The decision to start a family has a serious impact on your finances. Here are 4 common money mistakes that parents make:
Assuming group childcare is more cost-effective.
On the surface, group daycare appears to be more affordable than an in-home nanny. This makes sense, as you’ve got more kids per provider than a private nanny has under care—and more parents to absorb the costs of employing that person.
A rough analysis of numbers tell a similar tale: The average cost of annual full-time daycare ranges from $4,650 to more than $18,000 a year depending on where you live, according to the latest Child Care Aware of America data.
On the other hand, the “going” in-home nanny rate runs the gamut from $8 to $25 an hour, depending on the nanny, the community you live in and the number of children being cared for.
But, there are “hidden” and intangible costs to consider when weighing both options, too.
Take for example, consider the financial impact when a child falls ill during the workweek. You can’t take children to daycare with a fever, but many care center policies require that you still pay for the care they didn’t receive.
You’ll miss time from work, and unless you have an employer who allows you to work from home while caring for your child, that can “cost” in the form of using personal or sick days.
If a child’s illness takes you out of work frequently, it can also mean missing out on opportunities to be promoted or take on more responsibility. Though more expensive by the hour, a nanny can continue to care for a sick child at home and possibly even accompany them to doctor visits.
Ultimately, the choice is a personal one, but assuming one option is less expensive based on numbers alone can cost you in more ways than simply taking a hit to your wallet.
Not negotiating childcare-related needs with your employer.
The challenges that come with being a working mom get plenty of media coverage, and it is a legitimate issue for many families. As a country, we lag behind many other nations when it comes to supporting a work-life balance.
In fact, Washington, DC–based advocacy group National Partnership for Women & Families reports that only about half of first-time mothers in the United States take any form of paid leave after giving birth.
While you may not be able to sway your employer into changing their maternity leave policy, you can negotiate other benefits that pay off in the long run. This can include “flex hours” to accommodate the demands of child-rearing, permission to leave the office early on days you know your child has an event, and more opportunities to work remotely.
While such negotiations will usually mean you will check emails on the weekends or after the kids go to bed, establishing a mutually beneficial arrangement before scheduling issues arise can mean the difference between staying with a company for the long haul or jumping ship every few years.
If your employer offers benefits for duration of employment, like bonuses and stock options, your loyalty is valuable.
Not protecting your child’s identity.
According to Experian, children comprise the fastest-growing segment of identity theft victims and account for up to 500,000 identity theft cases annually.
A child’s identity is appealing to fraudsters because kids have a totally clean credit report and the threat of being caught is low. Most parents don’t check their child’s credit report and there usually isn’t a “face record” assigned to a child’s social security number until the child applies for a driver license or passport.
Until that time, your child’s social security information is “fair game” to identify thieves. Your child’s social security information is in a number of places, including medical and immunization records, school files, daycare forms, and even applications for sports teams or a library card.
Aside from damaging your child’s credit, the consequences of child identity theft can also mean your child might have difficulty being accepted into college, opening a bank account, getting a driver license, or even a job.
If you suspect your child has been a victim of identity theft, request a copy of your child’s credit reports by writing letters to Experian, Equifax and TransUnion, with proof that you are the child’s legal guardian.
For more tips on how to protect your child’s identity, read this MintLife article: “4 Ways to Protect Your Child From Identity Theft.”
Start establishing a “face record” for your children by taking the kids on a “field trip” to the DMV and securing a state child identification card for each of them.
For about $10, it will establish a record of who your child is. Further, it can reduce the hassle of carrying around a social security card and birth certificate when kids travel!
Socking away money for college without a plan.
When it comes to saving for college, the simple mantra is “sooner rather than later,” but there are some exceptions to consider.
If you have fallen behind in your retirement planning, for example, focus on your own nest egg before you hunker down to save for college.
Further, think through investment strategies that will maximize your child’s future savings fund. If your kids are under the age of eight, invest their college savings in stocks and more aggressive mutual funds; shift into less risky investments after he or she turns nine.
When the teen years come, focus on protecting college savings from market turbulence with conservative investments you can easily cash out. Before you establish an account in your child’s name assuming that you’re taking advantage of tax savings, assess the reality of whether you can fund his or her education sans financial aid.
According to FinAid, colleges use a formula for aid that assesses a family’s need based on up to 5.64% of parents’ available assets and on 20% of assets in a child’s name or custodial account.
If your kid has too much saved in his or her name, he or she stands to lose as much as 15% of potential financial aid, or be denied aid altogether.
Stephanie Taylor Christensen is a former financial services marketer based in Columbus, OH. The founder of Wellness On Less, she also writes on small business, consumer interest, wellness, career and personal finance topics.