The U.S. Department of Agriculture has estimated the average cost of raising a child through age 17 at $233,610. But many affluent families spend more.
And the spending often continues after the kids turn 18 and even after college. Excluding inheritance, affluent parents anticipated spending $711,000, on average, over their child’s lifetime, according to a report by the hybrid digital wealth management firm Personal Capital.
Parents in the Northeast estimated this figure would be significantly higher at $996,000. This compared with estimates of $667,000 by parents in the Midwest, $581,000 in the South and $579,000 in the West.
The report was based on the findings of an online study conducted by Engine early in the fourth quarter among 500 parents who had total household investable assets of $500,000 or more.
Higher education was a top priority for affluent families in the study. Seven in 10 respondents said they had paid or planned to pay for their child’s college, while only 36% said they had not or did not plan to spend anything to fund their child’s K–12 schooling.
Of those who said they had or planned to spend on their child’s grade school education, affluent parents in the Northeast cited a figure of $96,800, on average, versus $64,200 in the West and $57,400 in the Midwest.
“Affluent parents are trying to best prepare for their children’s futures by financing higher education, helping them get their first jobs and tackling important money conversations,” Michelle Brownstein, vice president of private client services at Personal Capital, said in a statement.
“Fortunately, these individuals are starting to cut the purse strings on their adult children to prioritize their own retirement saving and spending.”
Half of affluent parents reported that they had stopped or planned to stop supporting their children following college graduation. Before doing so, however, 39% said they had or would help their child get a first post-graduate job — which jumped to 86% for affluent millennial parents.
Even though many affluent parents in the study planned to stop supporting their children after college, 71% of respondents believed their child expected or would expect them to pay for big-ticket purchases, such as a car or a wedding.
In fact, 68% said they would pay significantly more for a wedding than what they believed their child expected, and 51% said the same about a car purchase.
At the same time, affluent parents remained focused on planning and preparing for their own retirement. Two-thirds said they would choose to spend their money on themselves in retirement rather than pass on an inheritance to their child.
Moreover, only 19% of affluent parents said they expected to have to change their retirement plans in order to support their children. Millennial parents were the exception, with 66% anticipating a need to make an adjustment.
As for education specifically, 54% of respondents prioritized saving for their own retirement versus their child’s education. Again, millennial parents bucked the trend, as 64% put their child’s college cost ahead of their own retirement.
Seventy-two percent of affluent parents said they expected their children to be as wealthy as or wealthier than themselves. To lay the groundwork for the future, 77% of respondents said they had discussed saving and investing with their children. They had also talked about these topics:
- Earning and working hard – 75%
- Budgeting and spending – 70%
- The family’s net worth – 38%
- Philanthropy and giving –36%
Such discussions, Personal Capital suggested, may be why 85% of affluent parents did not consider their child a risk to their own financial wellness, such as being overly financially dependent on them or irresponsible with money.
Nearly all affluent parents in the study said they planned to leave something for their children. Four in 10 planned to leave assets to their grandchildren, and a third planned to leave a bequest to charity.
Study participants reported using a variety of financial products to make their money work for them and to create a financial legacy for their children. Seventy-four percent said they were invested in the stock market. Eighty-six percent used checking accounts, and 76% Roth IRAs/IRAs. And although 72% said they had savings accounts, only 41% had a high-yield one.
“While affluent Americans are spreading their wealth across several different investment vehicles, they are not necessarily managing their cash properly,” Brownstein said. “Every person, regardless of wealth, should have a savings account for emergencies, and ideally those should be high-yield savings accounts so investors can earn on the cash they’re holding onto and achieve their long-term goals.”