T u r n i n g p o i n t s n
Preparing for Baby
Get a Head Start With
Financial Baby Talk
by J ennifer
Garrett
Questions
that crop up when you have children, says
n What should we do first?
accountant (CPA) in Bellevue, Wash.
Adele Brady Bolson, a certified public
And things always crop up: Visits to the
n How can we afford a baby?
emergency room and even an unexpected
n Will health insurance cover the
car repair could throw you for a loop when
birth?
money is tight if you don’t have a rainy-day
fund.
n What kind of leave will we get?
n Does FMLA protect my job?
How can we afford a baby?
n Can I use short-term disability
There’s an old adage that if everyone waited
insurance for maternity leave?
until they could afford children, no one
n How do I add my baby to my
would have them. Many expectant parents
health insurance?
worry about the impact a baby will have on
n Does a flex plan help cover
be able to adjust their lifestyles to fit their
child-care expenses?
reduced income, and yet many make the
n What are the other tax benefits
transition.
their finances, many fear that they will not
of having a child?
While the costs of gear, clothing and diapers,
Having a baby is a big step in a relationship.
and food and formula are not insignificant,
It’s usually a time of great joy, hope, and
the real impact on your budget comes not
n Do I need a Social Security
excitement. For many, though, it’s also a time
from spending more but from earning less.
number for my baby?
of uncertainty and anxiety. Yet before you
Unless you have a family member who plans
grapple with decisions about going back to
to care for your baby at little or no cost, you
work, adding insurance, or starting college
either will lose an entire income if one parent
n We’re adopting—is anything else
funds, take a close look at your household
stays home or pay a large monthly sum for
handled differently?
finances.
child care if both parents return to work.
What should we do first?
Consider the net income you would lose
If you’re already having baby budget blues
couples often overestimate the impact of
(and, even if you’re not) you need to do three
losing a salary because they look at gross
things before baby arrives: Spend less, save
income, not after-tax take-home dollars.
more, and pay down debt. These steps not
Factor in any incidental costs of working,
only will increase your net worth, they’ll
including gas for commuting, lunches eaten
also ease the transition to one income if you
out, clothing and dry-cleaning bills, higher
or your spouse plan to stay home with the
taxes, and any other work-related expenses
baby, or the transition to reduced income if
to calculate the true impact of a second
you will pay for child care.
salary.
Increasing your net worth also positions you
If both parents plan to go back to work, then
better to handle the unexpected expenses
you know that your budget must absorb set
n Do we need a will?
n Do we need life insurance?
n How can I start saving for my
baby’s college education?
Turning Points
2 Preparing for Baby
if one parent stayed home. Bolson says
child-care costs. Those should be fairly easy
might not cover prenatal care, in which
to determine: You can call child-care centers,
case you might want to explore taking out
nanny agencies, and in-home child-care
a supplemental policy that does. But you
providers (often listed in classifieds or in
have to do it before you’re pregnant, or the
listings compiled by local licensing agencies)
pregnancy most likely will be considered a
to inquire about fees.
pre-existing condition and will be excluded.
Of course, there also is all the stuff you need
So, make an appointment with your
to buy. In addition to the crib, car seat, and
benefits specialist or HR (human resources)
stroller, there are monthly expenses, such
representative. If your insurance is through
as diapers and possibly formula, that add
your spouse’s employer and you’re
up quickly. Lifestyle trade-offs, like cooking
uncomfortable contacting someone at that
at home instead of ordering take-out,
workplace, call the number on the back of
borrowing DVDs from the library instead of
your insurance card and speak directly with
renting, and borrowing or buying used baby
the carrier. Or visit the carrier’s Web site.
gear and clothing, can offset some of the
more workable. A budget counselor at your
Seattle HR consultant Jenny Broome says
increased costs associated with a baby.
credit union also may be able to help.
most carriers have a wealth of information
Second-hand stores and online classifieds
Sometimes adjusting withholdings and
like craigslist also are good resources
considering flex-spending options can make
for frugal parents. For big items, Bolson
the difference. If you can’t see how to make
recommends shopping for safety over
it work and you still want a baby, you might
style. For example, she says, a safe car
need to look at cutting fixed expenses,
seat (the American Academy of Pediatrics
such as mortgages or car loans, by moving
recommends avoiding buying used car seats
to a less expensive house or driving more
if you don’t know the seat’s history) should
modest vehicles.
be a priority, but a totally redecorated
nursery with expensive furniture and
bedding isn’t. Don’t confuse what you want
with what you need.
online. “You can get online and you can
put your group number in and you can look
at your particular plan and surf to what
you need,” Broome says. “It’s all about
knowledge and knowing where to go to get
the information you need.”
