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Archive for the ‘child care’ Category

Spend More in Retirement? Or less?

Wednesday, December 2nd, 2009

BusinessWeek recently ran a story called “Nine Ways Spending Changes in Retirement.” A professor interviewed in the story suggested that retirees “estimate that you will be spending anywhere from 100 to 110 percent of your working budget if you are planning to have an active lifestyle.”

That frankly makes no sense to me unless the retirees in question have no children. Many of the costs my husband and I incur relate to the raising and nurturing of our three kids:  College savings. Private school tuition. Enrichment Activities. Clothing. Food. Orthodontist. Five airline tickets for the family vacation.  When I look at my spending categories in Mvelopes.com, the online software I use (and the site where I write a column), nearly every category has some connection to children.

And I have daughters. My siblings tell me that their teen boys devour groceries. One of my sisters and one brother each had a son go off to college this past fall; they both remarked over Thanksgiving that the milk went sour for the first time before it could be finished, because there was one less person drinking it. That’s a phenomenon that’s probably rippling through their household expenses: water, power, gasoline for the car… the list goes on and on.

Granted, your kids could move out and you could suddenly replace those expenses with extensive travel, or expensive health care issues. But financial planners I talk to tell me that people who are savers and conservative spenders rarely change their style in retirement.

Is the professor right? Do you think you’ll need the same income in retirement? Or would you eliminate whole categories of spending when the kids leave the nest? Comment here or email me at laura at laurarowley dot com.

Life, Death and Money

Tuesday, November 10th, 2009

I write this post with a heavy heart. A few months ago I wrote a Yahoo!Finance column about a couple, Patrick and Suzy, who had been married three years and had just bought a home in Seattle. They decided to wait a year or two before having children while they paid down debt and built up their savings. Last week, while the couple walked their dog in the park, Patrick was killed by a falling tree limb. He was 32.

Patrick felt strongly about preparing fi- nancially for parenthood, while Suzy was ready to get started. When he asked my opinion, I agreed with Patrick that it made sense to wait: They needed both of their salaries to cover the bills, carried some heavy student loan obligations and didn’t know how they would afford daycare. Maybe they could have worked it out. Now we’ll never know.

I am wondering if I led them astray. Patrick was firm in his thinking; a friend reassures me that I was just a “data point” on the couple’s decision-making spectrum. But what if I had suggested they go for it, start a family and figure out the money later? What if I had advised them simply to have faith in themselves and in each other, to be flexible and open to major adjustments that might occur down the road, and jump in with both feet?

After all, my own parents took that approach. Good Irish Catholics, they had eleven children; I was the tenth. It was a different world, of course. My mother stayed home and never had outside help. (She went back to work part-time when the youngest was in first grade.) She made our clothes for a number of years. We thought nothing about sleeping three to a room. My parents never spent a dime on car seats; we all squashed into a station wagon, my brother and I squabbling in the space between the middle and back seats.

If we did “enrichment” it was a sport or activity at school, and it was free. There were no summer camps; we just took off on our bikes in the morning and came home when the streetlights came on. We drove to Michigan exactly twice on vacation when I was a kid. For years we had just one television, with a dozen channels. We spent a lot of Sundays at museums and in forest preserves, playing games and jumping in leaves.

And it worked out, because both my parents labored around the clock for decades, and prayed mightily for divine support. They had no “me” time scheduled into their calendars, and when we were small, their couple time typically involved sitting in the living room after we were all in bed, my dad rubbing my mom’s feet. In the dark, under the covers, we could hear them laughing. They were deeply committed to their child-rearing enterprise, regarding it as their purpose in life. Married 49 years with nary a public quarrel, their faith made all the difference. (My father died in my mother’s arms a week before their 50th wedding anniversary.)

Money doesn’t buy happiness, but it creates lots of options. A lot of parents, myself included, use money to try to get things right with our kids – the right safety devices, the right neighborhood and schools, the right tutoring and enrichment, the right 529 savings plans, the right colleges — so we can launch them on the right path. On the other hand, money should never replace creativity or commitment. My parents had both in spades.

Maybe money is something you should watch out of the corner of your eye when you’re contemplating decisions about life and your purpose on the planet — rather than letting it hover front and center, like a roadblock. Maybe when your heart’s desire is involved, a certain leap of faith is called for, because things can work out. Maybe it wouldn’t have made a difference, but I wish I had told Patrick that when I had the chance.

