When Kids Enter The Picture
The decision to have children and start a family is a significant and life changing one for those of us who are married. It is largely one that brings exciting times for the parents to be, their families and extended families. In India especially, the news of the impending arrival of a child is always welcomed with great enthusiasm. But for the prospective parents, along with all the happiness and excitement, there is always the awareness of the greater degree of responsibility they would soon have to take on.
The impending arrival of a child also places a number of financial responsibilities on the shoulders of the prospective parents. Not just in terms of having to spend more on account of the child with a finite income, but also having to plan these expenses in parallel with those that are already being incurred. Not to mention having to meet the emotional needs of the child in the midst of a packed and sometimes highly stressful schedule. Therefore planning for these changes is an exercise that should begin right from the time the child is conceived. And today I am going to focus on the aspects of our money management that need to be looked at when we are preparing to welcome a child.
Two of the most obvious that require financial planning with respect to children are having to plan for their education and healthcare expenses. Both healthcare and education are services which are currently regulated very loosely at the present moment in India. Therefore costs associated with these services tend to grow at a worrying rate for society at large, with inflation linked to these services being pegged at 12-15% per annum. Therefore it makes sense for us to plan for expenses that will be incurred to consume these services right from the time the child is conceived.
I have covered the subject of planning for children's education in detail in one of my earlier pieces, Funding The College Dream. Feel free to have a look. As far as healthcare expenses for children are concerned the major issue is that most basic health insurance policies may not cover the costs of delivery, associated hospitalisation. They also do not cover expenses incurred on vaccinations and medicines for the baby post delivery. Therefore it would be prudent to purchase a maternity insurance plan which provides coverage especially for these expenses.
Most maternity insurance plans typically cover the child's medical expenses for a period of 90 days after the child is born. All expenses beyond this period would naturally have to be incurred by the parents. These would include clothes and other essentials for the child, costs of periodic medical reviews and vaccinations for the first two to three years, costs of any religious rituals and ceremonies involving the child and so on. Also the fact that most of us now live in nuclear families rather than joint families may mean that the parents may need to appoint someone to tend to the child. And this would also involve a monetary cost.
Not to mention the fees associated with daycare centres and/or montessori schools if the parents decide to put the child into one when it turns two or three years old. So there is a reasonable possibility that the parents may end up spending at least a few lakhs on the child during the first few years of the child's life. What makes this prospect even more daunting is that all these expenses would mostly have to be met on a real time basis in cash. So we would need to have an adequate amount ready right when the child is born. And this may be financially stressful for some of us.
Frightening and depressing as it may sound, it is a fact that some of us would have provide for children who have special needs. And some conditions may affect children all through their lives. Therefore there is a very real possibility that parents facing such a situation would have to financially provide for their children all through their lives. This obviously means that parents of children with special needs would see their finances placed under a lot more stress than normal. Therefore such parents would need to have a clear plan to handle their finances in place right from the time the child is diagnosed with a lifelong physical or medical condition to be able to handle such a situation from a financial standpoint.
One of the ways to provide for such a situation, would be to create a medical reserve fund. This would largely be similar to an emergency fund and be used exclusively to the increased medical expenses that would be incurred on account of the child. The reserve fund must be created over and above any medical insurance coverage that the family currently enjoys. It may be sized to the tune of Rs 5-15 lakhs at the very least. It can also exceed this amount depending on the needs of the child. The medical reserve may comprise of cash and a mix of market linked assets, and must be replenished every time it is dipped into.
Then there is also the question of appointing a caretaker for such children. A caretaker appointed to look after a child with special needs should ideally be someone who is trusted by the family and is aware of the nuances involved in handling the child on a day to day basis. Any assets that the parents wish to pass on to the child may be transferred to a trust, and bought into use at a specified point of time in the future. This could be defined by a specific event, such as the child attaining a certain age or both parents passing away. Doing this would allow the parents to provide for the needs of the child even when they are not around.
Those of us who are living in a rented home or looking to buy a new home right around the time we are expected to welcome a child should ensure that our finances allow us to comfortably meet the expenses of the child while continuing to meet our obligations with regard to our rental or EMI payments. Careful consideration should also be given to the wider effects that balancing both of these responsibilities would have on our overall financial situation. In such situations it may be wise to hold back on starting a family until such time that we gain better financial stability, so as to be able to meet all our obligations and save for our aspirations without putting our finances under too much stress.
Everything I have had to say so far may make the prospect of having children look scary and daunting. But the goal of everything I have talked about today is not to dissuade anyone from having children. Having a child is one of the most fulfilling and rewarding experiences there is. But we must realise that along with its perks, having children comes with its own set of emotional and financial duties and responsibilities. And once we decide to start a family we must realise that giving birth to children is an irreversible decision, and it would not be morally or ethically right for us to shirk the responsibilities that come with having children.
We therefore owe it to ourselves to take a step back and think through all the implications of having children and assess whether we are adequately equipped both emotionally and financially to deal with them. We must bring any desire to have a family to fruition only when we are consummately prepared to do so. In India especially, marriage and having more than one child are often seen as the norm. But we must also realise that times are changing and so are the demands that come with it. Today our lives are a lot more hectic and stressful by default, and therefore getting married and/or having children when we are not fully prepared may likely make things worse, rather than better.
As a society, we must therefore learn to be more empathetic towards those who may not wish to marry or have one child or have no children at all. And as individuals, parents and prospective parents we must learn to block out unnecessary opinions from outsiders regarding our marital status and/or the number of kids we should ideally have. This is an area where we need to figure out what works best for us given the premise and nuances of our own lives and act accordingly. This would give us the best chance to be fully prepared if or when kids do enter the picture.