To find out how much you’ll spend raising
What kind of leave
will we get?
your little one, visit Babycenter’s online
Maternity and paternity leave varies from
“Cost of Raising Your Child” calculator.
company to company and state to state.
Broome points out that, for example,
California offers up to six weeks of paid
or other adviser who can walk you through
Will health insurance cover
the birth?
various tax deductions and other savings
It’s best to know what kind of coverage you
For most individuals, leave is a combination
opportunities that might make your budget
have before you get pregnant. Some plans
of accrued personal, vacation, and sick time
If the math doesn’t quite add up, make an
appointment with a financial planner, CPA,
leave. Microsoft provides employees with
four weeks of maternity and paternity leave.
along with disability insurance, any state
Family expenditures on a child, by singleparent and husband-wife households, 2009
benefits, and unpaid time off. So ask at work
about what is available, and make sure you
understand what is paid and what is unpaid.
If you get health insurance through your
Singe parent
$149,760
employer and you go on unpaid leave,
ask about how premiums are paid in your
Husband-wife absence.
$160,410
Source: United States Agriculture Department—Center for Nutrition Policy and Promotion
Turning Points
3 Preparing for Baby
Does FMLA protect my job?
If you work for an employer with more than
50 employees and have worked at the
company for at least one year, your employer
must allow you to take up to 12 weeks of
leave according to the Family Medical Leave
Act (FMLA). You will probably have to cobble
that together with vacation and sick time
plus unpaid leave, but your employer cannot
terminate or otherwise penalize you for taking
the full 12 weeks to bond with your baby.
Can I use short-term
disability insurance for
maternity leave?
lasts around six weeks, but some plans run
A new birth mother generally can use short-
and duration, review your policy before
term disability insurance if she has it. Shortterm disability insurance replaces part of
your income while you’re on leave. Some
employers offer it, and you can elect to carry
it independently, in which case you’ll pay
a monthly premium. Some states, such as
California, offer it as well. Coverage typically
longer. Complications or C-section births can
extend coverage as well.
Since coverage varies in both amount
getting pregnant. If you find your coverage
insufficient, you may want to add a
supplemental policy. Requirements for using
the insurance also vary, with some plans
requiring you to exhaust vacation and sick
leave before tapping in to your insurance
benefit. Others have waiting periods and
Estimated annual expenditures* on children born
in 2009, by income group, overall United States
require that you be away from work for a
In most instances, fathers and adoptive
Income group
defined period of time before drawing the
benefit.
parents cannot use short-term disability
Year Age Lowest Middle Highest
2009
<1
$8,570
$11,700
$19,410
2010
1
8,810
12,030
19,950
assistant vice chancellor for human
2011
2
9,050
12,360
20,510
resources at the University of Colorado-
2012
3
9,370
12,740
21,080
2013
4
9,630
13,090
21,670
biological mothers.
2014
5
9,900
13,460
22,270
Your employer’s HR representative might
2015
6
9,830
13,740
22,860
not offer information about supplemental
2016
7
10,100
14,120
23,500
insurance plans, so be proactive and contact
2017
8
10,380
14,520
24,150
2018
9
11,580
15,910
25,920
coverage. Just because your employer
2019
10
11,900
16,350
26,640
doesn’t offer it doesn’t mean you can’t get it.
2020
11
12,240
16,810
27,380
2021
12
13,150
18,210
29,930
2022
13
13,510
18,720
30,760
2023
14
13,890
19,240
31,620
2024
15
14,280
20,440
35,020
2025
16
14,680
21,010
36,000
2026
17
15,090
21,600
37,010
Total
$205,960
$286,050
$475,680
insurance for any of their paternity or
maternity leave, notes Kevin Jacobs,
Denver. The “disability” stems from having
given birth and therefore only applies to
an insurance agent on your own if you’re
serious about adding short-term disability
How do I add my baby to my
health insurance?
