Talk about money with parents of young children these days, and it’s hard to find good news. Daily life keeps getting costlier, they say – tuition, doctors, mortgage payments. Even the best window-office jobs no longer come with the pension plans that had our parents living by golf courses by age sixty-five. People are concerned.
Some are grateful to earn double what their parents once did. But that’s little help when homes can cost ten times what our parents paid for theirs. With tuition, it’s more than just the colossal cost of college. It’s immediate things, like fat bills for preschool. What we once called “nursery school” was optional a generation ago. Today, even kids with a stay-at-home parent often begin preschool by age two. Nicole Shinski, a Lebanon, Ohio, mother of twin three-year-old boys and a one-year-old girl, says she wanted to enroll her sons in preschool last fall, but couldn’t afford two years of preschool for both boys.
Parents say prices for food and clothing haven’t risen much in recent years. But day-to-day expenses (paying the mortgage, filling the tank:) eat up nearly everything they earn.
That’s where the conversation gets strange. Rather than speaking of strategies to handle basic costs – how they’re finding ways to plan ahead and save and invest – parents speak of the great contradiction: how much they’re spending on things that are clearly unnecessary but that now feel all but mandatory. The optional has become the inescapable.
We’re talking $70 for mommy-and-me Mandarin classes and $7,000 for summer camp, cell phones for fifth graders and iPods for eight-year-olds. And always, always, parents speak of buying truckloads of consumer goods – kid-friendly groceries, kid-centric versions of family staples like bath products, even furniture – much of it emblazoned with Elmo, Thomas, SpongeBob, Spider-Man and the rest of their intensely marketed brethren.
Call it crazy, insane, ridiculous; parents do. But no one calls it rare. Anyone who isn’t overspending knows plenty of people who are. Credit card debt grew nationally by $184 billion between 2000 and 2006, according to the research firm Demos. Meanwhile, the national savings rate for 2006 was negative one percent. Not since the Depression have Americans saved nothing at all.
Add mortgages, car loans and other debt, and it gets uglier. American personal debt is currently $15 trillion, says economist Ken Goldstein. There is $45 trillion in personal financial assets offsetting that debt, he says. But “the problem is that the people who have the assets aren’t necessarily the people who have the debt.” That’s where our generation comes in.
What’s oddest is that parents seem to know they’re being unwise with their money, but they’re doing it anyway. It’s junior high redux: Everybody’s doing it:because everybody’s doing it. When it comes to parenting and purchasing, the definition of “necessity” has expanded to include just about everything.
But this isn’t simply a matter of well-paid Gen-Xers buying too many goodies. The details vary, but across the middle class and upper middle class spectrum the refrain is similar: “It sucks you in slowly but surely,” says Afsaneh Djabbari-Aslani, a mother of three in New Canaan, Conn. “Your friend is calling saying they’re signing up their daughter for nature center, so can you sign up too, because their kid doesn’t want to do it if my kid doesn’t want to do it:Then, if your child is the only one not doing travel soccer, she’ll be left out. So you’re not paying $50 for rec soccer anymore. You’re paying $600 dollars for travel soccer:It just continues in that sense, that you keep thinking you don’t want to do it, and you end up doing it.”
Djabbari-Aslani isn’t a spendaholic. She finds it ridiculous that her tween daughter has friends who carry iPhones. She has no plans to buy one for anyone – including herself. But “I finally gave in and got a cell phone for my thirteen-year-old,” she says, “because she was the only one without one.” If you’ve got two or three adolescent kids with their own phones, iPods and a basic video game setup, “the average spending per kid is probably hundreds of dollars a year,” says Rick King, a father of four living just outside Manhattan in Montclair, N.J. Those kids need computers for schoolwork and socializing, plus the games, movies and downloads that these suddenly vital gadgets require.
And there’s one aspect of this overspending trend nobody talks about, an aspect marketers hope no one brings up: For all the excess, nobody’s having spectacular fun. Worse, no one is confident that this crippling spending is cranking out a generation of well-adjusted, fabulously fit, sparklingly sociable little geniuses, either. Five Things You Can Do Today to Improve Your Financial Health
1. Knowledge is power, so track your spending.
Make note of every dollar you spend today and continue tracking your spending for the next thirty days. Include everything from the smallest cash outlay to the largest bill payment, and keep in mind automatic charges to credit cards. Once you’ve got an accurate picture of where your money goes, draw up a monthly budget – preferably one that includes contribution to savings. Programs like Quicken can be useful for helping you keep track, but entering expenses in a Word document or writing them on a legal pad will also do. Just choose a method you’ll stick with faithfully.
