The same day that our daughter was born this past summer, USA Today ran the following headline to its “Snapshot” on the front page of the Money section.
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Parental Preparedness: How Much Do You Have Set Aside for a Family Financial Emergency?
What followed the headline and subheading were the results of a poll conducted of 1500 current and expecting parents. I’ve included a similar pie chart here to the one that appeared in the USA Today article.
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As you can see, the results are eye-opening. I was most intrigued by the fact that a full third of current and expecting parents (in the US, presumably?) have absolutely nothing in emergency savings. That is scary, folks!
Why Do Parents Need an Emergency Fund?
In my opinion, parents have an even bigger need for emergency savings than those without children. The biggest reason is that kids are expensive!
Food/Clothing/Shelter
Kids gotta eat folks, and they grow like weeds. Savvy parents often buy or borrow used clothing for kids to keep costs down, but it’s still not cheap. Since we as parents brought children into our lives, it’s our responsibility to feed, shelter, and clothe them. Period. And that responsibility does not go away if we lose our jobs or get injured and cannot work, etc. You need to still be able to cover your child’s basic needs in the event of a job loss. This is where the emergency fund becomes essential.
Medical Costs
Case in point: I recently wrote a post about ways I’ve saved money on medical bills, and one of those ways involved getting a discount on an $1100 medical bill from our daughter’s brief hospitalization in July. I did manage to score a $110 discount on that one, bringing the total down to $990, but that’s still almost $1k in one bill! Personally I think that, for the purposes of medical expenses alone, parents have much more of a need for an emergency fund than those without kids! Kids get sick a LOT, especially when they attend school or daycare.
The Unexpected is Inherent in Parenthood
“The unexpected” is a principle that we all have to account for in our financial lives. However, when there are more people in your family that only serves to multiply the ways in which “unexpected” expenses can creep into your life! Whether it’s fees for swimming classes, replacing a pair of mittens after one mysteriously disappears, or reimbursing a neighbor for a window that your child accidently threw a baseball through, expected the unexpected when you have children.
How much is enough?
Personally, I tend to think that at least $10k is a good goal to shoot for in an emergency fund when you have kids. As you can see from the chart, only 23% of parents surveyed have that. As we can see, a full 33% had $1000-$9999 in savings at the time of the survey. But personally I think that’s an awfully big range. $1000 seems woefully low- heck, that would barely cover the recent medical bill we got for our daughter! As for the 11% that have only $1-$999 in savings- it’s definitely better than nothing, but I really hope they have good health insurance or that could be gone fast.
Now, to be fair, some of the parents in this survey were expecting parents- so maybe we can give some of them the benefit of the doubt and assume that they still had a few months left in their countdown to parenthood and they were actively saving their butts off at the time of the survey. Maybe.
How Prepared Are Parents?
Is this study indicative of a lack of parental preparedness? I find that a really hard question to answer simply. For our household, yes it would be indicative of lack of preparedness. However, we are fortunate to have good jobs (well, just Mr. CMF now) and college educations. Could I impose the same standard on someone in a totally different financial situation? Say, someone who had not been as fortunate to be able to attend college and who had maybe been affected by some of the widespread layoffs in recent years? That seems unfair. And yet, as so many point out, children don’t usually just randomly pop into the picture- usually we have done something to bring them into our lives, be it intentional or unintentional.
Suggested Reading: I think a good read for anyone trying to achieve their financial goals (including being prepared for parenthood) is The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich. This is one of my favorite personal finance books; I think it offers sound advice and sets a good financial blueprint for those in a variety of different financial situations.
What do you think? Do you think that the results of this study are indicative of lack of parental preparedness? How much do you think is an appropriate amount to have in an emergency fund when you have children?
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We weren’t particularly financially responsible when we had our first child. Fortunately, things have improved dramatically since then! I think that sometimes having kids can make you take things more seriously- that’s what happened with us.
I think that’s the case for a lot of folks. When you have someone who is completely dependent on you it really makes you sit up and realize that you’ve got to get your s*#t together!