Coverage usually is retroactive to birth as
long as you add the child to the policy within
the required time frame (usually 30 or 31
days, but the time is specific to your plan).
Some plans require that you notify your
employer—if you have employer-sponsored
health care—and your insurance company.
*Estimates are for the younger child in husband-wife families with two children
and assume an average annual inflation rate of 2.79 percent.
If you miss your deadline, insurance won’t
Source: United States Agriculture Department—Center for Nutrition Policy and Promotion
wait until open enrollment to enroll the baby.
Turning Points
4 Preparing for Baby
cover the baby’s expenses and you’ll have to
Jacobs cautions parents from assuming a
Do we need a will?
One will can cover both parents, but it’s
the child is enrolled.
Yes. A will ensures proper transfer of your
attorney Arlene Kline (who calls joint wills
Does a flex plan help cover
child-care expenses?
the stress and disruption for your children
Many employers offer flex plans that allow
disagree over where children
fax or e-mail transmission went through and
instead recommends calling to confirm that
you to set aside pre-tax dollars (per child)
to spend on qualified child-care expenses.
Child-care centers and preschools usually
qualify. In-home providers will, too, as long
as they report the income.
assets and, more important, minimizes
if both you and your spouse die.
Without a will, relatives could
not a good idea, says Indiana probate
“uncommon” and “dangerous”). When one
spouse dies, a joint will locks the other
spouse into the terms. If a spouse dies very
young, that means the
surviving spouse could
should go, even if you
never change the will,
had verbal agreements
even if life circumstances
or understanding with
change dramatically, for
all family members
example, the surviving
involved. In that case
the child could end
If you choose not to use flex spending, you
up in foster care
can take the amount for child-care expenses
until the court
as a tax deduction, but financial planners
settles the matter.
spouse remarries. It’s better
to have a will for each parent,
and the wills should have
identical provisions in case both
parents die.
like Kathy Longo, who works in Edina, Minn.,
prefer flex spending because it keeps the
into monthly budgets.
Choosing a legal guardian
for your children
You’ll have to fill out paperwork to start a
When creating a will, one of the most challenging steps can be designating a
flex account, and the required forms and
guardian to take care of your children if you and your spouse die.
procedures vary from employer to employer.
Indiana probate attorney Arlene Kline advises parents to consider many
income off the tax return altogether and
allows the parents to incorporate the money
Many parents will spend money faster than
factors when naming a physical guardian. Grandparents often are a natural
their accounts build up, and reimbursements
choice since they frequently maintain the closest relationships with your
will be spread out over the entire year even
children. However, they may not feel able or be willing to raise children
if they spend all the money within the first
during their retirement. Also factor in geography. It’s incredibly traumatic
five months.
for a child to lose her parents, but even worse if she has to move across the
Be careful when estimating child-care
country and away from friends and a familiar school to live with relatives.
expenses. If you estimate too high and don’t
Regardless, Kline recommends discussing the matter with whomever you
spend what you thought you would on child
would like to name as guardians so they aren’t taken by surprise if something
care, you’ll still be out the full amount placed
happens to you.
in the flexible spending account.
What are the other tax
benefits of having a child?
Also keep in mind that laws vary from state to state. In Indiana, a judge does
not have to appoint the guardian you name in your will. Some individuals
are legally ineligible—again in Indiana, no one ever convicted of a felony
can serve as a guardian. So Kline suggests asking and naming secondary
Parents generally are eligible for a tax
and tertiary choices in case your first pick declines or is deemed ineligible.
deduction for each of their children. Check
Sometimes the guardian of your children and the trustee of your testamentary
the IRS (Internal Revenue Service) Web site
trust (or guardian of your estate) is the same person, but you don’t have to do
for deduction amounts and gross income
it that way, Kline says. If a brother is great with kids but terrible with money,
qualifications. Adoptive parents generally
you can designate your shrewd aunt to handle the finances and let the two
may claim an additional credit as well.
relatives work things out as they go.
