$Unique_ID{PAR00264}
$Pretitle{}
$Title{Child Development:  Planning for Baby's Future}
$Subtitle{}
$Author{
Lansky, Vicki}
$Subject{Future Financial finance finances Responsibilities Insurance health
maintenance organization HMO HMOs Preferred Provider Organization PPO Setting
Goals Bonds Money Market Deposit Accounts Mutual Funds Stocks Treasury
Securities Zero-Coupon Bonds Will child development}
$Log{}

Complete Pregnancy and Baby Book


Planning for Baby's Future


Your Financial Responsibilities

     Now that you're parents, another human being will be dependent on you
for all of his or her needs for at least the next eighteen years.
     Hugs and kisses are free, but other things such as food, clothing,
housing, medical care, and education cost money--lots of it.  To raise one
child from birth to age eighteen will cost an average of nearly $100,000.
That figure covers just the basic necessities through high school, but many
parents today want more for their children.
     At age five, when most children begin school, the costs of child-rearing
begin to escalate.  About forty percent of the total expense of raising a
child occurs between the ages of twelve and seventeen, which is good news for
early planners who will benefit by beginning a savings program when their
children are preschoolers.
     Now is the time to arm yourself with information about how to prepare for
your family's future and to begin the steps to turn your plans into reality.
     Begin by determining your financial condition.  Before you can plan
intelligently for your child's future, it's necessary to have a firm grasp of
your present financial situation.  It's impossible to plan for the future if
you don't know what's going on now.
     Figuring out your net worth can be a very revealing exercise.  Draw a
line down the center of a piece of paper.  Label assets on the left side and
list them; include cash in checking and savings accounts, equity in
owner-occupied real estate, bonds, stocks, cars, and investment real estate.
     Under liabilities on the right side, list mortgages outstanding,
installment loans for cars, appliances, or furniture, revolving credit card
balances for department stores, and professional services such as medical and
dental.  Include past-due accounts and charity donations.
     Then add up each column.  If you subtract your liabilities from your
assets, you'll have your net worth.  Don't worry if your figures aren't
precise; just the fact that you're sitting down with pen, paper, and
calculator makes it all the more likely that you'll take firm action when
planning your child's financial future.
     Making a simple monthly budget to determine how you are spending your
income can be another eye-opener.  By listing your income and your spending,
you can highlight the areas where changes can be made.  For example, you may
be surprised to find out how much you spend on long-distance phone calls or
how often you eat out.  Seeing those figures in black and white may spur you
to reduce your expenditures, and channel the money to your savings account
instead.

     Insurance

     Next, review your insurance policies.  For many people, life insurance is
a kind of instant estate; it's guaranteed financial protection for your
family.
     Term life insurance (temporary; bought for a specified period of time, or
term) is often purchased by younger people who like the low initial premiums.
Remember that premiums for term insurance rise slowly through your thirties
and more quickly thereafter.  For people in their sixties and beyond, term
insurance rates may be out of reach.
     Whole-life insurance (permanent; for your "whole life") rates are about
five times higher than for term insurance, but the premium remains level from
the date of issue.  Additionally, the whole-life policy acquires a cash value
that increases over time.
     You may want to look into newer types of life insurance that combine term
and whole-life.  Such a policy typically will combine at least $10,000 of
whole-life upon the head of the household with at least $50,000 of term
insurance, all for a single premium.  Another innovative policy is adjustable
life insurance, which allows the policyholder to raise or lower the amount of
insurance and vary the type of insurance between whole-life and term, as
life's circumstances change.
     If you or your spouse is staying home or working part-time, that person
should also consider buying a term policy that will cover the day-care
expenses that would result in case the stay-home parent dies.
     What about your health insurance?  Many companies now offer membership in
a health maintenance organization (HMO) as an option to the usual health
insurance.  HMOs are corporations that contract with physicians and hospitals
to deliver health care under a prepaid plan.  With these plans, employers can
offer their workers enhanced benefits at prices comparable to traditional
insurance.  Joining an HMO can make sense, particularly to a family whose
members seem to be running to the doctor's office every other week.  The costs
of office visits, prescriptions, vaccinations, diagnostic tests, and
hospitalization are often covered by an HMO plan.  Keep in mind that you have
to use the HMO's doctors and hospitals, so if you have a doctor you
particularly like, an HMO may not be for you.
     A new wrinkle in employer- or insurance-plan-sponsored health care is the
Preferred Provider Organization (PPO).  As with an HMO a PPO plan provides
discount health care to members, offering co-payment arrangements and other
incentives.  Typically, members contribute through payroll deductions.  As a
PPO member, you can choose your physician and hospital from those included in
the PPO group.  Fees for services are covered one hundred percent.  If you
wish, you can choose an outside (nonmember) physician or hospital, in which
case you will be liable for a percentage of any fees.  Obviously, what makes
PPOs appealing is that a member can select his or her care-givers.
     Check to see if you have adequate protection through work or Social
Security in the event you become disabled.  If not, find out if you qualify
for auto insurance that provides benefits for disability from traffic
accidents, or for special private insurance programs that pay monthly loan or
mortgage payments during a disability.  There are different definitions of
what "disabled" means; an insurance agent should explain exactly what
"disability" means in the policy.  The agent should also explain the policy's
"renewability," or the conditions of extending the policy beyond its
expiration date.
     The whole point of insurance is to cover the "just in case" situations;
you want to be sure your policies are appropriate for a family with young
children.