Refunds for Baby Einstein Videos

Tuesday, October 27th, 2009

Parents will be interested in a story in The New York Times today about Baby Einstein videos. Walt Disney Company is offering a refund of $15.99 each for up to four videos purchased between June 5, 2004 and September 5, 2009. For those who’ve never seen one, Baby Einstein videos feature bright colors, puppets, flashy graphics and classical music. The company, founded in 1997, claimed the products were educational for babies. Disney bought the firm in 2001

But the American Association of Pediatrics recommends that children under age 2 do not spend any time in front of a screen. I wrote about this issue in 2007 when I interviewed Susan Gregory Thomas, author of “Buy Buy Baby,” an excellent expose of the children’s “educational” video and toy business. Some child development experts even suggest there is a connection between early exposure to videos and attention deficit disorder (ADD).

Back in 2006, the Campaign for a Commercial-Free Childhood filed a complaint with the Federal Trade Commission over DVDs marketed to babies. As a result, the Times reports, the companies dropped the word “educational” from their marketing materials. The Campaign for a Commercial-Free Childhood thought that didn’t go far enough, and last year threatened a class-action suit for unfair and deceptive practices unless Disney offered a refund to all consumers who purchased the video since 2004. That’s now part of a settlement; click here for information on how to get your refund.

Understanding Flexible Spending Accounts

Saturday, September 26th, 2009

For many employers, the fall season brings open enrollment — that once-a-year opportunity for workers to change their benefit packages. But the vast majority of workers stick with the status quo: A recent MetLife survey of 1,000 people finds 77 percent of employees plan to maintain current work benefits, while 10 percent plan to increase them and 11 percent will cut back.

Many workers don’t make changes because they don’t recognize the upside of some benefit programs. A 2008 survey of human resources managers found only 21 percent believe their employees have a good understanding of the company’s benefits. One issue is that workers may get little guidance: 40 percent of the firms in the survey require workers to self-enroll to receive benefits.

In a nutshell, an FSA allows workers to have money deducted from their paychecks pre-tax to pay for out-of-pocket health care expenses as well as the costs of dependent and child care (including summer camp for children under 13 when both parents are working). I’ll explain the details in this post — but if you prefer the video version, check out my recent appearance on ABC News Now’s “Money Matters.”

For example, someone in the 25 percent tax bracket who spends $2,000 a year on qualified medical expenses (or a qualifying day care center) would save that 25 percent — or $500 — if he sets aside the money in an FSA and has his employer reimburse him for those costs. (You also save on Social Security, Medicare and state taxes, so the savings are even higher.)

By law, the maximum contribution to a dependent care FSA is $5,000; there is no legal limit on health care FSAs, but employers typically limit them to $5,000 as well, experts say.

Here are five questions to ask to make the most of your FSA:

1. Do I have expenses that qualify to be paid out of an FSA? Go to www.irs.gov and check out Publication 502 to see which of your medical expenses qualify, and 503 for child care expenses. (The IRS dubs them “Flexible Spending Arrangements.”) It can be anything from co-pays to eyeglasses to the cost of a weight loss program if the weight loss is ordered by a doctor.

2. How much do I spend out-of-pocket each year on these expenses? Get a firm handle on that number by looking back through your checkbook and credit card statements. Flexible Spending Accounts are “use it or lose it” – in other words, if you don’t spend the money you set aside, you forfeit it. So it’s important to add up the numbers – that will give you an idea of how much to set aside in the account. A mom of three I interviewed for my recent Yahoo!Finance article on this topic used Mvelopes.com to track her spending, so over a period of a year or two, she knew precisely how much to set aside for medical expenses for her child’s asthma and other costs. That will save her family hundreds of dollars over the course of the year.

3. What’s my tax bracket? This tells you how much you’ll save by using an FSA. Many people don’t know their bracket off the top of their heads. Assuming you filed the standard Form 1040, look at Line 43 of last year’s tax form. That’s your taxable income. (If you expect to earn more or have more deductions this year, just add and subtract those factors to get an estimate of this year’s taxable income.) Then go to irs.gov and look at the federal tax tables to figure out your bracket. Then multiply the amount you would put in the FSA by the bracket, and that’s roughly your savings. ($1,000 in FSA x 25% = $250; $1,000 – $250 = $750 in actual cost.)