Turning Points
5 Preparing for Baby
Kline recommends waiting until the baby is
born before drafting the will. Most states
recognize provisions that cover future
children, but your will can be much more
specific about how your assets pass and
then are managed if you wait until you have
a name and Social Security number for your
child.
it to the address you provided on the form.
If you didn’t apply for a Social Security
card in the hospital, then you can get a
card from the SSA. Form SS-5 is available
While he or she may not have an income, the
working spouse would have to cover childcare expenses if the at-home parent were no
longer available to care for the child.
online. In most cases all you have to do is
The actual dollar amount of life insurance
print it, fill it out, and mail it in. In some
you’ll need depends on individual
cases you may need to take the application
circumstances. To come up with a reliable
to a local Social Security office or a Social
Wills cover a lot of ground, and each covers
Security Card Center, if one serves your area.
unique assets and personal territory.
Visit socialsecurity.gov to find local office
However, Kline says a will has two specific
addresses and phone numbers. Be sure to
purposes with respect to young children:
determine if you need to file in person before
the process.
What about
disability
insurance?
will house, feed, shelter, nurture, educate,
If you’re adopting domestically and the baby
Many couples overlook disability
and otherwise raise your child should
or child does not have an SSN, you can apply
insurance. Perhaps they assume
something happen to both parents.
for one at any time, even if the adoption is
disability insurance that an employer
not complete. However, the Social Security
provides is adequate or they don’t
Administration recommends waiting until
consider the possibility that injury or
1. The first is to name a guardian for the
children. This guardian is the person who
2. The second purpose is to designate which
of your assets will pass to your child and
how they will be managed.
you mail off the form, as mistakes can delay
the adoption is complete so
that you can use the child’s
illness will prevent one of them
from working or fulfilling
The cost of drawing up a will varies.
new name. However,
household duties. Kevin
Working with an attorney can cost anywhere
you can fill out Form
Simpson, manager of
from a few hundred to a few thousand
W-7A (Application
life and health product
dollars depending on your market and the
for Taxpayer
marketing with CUNA
complexity of your wills.
Identification
Mutual Group (which
Do I need a Social Security
number for my baby?
Number for Pending
provides insurance
U.S. Adoptions)
and financial services
to credit unions and their
while the adoption
to claim the child for tax
Security number (SSN). However, most
purposes.
parents do because you need one to claim
child-related tax deductions and credits, to
add the child to your health plan, to open
investment vehicles like 529 plans, or to
purchase U.S. savings bonds.
If you give birth in a hospital, chances are
members), Waverly, Iowa,
is pending if you want
No. You don’t have to apply for a Social
says, disability insurance is
a critical component of a sound
If you’re adopting internationally, you must
wait until the adoption is complete and the
child has entered the country.
Do we need life insurance?
financial plan. He explains that
parents of young children are more
likely to become disabled than they
are to die, and disability often causes
greater financial hardship for families
than does the death of a spouse.
that the hospital will give you (the mother)
For most couples, this definitely is a
Disability insurance is either short
a birth registration form. Just check the
question of what type of life insurance to
term or long term. Many employers
box to indicate that you want an SSN for
buy and not whether to get any. Regardless
offer one or both, but coverage
your baby. You’ll have to provide SSNs for
of whether just one or both of you will be
may not be what you want or
both parents to complete the form, but the
working when the baby arrives, consider
need. Review what you have and
hospital usually will process it with the rest of
how each spouse would manage if the
discuss with an adviser what kind
your paperwork. Once the card is issued, the
other passes away. In most cases, even
of additional coverage would be
Social Security Administration (SSA) will mail
the nonworking spouse should be insured.
sensible.
Turning Points
6 Preparing for Baby
figure, meet with a financial adviser to
as well, Morrison says. Short-term disability
Longo likes the 529 plans because, she says,
review your income, expenses, and any
is not available to adoptive parents. While
they offer the most tax advantages. “The
educational goals or plans for your children.
FMLA may offer the opportunity for unpaid
money in there will grow tax free,” she says.
