THE COLOR OF MONEY
Best baby shower gift comes from parents: Financial planning
By Michelle Singletary
WASHINGTON — I was talking to a friend recently and she was more than a little annoyed at the gifts that had been suggested for a baby shower she was going to attend.
"Look at this," she said, handing me the gift registry list. "Most of this stuff costs more than $100. Please, they need to register for diapers, baby wipes or onesies (you know, the little T-shirts with snaps). That's what new babies really need."
I nodded in agreement during her entire tirade. I've been invited to many baby showers and, as it has become the custom nowadays, I am often directed to a particular store at which I am asked to buy something from a list of gifts selected by the mother-to-be.
But rarely have I ever bought anything from the list, which far too often includes expensive baby monitors, diaper bags, strollers and other overpriced or unnecessary items people probably wouldn't (or shouldn't) buy with their own money.
Take it from me. After three children, I know that babies don't need half the stuff you think they need.
You don't need a special hooded towel to dry your baby after his or her bath — just use the towels you've got.
Forget about some fancy bottle warmer. Just run hot water over the bottle.
I feel for new parents, many of whom don't always consider the costs of having a baby. According to the U.S. Department of Agriculture, a family earning less than $40,700 a year spent an estimated $6,820 in 2003 caring for a child from birth to age 2, including clothing, childcare and miscellaneous expenses. Families with incomes from $40,700 to $68,400 spent $9,510, and those earning more than $68,400 spent $14,000.
I feel that parents need to spend less time in the baby store and more time attending to some important financial decisions when baby makes three or four or five.
"It's so easy when you are dealing with the day-to-day issues of raising a baby, such as losing sleep, that parents often lose sight of some critical financial issues," said Joseph Montanaro Jr., a certified financial planner with USAA who is based in San Antonio.
If you're expecting a baby, you need to create a financial foundation for your new addition.
For example, Montanaro says new parents should:
• Get life insurance. There is now an extra person relying on your income. It's vital that you obtain enough life insurance to help support little Sally or Jamal if something happens to you. If you're not sure how much you need, try the life insurance needs calculator created by the Life and Health Insurance Foundation for Education at www.life-line.org. Ideally, you might want to get enough coverage so your beneficiaries could invest the death benefit and live off any interest earned.
• Update important documents. Make sure you add the new baby to any existing insurance policies and review and update other important papers, such as beneficiary information.
• If you can afford it, purchase disability insurance. "The numbers indicate that people are much more likely to become disabled than to die," Montanaro said. If your employer offers disability insurance coverage, get enough to replace 60 percent to 70 percent of your income, he recommends. You also need to be mindful that if your disability insurance premiums are paid entirely by your employer or with pretax dollars, the payout, should you need it, would be taxable income and therefore less.
• Do some estate planning. Get a will or update the one you have after the baby is born. Determine who will serve as your child's guardian if the need arises. Depending on your situation, you might want to consider setting up a trust to ensure your property is given to your child according to your wishes.
• Start saving for college while your child is in diapers.
I'll just add this. The best gift for your baby is for you to plan for his or her financial future.
Michelle Singletary writes for The Washington Post.