     Setting Your Goals

     An important component of planning for your child's future is having
something definite to reach for.  Setting goals gives your planning form and
shape.  Rank your goals by priority.  A college education for your child?
Ballet lessons?  Braces?  A two-week vacation every year?
     How are you going to pay for what you need and want?  Since saving money
under the mattress probably won't help you to achieve your goals, most people
look for a way their money will grow--that means investing.
     Simply put, investing means committing money with the expectation of a
profit.  All the planning you've done up to now will determine the kinds of
investments you choose.  Successful investors will analyze their own
situations in terms of income, monthly cash requirements, and net worth over
the years.  They will also determine how much risk they can live with
comfortably.  If you want liquidity and safety, stick with money market funds,
insured certificates of deposit, U.S. Treasury bills and bonds, fixed
annuities, and equity in your home.
     High-quality stocks, high-grade corporate and municipal bonds, and
investment real estate traditionally provide income and/or long-term growth.
High-risk investments include options, futures, tax investments, and
undeveloped land.
     Because there are so many investment choices available, it's important to
educate yourself on which ones are best suited for your situation.  Resources
for self-education include seminars and classes offered through adult
education programs at local high schools and junior colleges, YMCAs, and
public libraries.  Newspapers and magazine articles probably provide the most
timely written information on investments.  It's imperative to educate
yourself, because no one will look after your family's interests as well as
you will.
     Unless you have a large income (over $100,000) and a complicated tax
situation, you probably don't need to hire a financial planner.  If you decide
you do need a financial planner, be wary of know-it-all types.  No one person
can be an expert in all aspects of investing and estate planning.  Use the
same caution you employed when choosing your doctor and attorney.
     If you do decide to invest, commercial banks, brokerage firms, and
savings and loans will be competing for your business.  Since deregulation,
U.S. banks and thrift institutions (noncommercial banks, savings and loans,
and mutual savings banks) have expanded their lending and investment
opportunities to become more competitive with brokerage firms, which
traditionally have offered a wide variety of financial services.
     Since saving for their children's college education is a common goal of
many parents, investment programs specifically geared to that end are
springing up everywhere.  Some institutions will send you a computerized
education savings analysis based on information you give them.  The analysis
is usually free, but of course the bank is hoping you will use its services.
     A typical analysis will look at your child's age, number of years before
his college education begins, the percentage of college costs that you will
pay, your estimated taxable income and its probable rate of growth, and other
factors.  This information is the basis for the institution's analysis of how
much money you will need, and when you will need it.
     A certificate of deposit (CD) is one investment vehicle available.  A CD
is a time deposit that cannot be withdrawn without penalty before a specified
maturity date.  The minimum deposit for seven- to thirty-one-day accounts is
$1,000.  The law requires no minimum deposit in accounts with maturities of
more than thirty-one days, but individual banks may have their own minimum
deposit requirements.

     Other financial instruments you may encounter include:

  -  Bonds.  A fixed-income security that represents a loan to the bond
     issuer.  The bondholder usually receives semiannual interest payments.
     Corporate bonds are issued by private companies; municipal bonds are
     backed by specific revenues and are exempt from federal income taxes.