4. How does my plan work in terms of reimbursing qualified expenses? It’s important to talk to your co-workers who have used your company’s FSA. An FSA is only as good as the plan administrator. Some companies have administrators that make the FSA very easy to use – for example, they’ll issue employees a specific debit or credit card for their FSA spending. Others require you to jump through a lot of hoops – for example, filling out and faxing paperwork to prove the expenses are qualified.

Ask your co-workers how responsive the plan administrator is, what their call center is like, how often they approve or reject claims, and what the appeal process is like. (For some people, the savings aren’t worth the time they have to put in to get their claims approved and paid for with their own money!)

5. What happens with my FSA if I leave the company or lose my job? You typically have to use the money before you depart. So if you think your job is in jeopardy, schedule those dental and medical checkups, get prescriptions refilled and get a new pair of eyeglasses. You can submit the paperwork as long as the expense is incurred before your termination. In addition, you can sign up to extend your FSA benefits under COBRA (you don’t have to sign up for the COBRA health insurance itself to continue your FSA). But you have to pay in the monthly amount you committed to, plus a 2% charge.

One last note: Aside from the open enrollment period, you can also make changes to your FSA plan if you have a qualifying life event – if you get married or have a child for example. For more on FSAs, see this Yahoo!Finance column.

The Risks and Rewards of Living on One Income

Wednesday, May 7th, 2008

Is it possible for families to shift from two incomes to one?

It’s something most households with two working parents and young children at home have contemplated at some point. More than 60 percent of families with children under age 18 had both parents employed outside the home in 2005-2006, according to the Bureau of Labor Statistics. That compares to less than a third of mothers in 1975.

You see lots of articles discussing ways to eliminate the second income — things like clipping coupons, buying second-hand clothes, and cutting out vacations and cable television.

But ultimately, paring those expenses isn’t going to cover the gap for most middle-class families, because those aren’t the costs that drive them to the economic edge. The real problems are what Harvard Law professor Elizabeth Warren calls “the big five” — housing, health insurance, child care, a second automobile, and taxes.

Warren, co-author of “The Two-Income Trap,” is an expert on family bankruptcy. She has found that married couples with children are more than twice as likely to file for bankruptcy as childless couples. (More children live in homes that will file for bankruptcy this year than live in homes that will file for divorce.)

Moreover, income volatility has increased sharply among families with children. According to Jacob Hacker, author of “The Great Risk Shift,” the volatility in family incomes doubled between 1969 and 2004. Moreover, Americans with at least four years of college experienced a larger increase in family income instability than those with only a high school education over the past generation, with most of the rise occurring in the last 15 years.

The single-income family with two children in the early 1970s earned about $32,000 in inflation-adjusted dollars, compared to $73,000 for the dual-income family in the early 2000s. Despite the higher income, today’s families save less and carry more debt: In 1970, the one-income family saved 11 percent of its take-home pay and allocated 1.4 percent of its annual income to pay revolving debt, such as credit cards. In 2005, the two-income family saved nothing, and allocated 15 percent of its annual income to revolving debt, according to Warren.

In other words, the two-income family spends everything — the second income, all of its annual savings — and has piled on debt. Where does the money go? Despite the sticker-shock that goes with buying a gallon of milk these days, they didn’t spend it on food, clothing, appliances, electronics, or automobiles — on an inflation-adjusted basis, those costs actually went down.
 
Warren found two-earner families today spend three-quarters of their household incomes on five categories (which consumed only half the income of single-earner families a generation ago):
Housing: The cost for families with children has risen 100 percent in inflation-adjusted dollars since 1970.

Health Insurance: For a healthy family that has an employer-sponsored insurance plan, costs have risen 74 percent in inflation-adjusted dollars since 1970. In that year, the demographic group most likely to lack health insurance was a 23-year-old unmarried man with no children; today it’s a person age 35 who is married with children.

Cars: Families today spend 52 percent more on automobiles than in 1970, on an inflation-adjusted basis, Warren found. While the inflation-adjusted price of automobiles has dropped since 1970, families are still spending more on this category because they typically need two cars to get to work.

Taxes: The first dollar that the second earner earns is taxed after the last dollar of the first earner, Warren notes. This means that the tax rate for the family unit has risen by about 25 percent between 1970 and today.

Child Care: In 2007, fees in licensed centers ranged from $10,920 a year for 4-year-old children to $14,647 a year for infants, according to a study by the National Association of Child Care Resources and Referral Agencies (NACCRRA). In every region of the United States, annual costs of child care surpass the cost of food.

