart Kids.

If you have questions, contact a good financial advisor – most will help direct young parents to the most important financial choices.  Remember to get the most for your child for your dollar, be wise from the start, always live within your means, and follow our suggestions listed above.

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