Tom Sedoric and Casey Snyder

A decade or two ago it would have been inconceivable for Americans to consider their family size as an economic decision. Even bringing it up now seems slightly un-American. No matter what the family size was during the unprecedented post-World War II economic boom, it felt that standards of living would continue to rise and rise. For many, that model has now been reduced to a nostalgic mirage.

We primarily think of the 2008 market bust in economic terms, and rightfully so given the shock to the world economy. We also believe there are subtle, understated, and little understood fault lines that are reshaping our economy. Just last month we expressed concern about bubbling intergenerational conflicts (mainly boomers versus millennials) and changed financial expectations for the future. 

Yet the issue of demographics is often lost in the shuffle. We believe a profound change is underway, a social shifting of tectonic plates if you like, and that changing demographics could ignite significant consequences in the coming decades. The shape, size, and timing of the American family is changing dramatically. 

Consider this example that is becoming a frequent illustration of the shifting sands. A recent college graduate returns home burdened by undergraduate student loan debt (an estimated 70 percent of students leave school with an average debt of $30,100; that amount is rising by four percent every year according to a 2016 study by the Institute of College Access and Success). They can’t find a good-paying or career-track job right away. They find it hard to bolster a good credit score and can’t afford to move away from home. How will they pay off the debt they thought was needed to secure a career? What will their attitude be about the enormous cost of having and raising children? Their approach to family size and timing is likely to be one that is more cautious and thoughtful than previous generations. 

We have first-hand knowledge of this as Casey welcomed his first child at age 35 and at age 43 Tom added his daughter to his blended family.

A recent story in the Boston Globe about a life fair for high school juniors in Boxford, Mass. was a financial literacy reality check for those students who paid attention. While many yearned for college or careers that would allow them to buy a fancy car, they had the opportunity to learn just how much that car will end up costing. Many students were also given insight into how their car payments would be part of a long list of other expenses in the form of rent, utility bills, student loan debt, food, clothing, and the other costs of normal living. 

We don’t like to consider the substantial costs of child raising any more than we do with our pets who give us joy. But if more people don’t consider the actual costs of having children within the context of their other needs and priorities, they risk becoming victims of an economic trap. In its 55th annual report on “The Cost of Raising a Child”, the U. S. Department of Agriculture estimates that a middle class, married couple will spend $233,610 to raise a child born in 2015 to age 17. The cost can amount to about $13,900 annually and was an increase of three percent from the previous year’s report with housing and food taking up almost half of the total costs. The report classifies middle-class families as having a before-tax income of $59,200 to $107,000. Families with lower incomes are expected to spend $174,690, while families with higher incomes will likely spend $372,210 per child which often includes private schools and expanded child care services. 

Like the Massachusetts high school students, coming face to face with the costs of raising a child is important, and more and more young adults seem to be accounting for these realities. A recent study by the Centers of Disease Control and Prevention showed for the first time that more mothers were giving birth in their early 30s than in their late 20s. We can’t know for sure but social trends like these rarely happen in a vacuum. 

This may seem all theoretical but let us explain why it will matter. We only need to look at Communist China and its strict one-child policy enacted in 1979 (through 2015) to confront their country’s explosive population growth. While China’s harsh dictate did succeed in limiting population growth, it has also left the country vulnerable to not having enough young people to work and to contribute to its society in the decades ahead. 

Despite the lack of governmental policy, a similar trend could inadvertently happen in the U. S. Fewer children mean fewer future workers paying taxes and contributing to the economic growth of the country. This means fewer tax dollars for retiree programs, and older workers who have failed to adequately prepare for retirement, will need to work longer. A shrunken labor market may eventually lead to wage pressure after decades of flat wage growth and inflation may finally make an appearance. 

Few joys rival those of being a parent – we just want to make sure families account for the emerging demographic realities in the context of long-term financial, family, and life planning. In this case, it may even pay to think ahead.

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and D. Casey Snyder, CFP® - Partner, Senior Vice President and Wealth Manager and are not necessarily those of Raymond James. Steward Partners Global Advisory LLC and The Sedoric Group maintain a separate professional business relationship with, and our registered professionals offer securities through, Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Steward Partners Investment Advisory LLC. 2985754