A sixth major expense is education — both preschool and college — which most families in 1970 didn’t view as necessary to launch their child into the middle class.

The number of children who attend preschool has risen to 45 percent of all 3- and 4-year-olds from about 20 percent in 1970, according to the Census Bureau. On average, parents pay $7,000 a year, according to NACCRRA.

Finally, there’s the challenge of saving for retirement. In the late 1970s, 62 percent of workers were covered solely by defined benefit plans, paid for by their employers; in 2005, the number was 10 percent, according to data from the Employee Benefits Research Institute.

Making It on One Income

So is it possible to downscale to one income? It may be, for couples who are willing to make bold changes with their money and in their attitudes, says Judy Lawrence, a financial coach and author of “The Budget Kit.”

“You have to be willing to do some soul-searching about the things you’re going to change and let go of,” Lawrence says, adding that the stay-at-home parent takes on the additional job of planning ahead and investing the time to get the best deal. It’sgoing back to your true priorities, values and goals and saying ‘it’s the best choice for me, my family, and our future’ — not ‘we’ll be locked into a life of drudgery and we can’t do what we want to do.’”

Jonni McCoy, a Colorado writer and founder of Miserly Moms, agrees. When she left her job as a buyer for Apple Computer in 1992 to stay home with her two children, she was earning more than half the family income. “Make sure you’re really clear why you are doing it, because there will be days when this is the last thing on the planet you want to do,” she says, drawing an analogy to nutrition: “The average diet lasts 72 hours, but if you have a medical reason, it will stick.”

Find a community of like-minded savers, says McCoy. “You have to have people who share your values, who say ‘no, I can’t afford that,’ ” she says. “The beginning is so tough, because when you’re leaving the working world you may not have that community established.”

Bankrate.com offers a calculator to help figure out what a second income is really worth on an after-tax basis, without all the work-related expenses. You need to track your monthly expenses for child care, commuting, work clothes, lunches and coffee breaks, dry cleaning, cash for coworkers’ birthdays and other celebrations, and money spent on take-out meals and restaurants because you don’t have time to shop and cook. Also consider savings on cleaning and other services the stay-at-home partner could take on, and the possibility of eliminating or downsizing a second car.

Start to tackle grocery expenses before you quit. “Food is the largest unfixed expense in most household budgets, so there’s a tremendous amount of money in there,” says McCoy. “We tweaked our budget in every way, but the majority of extra money came out of groceries.” Basing weekly menus specifically on sale items can cut 30 percent off a grocery bill, McCoy says.

Lawrence, whose budgeting guide was first published in the 1980s, says it’s harder to live on one income today because a number of innovations — such as Internet access and certain prescription drugs — have become necessities. But just as important, there’s so much more choice in luxuries than there used to be — that is, so much more stuff to say “no” to.

“Children and adults are bombarded unconsciously with media showing them how life is supposed to be; you’re unconsciously saying ‘no, no, no’ all the time — and that takes energy,” Lawrence says. “It’s much more of an emotional challenge than it used to be.”

(Adapted from my Yahoo!Finance Column)

Buy Buy Baby

Thursday, August 30th, 2007

In 1997, the year my first child was born, both Time and Newsweek ran bold cover stories on the amazing development of a baby’s brain from birth to age three. They were inspired by a White House Conference on the importance of stimulation in the earliest years of life – an event aimed at increasing federal support for early child care.

I eagerly pored over both issues, seeking the practical implications of the research. Knowing my daughter was a “sponge” in the earliest years of life, what could I do to give her a neural leg-up in that precious “zero-to-three” window?

As Susan Gregory Thomas reports in her new book “Buy, Buy Baby,” lots of American parents like me went shopping. 

“The goals of the conference were laudable, but the lasting legacy was the fear that if parents did not adequately stimulate their children by the time they turned three years old, the circuitry of the brain was effectively closed,” says Thomas.

Although the conference emphasized that nothing other than ordinary, loving care was needed for cognitive development, the video, educational and toy industries co-opted the word “stimulation” — and a $20 billion-dollar business was born, Thomas reports. A host of formal toddler classes and companies such as Baby Einstein, Brainy Baby, and Baby Genius rode a profitable wave of parental anxiety.