2. Forced savings is your friend.
Forced savings was made for the discipline-challenged: Money is deducted from your paycheck and socked away before you can spend it. If your company offers 401k, enroll, says Nashville-based financial planner Troy Von Haefen. And if you’re a small business owner, learn about solo 401ks and SEPs. Those already enrolled in a plan can seek advice on contributing the right amount each month. (If you’re getting a large income tax return, Von Haefen says, you may be better off lowering your federal withholding and raising your 401k contribution. Paychecks remain the same, but you’ll save more tax-free.) In addition to 401k, you can set up additional forced savings by having a company like Vanguard move a set amount of money each payday from your checking account into an investment account.Usually dangerous addictions at least offer a satisfying high, but this one brings little more than a fleeting buzz for our bucks. We’re paying for smack but getting whippets.
Parents all over the country recite strikingly similar lists of things that eat up money without delivering much more than the sense that obligations are being met. And they’re getting sick of it. The list is topped by the ridiculous birthday bashes we’ve witnessed for several years now. A slew of articles on the subject start off the same way: “Parent X spared no expense celebrating the birthday of their child. (Fill in name of costumed character) was there, and there was even a (fill in type of farm animal) on hand to celebrate little (fill in pretentious name)’s big day.” Next comes a quote from the parent, saying “I know it’s crazy, but it’s just so much fun!”
Lately, parents sound decidedly less amused. They say they did this stuff in their first child’s early years because they were so psyched to be parents. But it’s now a freight train they’d love to disembark. “I’ve spent over $500 at least once on a birthday party and felt sick about it afterwards,” says Scott Dauenhauer, a California father of two. “I had the money, but what kind of example is that?” Dauenhauer, by the way, runs a wealth-management company.
Many parents sound as mildly hung over as Dauenhauer. Next time you attend one of these parties, look around – how many kids look significantly more jazzed to be there than they’d be if you, say, offered them a bag of Skittles? And how many parents look ready to stab themselves in the head with a plastic cake fork?
Parents speak, too, about sports. It begins younger and costs much more than a generation ago. “We’re suiting up little girls in ice hockey, because that somehow now is the sport du jour,” Djabbari-Aslani says. Everybody’s playing organized sports, and many come home with trophies – sometimes just for showing up. Parents also mention wild money spent on “enrichment” activities, seeking that coveted edge for their kids. Tutoring begins in kindergarten and weekends are packed with classes. Yet, despite the expense, parents aren’t confident that kids are gaining much.
“It’s crazy,” says Georgette Pascale, a mother of two who lives in Pittsburgh and runs her own PR firm. Spending, she says, “is almost becoming a competition.”
Parents sound most horrified by (and yet bound by) what should be the most expendable items on the list – the endless array of stuff plastered with the likenesses of Dora, Barbie, Superman and their omnipresent pals. This is the cheap crap that parents actually describe as cheap crap – stuff people are both amazed to be buying and apparently unable to avoid. On our watch, licensed characters have infiltrated nearly every aisle of the big-box stores and supermarkets. According to Susan Linn, author of “Consuming Kids: Protecting our Children from the Onslaught of Marketing & Advertising,” sales of brand licensed toys in 2006 hit $22.3 billion.
From Green Giant’s SpongeBob green beans and Eggo’s Barbie waffles to “Cars”-themed wall paint and Spiderman lamps, piles of kid-centric stuff are sprouting in houses everywhere. 3. Find out how you look on paper.
Contact the national credit bureaus (Experian, TransUnion and Equifax) for your credit scores and reports. These companies may have conflicting data on you, so it’s important to get reports from all three. If you want to spend a few dollars on frequent updates, check out myfico.com. Inaccurate information could be lowering your credit scores, thus raising your interest rates. So contact the companies if you find anything amiss.
4. Educate yourself.
American schools don’t teach us to handle our money, says Jim King, a financial planner in the Chicago area. “You’d think it would be such a basic lesson before you graduate,” King says, “but people don’t have an understanding of this.” Even if you were the kid who dreaded math class, you need to understand things like tax deferred investing and life insurance now that you’re a parent. So start studying: Do research online, talk with knowledgeable friends and seek out useful classes in your neighborhood (though be wary of companies offering sales pitches disguised as education).
5. Consider outside advice.
We hire personal trainers to keep us healthy and therapists to keep us sane, so why not consider working with someone to get your finances in order? You don’t want to add a huge new expense, of course, and you may not need outside advice. So don’t commit to working with a financial planner too quickly. But it may be worth interviewing an expert or two, just to see what they can offer you.Some are things kids have always had, like bikes and T-shirts and vitamins. But these characters now cause many parents to buy a slew of separate items for their kids – hand soap, towels, Band-Aids, even separate food – rather than having the kids use what they already buy for themselves. It may be just a few items per shopping trip, but multiplied out over fifty-two weeks it adds up to hundreds of dollars that could be growing in a 529 account for college.