I think it’s common sense to have a substantial emergency fund before having kids. But let’s face it, there’s a huge chunk of people out there that have kids and aren’t prepared. Whether they chose to have those kids without being prepared, or it was an “accident.” I’d be interested to know the ages of those that have absolutely no savings (the 33%).
I know, I often think back to a friend of mine who had a baby when we were 19. She was broke as a joke and living in a crappy apartment, soon to be married and then quickly divorced from the father. I never asked, but I’m positive there was no emergency fund. I’d be willing to bet there is a large preponderance of young people (teens and early 20s) in the group with no EF.
My niece falls into this group – young and a single mother (now ER savings). She’s working on a plan to support herself and her daughter on her own, but it’s going to be a rough road.
It’s so difficult financially when you have children young in life, especially if you are single. I wish your niece and her daughter the best of luck- it’s great that she is actively working on a plan.
Wow I’m surprised to see 33% have no emergency fund as well. That’s crazy.
We all know that kids are expensive and we also know that some kids do a lot of crazy things, which end up in trips to the hospital. If you have kids, I think a full year worth of expenses is a must.
Ha, great point about the crazy things! Thankfully our little one is too young for that yet, but I fear those days are coming…
Having nothing saved and expecting a child is really scary! Wow. I think I would feel comfortable with $10,000 as well. There are so many things that can go wrong in the first few years – like you said, hospital visits aren’t cheap. I know my parents had to take me there a few times before I was 3. I just can’t imagine anyone not thinking about the financial impact children are going to have on them!
Ah how the other half live- I remember back in the day when I totally was not a planner or a saver or very responsible at all- this could have totally been me. Thankfully children were not in the picture then! It’s so important to get your financial act together before having children- at a minimum, having something in an emergency fund for the inevitable medical bills from unexpected trips to the ER, etc.
You do raise good points. My first husband and I were in the “$1-$999” group when our first son was born. Thank heavens we had good medical insurance, and a reasonably-priced baby sitter. But even with that Murphy’s Law still came into play from time to time…..
There’s tons of ways to meet the needs of our kids on the cheap (clothing and food banks for example) but it’s still worth thinking through our resources and how we’ll deal with emergencies. Financial stress can be pretty high at this stage in life, and anything we can do to reduce it is worthwhile.
You make a good point that financial stress can be pretty high at this stage of life- having a nice emergency fund will likely help you sleep better at night (it helps me, anyway!) And as someone else pointed out, kids tend to do crazy and interesting things that keep you on your toes- and sometimes cause you to have to spend money 🙂
It’s scary to see such a large group of expectant parents with no emergency funds. Even if they have health insurance, they could still get hit with some big medical bills. We all hope and pray everything goes right, but sometimes Mom and/or baby need an extended hospital stay. One thing I commonly see is that people don’t confirm what their health insurance covers and what their business offers for maternity leave. It can vary widely and you need to prepared.
The medical bills can really be crazy- our daughter was only in overnight for observation and the bill after insurance was $1100 ($990 after I got a discount, but still). And a lot of families have high deductibles to keep the premiums down- that means that those medical bills hurt even more!
I can’t imagine not checking out what your maternity leave is going to be beforehand- seems like a pretty important detail to look into!
Well I don’t think parents are ever really prepared for parenthood!
We had quite a bit saved up and it was a good thing because I was ending my business and my husband didn’t get his employment insurance until he went back to work when our daughter was 3 months old!
Great point! It may actually be easier to prepare financially than in other ways 🙂 Thank goodness you guys had so much in savings when your daughter was born- things could have been pretty unpleasant (and scary!) otherwise.
There is no way I could feel comfortable bringing a child into the world and not having an E-fund at the ready. I know people wing it all the time and manage to make do but that would not work for me at all.
It’s a scary proposition- I think even more so when you’ve had enough life experiences to know that literally anything could happen at any time. Things might be ok if you wing it- but then again, they might not.
Personally, I think at least 6 months of expenses saved is a minimum for an emergency fund, especially if you’re a parent. And I am not surprised by the numbers at all. Unfortunately, a lot of people just don’t save money.
