Prudent Portfolio: Time Off After Baby’s Birth Not Just for Mothers Any Longer
By Kevin Peters
You’re having a baby!
The excitement is palpable, with everyone looking forward to throwing showers, shopping for baby furniture and adorable layettes and being on the brink of an emerging life.
Along with the excitement, perhaps comes a bit of trepidation: how to pay for all of the costs associated with babydom, both before the big arrival and after.
Naturally, the mother will be the one going on leave during the pregnancy. Then she may take a couple of months post-partum leave before going back to work, while the father looks on from the sidelines. Or not.
Perhaps one of the biggest considerations will be who goes on leave and for how long. How will lost income be replaced during that period?
While far more women take maternity leave, the concept of paternity leave is growing in the United States. But the U.S. lags far behind other developed countries in government support for dads who wish to stay home with their newborn.
For instance, Norway offers 70 days of dedicated paternity leave, plus the option of an additional 26 fully paid weeks off, or 36 weeks off with 80 percent pay. Sweden offers 60 days of leave, plus an additional 420 days to be shared by both parents.
The U.S. Department of Labor agrees that paternity leave is vital to the newborn and the parents and is essential for parental bonding and improved gender equity at home and on the job. Policies that give fathers the support they need to meet the demands of work and family will ultimately prove to be a major advantage for personal and economic well-being, according to the Department of Labor.
But simply supporting paternity leave is insufficient to fully grasp the financial impacts on families and society. There are myriad financial issues that affect the family, and each spouse should become familiar with the resultant financial responsibilities they will face.
Currently, there are only three states – New Jersey, California and Rhode Island – that offer state-sponsored leave for both spouses, all funded by payroll deductions. While there is no comprehensive national database of information on the costs and benefits of these programs, a glimpse of paternity leave costs is possible. Since California’s Paid Family Leave program is 10 years old and New Jersey’s program was instituted in 2009, there is a fairly extensive amount of data in those states. (Rhode Island’s legislation was introduced in 2013.)
But even with three states on board and several others considering paternity leave – or having passed their own versions that have not yet gone into effect – much of the financial information available relates to the costs to states, or the amount of funding provided to families, but not necessarily how families handle the financial burdens.
For instance, in New Jersey, family leave is completely financed by worker payroll deductions. Each eligible employee can take up to six weeks paid leave. During this period, you can receive weekly benefit rates amounting to two-thirds of the father’s average weekly wages, up to $595.
In California, workers who opt for paternity leave are eligible for six weeks off at about 55 percent of their average wages, up to $1,067 per week in 2013, and an overall average of $526 per week.
But what does that mean to the typical household when preparing for a new child? Have sufficient funds been saved to offset the lost wages? Has the cost of extras, such as diapers, clothing, baby formula and food, insurance and co-pays, equipment and furniture, been included in cost projections?
Spouses who are considering leave time should take time before the baby arrives to review their entire financial picture, including their assets and locations and types of their accounts. They should also check in with professionals for advice on financial, health, legal and insurance issues. They should keep a current list of account numbers and passwords, Social Security numbers and other identifications, including important websites and access codes.
In short, a full and comprehensive portfolio of all relevant matters that could arise in what already is going to be a very hectic and exhausting time should be created. Caring for a new addition to the family will be a full-time job for both parents, and it makes sense to prepare for that addition financially as well as emotionally.
Kevin Peters is a financial adviser with the Global Wealth Management Division of Morgan Stanley in Purchase. He can be reached at 914-225-6680.
The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.
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