Factor in monthly mortgage, auto loan,
leave, some employers are not governed by
“When you take it out, all of those earnings
student loan, and other debt payments.
the act. Others simply don’t treat adoptive
come out tax free.”
Consider other monthly payments, including
parents the same way they do biological
food, clothing, utilities, entertainment,
parents.
insurance premiums, and so on. Don’t forget
annual real estate taxes.
You’ll also have to consider types of life
There are other types of vehicles to use for
saving for college as well such as Roth IRAs,
The bottom line? Know your rights, know
custodial accounts, and trusts. Talk to the
your policies, and advocate for yourself and
professionals at your credit union or your
your child.
financial planner for more information.
insurance. Term life insurance is less
You can begin building your education
makes the most sense. However, Kevin
How can I start saving
for my baby’s college
education?
Simpson, manager of life and health product
Any kind of savings account or vehicle will
marketing with CUNA Mutual Group (which
beneficiary, but you’d have to amend the
work, Bolson says, but education-specific
provides insurance and financial services to
plan once your child is born. It’s easier to
investments often offer desirable tax
credit unions and their members), Waverly,
wait until the birth.
advantages.
expensive while whole life insurance
accumulates cash value over time. For young
families on a budget, term insurance often
Iowa, recommends exploring options with
an adviser, as many carriers offer convertible
policies and other choices beyond the simple
term and whole life options.
nest egg at any time, but you need a Social
Security number and name for 529 plans
and some other investments. You can always
start the plans naming another child as a
You can save as much you want in various
There are two main ways to save for a child’s
savings vehicles, but most of the education-
education: The Coverdell Education Savings
specific savings options have limits.
Account (ESA) and a 529 plan.
Longo cautions parents from
Bolson likes Coverdell ESAs, which can be
We’re adopting—is
anything else handled
differently?
overcontributing college funds at the
opened at almost any credit union and tend
expense of other needs. “You can borrow
to have more flexible investment options and
for college, but you can’t borrow for
lower fees than 529 plans. Contributions are
retirement,” she says, noting that 529 plans
not tax-deductible, but earnings grow tax-
have stiff penalties for early withdrawals for
Once adopted, legally a child is treated the
free. You can use funds for any educational
unqualified expenses. “Make sure you have
same as any biological children. However, it’s
expense, such as private high-school tuition,
both [retirement and college] covered before
often during the period between placement
whereas 529 plans are just for college-level
you start putting everything into the college
and when the adoption is finalized that
education. However, Coverdell Accounts
fund.”
parents may encounter trouble, says Chicago
also have lower contribution limits than 529
adoption attorney Kathleen Hogan Morrison.
plans.
Check health-insurance policies to see how
and when they begin coverage, Morrison
advises. Some extend coverage from date
of birth, but others require proof of a
placement agreement, a court order, or other
documentation. She also notes that ERISA
(Employee Retirement Income Security Act)
protects adopted children in that if your
health insurance would cover a biological
child, it also must cover an adopted child.
Maternity and paternity leave can be tricky
How much does it cost to adopt a baby?
Adoption fees vary widely, and it’s hard to pinpoint a figure. However, according to data
from Adoptive Families magazine, nearly half of domestic newborn adoptions cost less
than $20,000 and the majority cost less than $25,000. Alternately, more than 75% of
international adoptions cost more than $20,000.
If you need help with these expenses, talk to a loan officer at your credit union.
For more information about the costs and details associated with adoption, visit
theadoptionguide.com.
Turning Points
7 Preparing for Baby
Useful resources
babycenter.com has a wealth of information on all things baby from finances to formula to friendship and beyond.
To find out how much you’ll spend raising your little one, visit Babycenter’s online “Cost of Raising Your Child” calculator.
www.360financialliteracy.org, a consumer finance Web site published by The American Institute of Certified Public Accountants, offers
money-saving strategies for families at all stages.
Visit the U.S. Labor Department’s “Life Changes Require Health Choices: Know Your Benefit Options”, for pregnancy, childbirth, and
adoption information.
Parents® magazine offers advice about money matters when raising kids.
Turning Points
8 Preparing for Baby
©2009 Credit Union National Association., the trade association for credit unions in the U.S.