The Financial Impact of Motherhood
/The Financial Impact of Motherhood
-Melissa Dailey-Newman, AWMA®
Each year, we dedicate the 2nd Sunday of May to honor the moms in our lives. Often described as providers, supporters, and caregivers, mothers face unique financial circumstances that can have significant consequences to their financial well-being. Below, you’ll find a list of financial planning strategies designed for all stages of motherhood.
New Moms
80% of women become mothers by age 44, according to Pew Research. In addition to happiness and excitement, new moms often face immediate negative financial impact with expenses related to their new bundle of joy. In 2023, 4.2 million Americans took unpaid leave from work through the Family Medical Leave Act (FMLA) for the birth or adoption of new child. A recent Pollfish survey of actively working women between the ages of 18 and 44 found that 74% of respondents would have no cash savings remaining after eight weeks of unpaid leave and 49% would consider dipping into their retirement savings during this period of early parenthood.
Below, you’ll find four financial strategies that new parents can implement to prepare for a new baby:
· Start saving early. A typical emergency savings fund covers three to six months of take-home pay. When planning for the arrival of a new baby, you may need to cushion your savings account with additional funds to cover items like out-of-pocket medical costs and loss of income. The more you can set aside before the arrival of a baby, the better you’ll feel when facing unexpected expenses.
· Update your budget. According to Mark Lino of the USDA, the first year of a child’s life can cost $20,000-$50,000, depending on location and household income. Significant one-time expenses can come in the first few months, such as out-of-pocket cost for delivery and big-ticket purchases like cribs, strollers, and car seats. Adjusting your budget for ongoing expenses like diapers, clothing, and daycare, is critical to keeping your cash flow in the black.
· Review insurance coverage. Depending on your health insurance plan, you typically have 30-60 days after your child’s birth or adoption to enroll your newborn for ongoing coverage. While having a baby doesn’t outright affect your homeowner’s insurance, you may want to consider raising the limits of certain coverages in your property & casualty policies, including personal liability. Life insurance provides a certain level of financial security to your family, should you or your partner pass away. With the birth or adoption of a new baby, make sure to review your life insurance coverage. This ensures that your policy is adequate in providing for your expanded family for expenses, like paying outstanding debts and eventually, college tuition.
· Familiarize yourself with tax opportunities. The federal child tax credit, or CTC, allows a dollar per dollar credit of up to $2000 per dependent for 2024. This credit has a seven-part test for eligibility, including the age of the child and household family income. Many states offer their own versions of child tax credits, including Minnesota, Colorado, California, Utah, and New York. A Dependent Care Flex Spending Account (DCFSA) allows you to use pre-tax dollars to pay for qualified out of pocket dependent care expenses, like daycare and nursery school. Certain eligibility requirements must be met; contact your employer to learn more about this type of workplace sponsored offering. In addition, there are several tax advantaged methods of saving for your child’s education. 529 plans, the Coverdell Education Savings Accounts (CESA), the Uniform Transfer to Minors Act (UTMA), and investments under the Uniform Gift to Minors Act (UGMA), offer unique tax advantages and considerations for educational savings opportunities. Speak with your financial advisor to determine which strategy is best for your family.
Mothers in the Workforce
Roughly 66% of the 24.2 million working mothers in the United States work full-time and year-round. (US Census Bureau). Below, you’ll find several financial statistics that uniquely impact women in the workplace:
· Women currently earn an average of 16% less than men. This gender pay gap, where women earn $0.84 to every dollar earned by men, extends to nearly ever profession, according to the AAUW.
· On average, women reach their peak earnings at age 44. Men, meanwhile, reach their peak earnings at age 55. This can have significant compounding effects on a working mother’s ability to grow her financial nest egg.
· In 2023, 5.3% of women aged 55 and older were working part-time, due to family obligations, compared to only 1.3% of men.
· According to the Department of Labor, the average US woman aged 55 and older provides 182 unpaid hours of labor per year to care for a loved one. This is equivalent to taking 26 days of full-time work UNPAID.
With the challenge of earning less salary and spending more time away from their career, these are some essential steps that moms in the workplace can take to prioritize their financial goals for success:
· Maximize your Retirement Contributions. Prioritize saving for your retirement. If you’re eligible for an employer sponsored retirement plan, contribute the maximum amount to receive your employer’s match. For 2024, the contribution limit for employees who participate in a 401(k), 403(b), and most 457 plans, has increased to $23,000. If you’re over the age of 50, you can put in an additional $7,500 as a catch-up contribution. Discuss your options with your personal wealth advisor to determine if ROTH or traditional contributions are best for your personal financial situation.
· Contribute to a Health Savings Account (HSA). An HSA is a tax advantaged method of saving for qualified medical expenses. HSAs have three potential tax benefits: tax deductible contributions, tax fee growth, and tax-free withdrawals. The funds in your HSA can be saved and invested until you need them and they are not use-or-lose by end of calendar year, like that of a heath care flex spending account (FSA). Not everyone is eligible to contribute to an HSA, so consult with your employer benefit coordinator to learn more.
· Participate in Financial Planning. A UBS survey of high-net-worth women found that 56% of women deferred long-term financial decisions to their spouse. The same survey reports that only 20% of couples participate equally in key financial decisions. It’s important to voice your concerns and fully participate in discussions that will impact your family’s financial future.
Aging Moms and Widowhood
The life expectancy gap between men and women has widened to nearly 6 years. Surviving spouses are more than twice as likely to be women, as they are to be men. Below, you’ll find some ways to help your mom navigate her financial well-being as she ages:
· Help organize Mom’s financial statements and estate documents. Helping your mother get organized from a financial standpoint can relieve the stress and burden of worry that many widows face when it comes to finances. You may need to consult with her attorney before taking over financial responsibilities to ensure the appropriate Power of Attorney is in place.
· Coordinate enrollment in Social Security and Medicare. Understanding Medicare and enrolling in social security can be overwhelming. There are many resources to help make sure that your mom has the right coverage and is participating in the correct government sponsored program. You can sign up for email updates and find more pertinent information at www.medicare.gov.
· Alert Mom to scams. $3.1 Billion in financial losses were reported to the FBI in 2022 and the 60+ age group continues to be targeted more than any other. Review best practices with your mom like keeping passwords and log-in credentials safe. AARP and the Consumer Financial Protection Bureau both have many resources available to share with your aging parent(s) regarding elder fraud and financial exploitation.
· Talk about health concerns. Don’t wait for a medical emergency to discuss your mother’s wishes. If you have siblings, consider having a family discussion to determine roles and responsibilities going forward. Topics you may want to consider include concerns with driving, long-term living arrangements, and medical care.
Nearly 70% of women say they’ve never met with a financial advisor, compared to just 41% of men. It’s time we give the mothers in our lives some tools to take care of their financial well-being, as they have given for us.
Investment Advice offered through Clearwater Capital Partners, a Registered Investment Advisor. This material is for general information only and is not intended to provide or be construed as providing legal, accounting, or specific investment advisor or recommendations for any individual.
__________________________________________________
Source Links:
Survey: Where Women Put Their Money