  -  Money Market Deposit Accounts.  These enable banks and thrift
     institutions to compete with money market mutual funds.  These
     interest-bearing accounts are insured and offer limited transaction
     privileges, such as check writing.

  -  Mutual Funds.  Pooled investments that are professionally managed.  A
     money market fund is a mutual fund that typically invests in short-term
     securities, such as Treasury bills.  Mutual funds are not insured.

  -  Stocks.  Ownership interests in a corporation, entitling the stockholder
     to voting rights and a part of the corporation's earnings (dividends).

  -  Treasury Securities.  The U.S. Treasury issues bills, bonds, and notes.
     Each is sold at a discounted face amount and cashed in for full face
     value at maturity.  Lengths of maturity vary.

  -  Zero-Coupon Bonds.  These corporate or government-issued bonds are sold
     at deep discounts from face value and pay no interest until maturity
     (hence their name).  Zeros have become popular for college investing
     because the maturities can be staggered, so that some will mature during
     each of the years you'll have children in college.

     Safeguard Your Child; Make a Will

     By making a last will and testament, you are getting the final word on
who gets what part of your estate, and, more importantly, who will care for
your child when you are gone.
     Though a will is a valuable document, people often procrastinate about
putting one together.  It's easy to put off making a will because it isn't a
pleasant pursuit for most people.  But for parents, a will is, at the least,
peace of mind insurance.
     A common misconception about wills is that they're only for wealthy
people.  Because jointly-owned real estate, bank accounts, life insurance
benefits, and pension proceeds are typically not covered under a will, many
people believe that a will is probably not necessary if they don't have
extensive personal property.  But from a parent's point of view, the most
important aspect of a will is the designation of a guardian in the event both
parents die at the same time.  Maybe you don't really care how your personal
property is divvied up, but you do care about how your child is reared.
     Therefore, discussions about the person or persons best-suited to raise
your child are important.  Do you want someone who knows your child well, who
has similar values and religious beliefs?  Take into consideration the age of
the potential guardians and their interest in taking on responsibility for a
child.  This is important; if they feel they wouldn't be good parent
substitutes, consider someone else.  It is imperative to discuss everything
with the guardians you have in mind.
     Another question is guardian of the person versus guardian of the
property.  The person who will watch over your child does not necessarily have
to be the one who will take care of your child's financial needs.  Of course,
one person can do both, but if you have a relative who you feel would be a
wonderful substitute for you and your spouse, but not as equipped to manage
the child's property, you can name both a guardian of the person and one for
the property.
     You will also have to name an executor (male) or executrix (female) of
your will.  That person is responsible for gathering together your assets,
paying any outstanding bills, paying the death taxes, and then distributing
whatever assets remain, according to the specifications of the will.  Your
executor can be a relative, friend, attorney, or an institution such as a bank
or trust company.  Some people choose an individual and an institution, in
order to have the personal approach of a trusted friend and the knowledge of
an organization.  Either way, trustworthiness, reliability, and organization
are attributes your executor should possess.
     Although state laws vary, some common principles apply regardless of
where you live.  Though there's no law that says you must have a lawyer draw
up your will, if you want to make sure you have a valid will, hire a competent
attorney who is familiar with state law and, to some degree, with applicable
federal and state estate-tax laws.
     The written document prepared by your lawyer must be signed by you in the
presence of two (or sometimes three) witnesses, although many states allow you
to verbally state to the witnesses that you have previously signed the will.
The witnesses should not be persons who are beneficiaries under the will.
     Two of the most important requirements in making your will valid are that
you tell the witnesses the document they are signing is in fact your will (not
just some random legal document) and that each witness sign the will at your
specific request.  This may sound quirky, but the failure to observe these
requirements has led to the invalidation of many wills.
     The original will should be kept in a safe place, but not in a
safe-deposit box, since these are often sealed upon notice of death.
     Your planning will go a long way toward creating a happy and successful
future for your children.  But don't fall so in love with your plans that you
never review or change them.  Remember to be flexible; if your financial
outlook has changed, perhaps some of your plans should change as well.

     Your establishment of goals and priorities is vital to successful
financial planning for your child's future.