Between 2003 and 2006, the number of videos or DVDs on Amazon.com aimed at babies under two grew to 750 from 140, Thomas reports. Sales of so-called “educational” toys rose 50 percent between 2002 and 2003 alone. Even the matriarch of kiddie media — Sesame Street — got in on the game with a video series for zero-to-two-year-olds called “Sesame Beginnings.”

Meanwhile, a growing body of academic research was indicating that television and videos are harmful to children under age two, and the American Academy of Pediatrics issued a strong recommendation that this group not be exposed to such media at all.

Parents think babies are getting something out of “educational” videos because they are riveted by the screen, says Thomas. Researchers say what’s really going on is an “orienting reflex” – the neural response to new, startling information. It’s what happens when you hear a loud noise — the brain scrambles to figure out the cause, the location, if you’ve experience it before, and whether it requires a flight-or-fight response.

But a baby who is watching a video gets caught in an endless orienting-reflex loop. Thomas cites other studies that have linked early television-watching to attention deficit disorder – even autism. A study published this month in the Journal of Pediatrics found that DVD-watching by children age eight to 16 months hinders language development. For every hour a day spent watching baby DVDs and videos, infants between 8 and 16 months old understood an average of six to eight fewer words than infants who didn’t watch them. The Campaign for a Commercial-Free Childhood coalition (www.commercialfree childhood.org) filed a formal complaint with the Federal Trade Commission over DVDs marketed to babies.

Thomas suggests marketers play to the insecurities of Generation X — latchkey kids with divorced parents, raised on lame after-school television designed to push toys (think Teenage Mutant Ninja Turtles).

“Once this generation came into its own as parents, marketers noticed two things: They have a deep and abiding fear of abandonment that they transfer on to their children, and they were comfortable with television as a babysitter,” says Thomas. “Toy and video companies needed to convince Generation X mothers than their products would basically be maternal surrogates in their absence – providing the same kind of value and nurturing and care.”

Although I’m part of Generation X, I wasn’t a latch-key child, and my dad died a week before my parents’ 50th wedding anniversary. But I carted my oldest daughter to music class at nine months and French at age 2-1/2. By the time I had my third child, I realized formal toddler classes were largely a waste of time, and the money better invested in a 529 college savings plan. My youngest got just as much out of informal playgroups and unstructured time in the park; and she preferred the basics – blocks and balls – to talking gizmos with candy-colored lights.

Among the most intriguing research cited in the book is a study conducted by Dan Anderson of the University of Massachusetts, with groups of children viewing “Teletubbies.” Anderson cut the program into nonsensical segments and in a separate experiment, ran the soundtrack backwards. The two-year-olds were distracted by the mixed-up shows; they knew something was wrong, while children younger than 24 months were oblivious to the changes.

But babies of all ages who watched the video excelled at one skill: character recognition. Although the story was meaningless to the youngest, they could still identify “Lala” and “Po.” And as Thomas points out, “the only other scenario in which children encounter these characters are ones in which the characters are selling them something. This is their first introduction to branding.” According to a 2003 study, two-thirds of mothers reported that their toddlers asked for specific brands before the age of three.

So what’s the harm? I expect when I buy my four-year-old new sneakers, she’ll undoubtedly zero in on anything featuring Dora the Explorer. And in a year, she’ll think Dora is for babies and move on to something else.

Thomas worries that, at least on a philosophical and psychological level, something darker is going on – a triumph of material lifestyle over deeper values.

“When there is an attachment (to a brand) ingrained from young age, you can’t separate that from a feeling of happiness and love,” she argues. “We are creating a nation of impulse buyers – we don’t think about what it is we’re buying, we just know we need to buy more. My generation feels more kinship with the person who also bought a Volkswagon Touareg than how he voted in the last election.”

Thomas argues that more research is needed on the impact of media on children ages zero to three, as well as greater restrictions on advertising to children. She also advocates paid child leave, so parents can spend more time with their babies. (The U.S. is the only industrialized country that provides no paid child leave; 163 countries give mothers paid leave on the birth of their children; 45 countries offer it to fathers.)

“All of the experts with whom I spoke said the best possible thing you can do is just hang out and enjoy being with your child,” Thomas says. “You need to have time, and time is the one thing we as Americans do not have. So in addition to personal response – turning off television and deciding not going to do that class — there needs to be a political response.”

(Adapted from my Yahoo!Finance column of August 30, 2007)

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