I think 6 months is a good goal to shoot for. I guess when it comes down to it I’m not that surprised by the numbers either- but it does make me wonder why. Are some people just completely ignorant to the possible financial calamities awaiting them, or are they really trying hard to save but just can’t because they have too little income, too many expenses, etc? Maybe both?
I don’t have kids yet, so I don’t have a firm number in my head, but I will say, the more money the better. My sisters have kids and I see first hand how expensive they can be. I would rather be overly cautious and have more money in an emergency fund than not enough.
We’ve definitely become more aware of the cost of raising kids since becoming parents this past summer. And yes, we have been making an effort to beef up the emergency fund because anything can happen at any time! We have significantly more responsibility now, and we have to be able to take care of our daughter in the event of a loss of income.
Good points. Children need to eat, they need clothes and shelter. They also need to be exposed to different experiences, they need books and, a growing trend, they need tutors.
We also made sure that we have very good level of insurance (life insurance) so that the one left behind if something bad happens can continue looking after our son; or if something happens to both of usm his brothers who are much older can look after him.
Great point about insurance. In addition to beefing up our emergency fund since we became parents, we’ve also been re-evaluating our insurance situation to make sure that we are adequately covered in case something were to happen to one of us. It’s all part of taking care of the little one! We want her needs to be taken care of no matter what.
Im not planning on having kids, but I do have pets, which are also expensive at times. I am working to build up my EF, but it’s slow going as things always seem to delay any “extra” progress I might try to make each month. I do pay myself first (a small set amount) and then I always hope to be able to put in more at the end of the month, but it rarely happens.
Ha! I hear you about the pets! In the last couple of years we’ve had a series of crazy veterinary expenses. Good for you for paying yourself first- sometimes when we want to start saving more we just start paying ourselves more first- then there’s less left over to spend and somehow we can always find things to cut in order to stay on budget for the month.
I always think that we are not financially secure enough to have a kid, but when it comes down to it, we probably are. People have kids who are in a lot worse situation that we are. We have decent health insurance, money in savings, and a health saving account. I think we’d be OK if I did get pregnant.
That’s good! Because babies don’t always come along when you’ve planned- so it’s nice to know you’d be prepared!!
I absolutely believe that most prospective parents really do not know how much kids will cost in terms of money, time, and energy.
I recall just a few years ago, having a conversation about daycare with a guy who doesn’t have kids. I mentioned that many cost over $1,000 per month, and he didn’t believe me. He thought it might a $100 or so, maybe a little bit more but not much more. Others chimed in confirming the cost, and he still seemed to be in disbelief, not understand why.
As I write this, I think a post idea just came to mind… 🙂
It really is crazy- daycare costs add up pretty quickly!! It’s hard to imagine the cost if you’ve never had kids, but I think that’s all the more reason to spend some time planning out the finances of parenthood before the fact.
I think the survey also has to indicate whether the respondents are first time parents or not, and the age of the respondents. For example, I myself don’t actually know how much it costs to raise a children beyond the obvious things like feeding and clothing, so to say that 1/3 of Americans are not financially prepared to have a child is too much of a generalization.
I don’t think the study was necessarily indicating that EVERYONE should be financially prepared to have a child. Obviously if you are not planning to have children for a long time or ever, then it does not have much bearing on your circumstances. The study specifically looked at either parents or those who were expecting- so those groups of people should theoretically have a lot more incentive to get their financial sh$t together.
I think parents need to have some sort of emergency fund, I know that in this day and age if emergencies come up people can use their credit cards to pay for something major but if you’re “planning” to have a family, you should also plan to not go into debt to take care of your family.
Agreed! Credit cards can be such a slippery slope anyway, but especially for parents- taking on too much debt (especially consumer debt such as cc debt) can really have a big impact on future financial decisions and ability to achieve big financial goals such as saving for retirement and sending children to college.
I am no where near financially prepared for children. I don’t think I will be for a few years. It’s amazing how much money is needed for a kid all the way up until they graduate high school.
It can be pretty expensive, that’s for sure! I think it’s good that you know where you stand on this and that you wouldn’t be ready at this time. Hopefully if and when the time comes you’ll have spent enough time thinking and planning to be ready!