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.
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!
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.
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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