“When I tell my father how much we’re spending, he says, ‘You guys have to start saving,’” says Allyson Mazer, a mom of two who lives in LA. “But I’m like, where do you want to me to save? Where?”
Everyone lists things they shouldn’t be buying. Yet no one seems quite sure what possesses them to spend little pieces of the college fund each weekend at Target. Part of the problem may be that our understanding of commerce was forged in front of the television, suckling on ads for Frosted Flakes and Malibu Barbie and Super Elastic Bubble Plastic. We were the first generation that had advertisers constantly whispering in our prepubescent ears that spending brings happiness. “Children’s television was deregulated in the mid-1980s,” says Linn, “and right after it was deregulated, ten of the best selling toys had links to media. In the mid-1980s, it became okay to create a program for the sole purpose of selling toys.”
Did all those sales pitches burrow so deep into our cerebral cortexes that the capacity to say no to a Spider-Man wristwatch never formed? “There was a lot of noise in the marketing community throughout the ’80s that more and more research said children recognized company logos even before they could read,” says Elizabeth Elam, associate professor of marketing at Western New England College. We grew up hearing that we really needed the Cabbage Patch Doll and the Transformers and the Happy Meal. Has all that marketing undermined the parental ability to figure out what we, and our kids, actually need?
Lines of credit function like the benevolent, deep-pocketed parents we had or wish we’d had. If we really, really want that new leather jacket, that new laptop, they give us the money. But in the heat of tearing open boxes from Amazon, it’s easy to forget that lenders aren’t giving us stuff simply because we make them proud. Those folks at American Express are gonna keep charging interest until we pay back every dollar or declare bankruptcy trying.
Maybe the hangover that people are beginning to speak about – the gnawing angst that can creep up on parents at night while the kids sleep in bedrooms brimming with toys – will be our saving grace. As discomfort over excess begins to outweigh minimal joy, maybe we’ll get it together. Many of today’s parents came to marriage later than our own parents did, and thus came to parenting later. Maybe we’ll eventually come around to saving later, too.
For those seeking to reverse course, though, there’s troubling news: Earning more may not be a remedy. The “Holy crap, I’m not saving any money” panic once associated with lower incomes is plaguing people earning serious cash. In two-income households, the costs of childcare and work-related expenses are constantly metastasizing. And more money begets larger levels of socially mandated spending. “My husband and I were just talking about this with friends. You can make $300,000 a year and you’re just getting by. You’re not saving anything,” says Mazer, all traces of enthusiasm draining from her voice. “You’re paying the bills, and it’s not like you’re living the highlife.”
The bulk discount that once came with multiple kids doesn’t help either. Tuition, childcare, sports, the birthday party circuit – you pay by the kid no matter how many you have. Even the sharing of hand-me-downs is impacted by the uneven and transitory quality of things some of us buy – bedroom furniture tied in with the latest animated movie and cheap plastic toys that won’t survive one toddlerhood to be carried into the next. There are also fresh must-have “learning” gadgets every year. Somehow, we’ve got to get smarter about our money. What parents want to risk consigning their youngest to a minimum-wage job because he or she didn’t learn to spell early enough?
The obvious answer is to stop spending. But that’s something our culture, our economy – and, after 9/11, our president – literally beg us not to do. Widespread cutting of superfluous spending is the opposite of Bush’s new stimulus package. And beyond economic and cultural pressure, it’s awfully hard to lower the bar of kids’ expectations once you’ve set it. “Every time someone comes over, you just get all this stuff,” says Pascale. “This is what they’re going to expect now.”
Ideally, we’d collectively adjust what’s deemed essential. But it’s not likely that we’ll all agree, as of April 15th, to keep our kid-related spending reasonable and restricted to special occasions, and to make sure our children’s lives are filled with unstructured weekends spent daydreaming cost-free at home. If we couldn’t pull off Hands Across America, there’s no way we’d manage this.
Somehow, though, we’ve got to get smarter about our money. At this rate, some of us will literally arrive at retirement with no means of support. Kevin Brosious, president of a wealth management company in Pennsylvania, says, “I asked one client to have their children sign a contract acknowledging that their parents will not have enough money to retire and they [the kids] will provide support for them during their retirement years.”
Maybe as our frustration with the current picture grows, more parents will decide to prioritize savings. The line between essentials and luxuries may once again get adjusted — if not by choice, then by necessity.