Yahoo Finance The Costs and Benefits of the Blended Family
When Carrie Smith was growing up with her stepmother, stepbrother and four younger siblings, her parents took care to treat each child equally. They paid for each one to participate in sports and music and handed out allowances. Each child was also offered matching funds to go toward whatever savings they had for a first car purchase.
"We were treated relatively the same and had to work hard and save up for what we wanted," recalls Smith, founder of the financial website CarefulCents.com. That sense of fairness, and the fact that her father initiated frequent conversations about spending habits and saving, helped her absorb important financial literacy lessons early and keep the family finances on track.
Blended families like Smith's often face extra hurdles when it comes to managing their money, according to recently released data from Allianz's LoveFamilyMoney survey, which included more than 4,500 respondents. More than half of blended families, defined as parents who are married or living together with a stepchild or child from a previous relationship, say they are living paycheck to paycheck, compared to just 41 percent of traditional families, defined as a couple with at least one child at home.
Blended families reported having an average $158,600 in savings and investable assets, compared to $264,300 for traditional families. In addition, 30 percent of blended families listed not saving enough as one of their "worst financial habits," compared to just 20 percent of traditional families.
Families that bring together children from previous relationships often face financial baggage, in the form of prior debt or fairness struggles. For example, contributions from a grandparent or an ex might mean one child in the family has more money saved for college. Or one child might have an expensive hobby, like hockey. "You have to be careful and fair and have open conversations with your kid," says Katie Libbe, vice president of consumer insights for Allianz Life.
Even though the Allianz research showed that traditional families were better off financially than other family scenarios, including single-parent families and boomerang families where an adult child moves back home, Libbe says the message is not that people should try their hardest to build traditional families. "That's pretty unrealistic. Traditional families only make up 20 percent of the population," she notes.
Instead, the takeaway is that families of all kinds can do more to create financial security by thinking through their saving and spending patterns. For example, one common challenge is balancing the desire to create meaningful family memories together, like taking a big vacation, with the desire to save for long-term goals, like retirement. "Blended families can get into the situation where they might feel like they have to spend money to really try to bond that family together, but it can be done in ways that don't involve going to Hawaii or Disney World," Libbe says.
Retirement savings should be prioritized, Libbe adds. The Allianz survey found that 1 in 3 respondents in blended families blamed a "lack of adequate financial support" from an ex for hampering the ability to save for retirement. Also, fewer than half of blended families said they are on track to meet their financial goals, compared to 60 percent of traditional families.
Blended families have also often experienced unexpected events, such as divorce, death or unplanned pregnancies that led to their current family situations, and those kinds of events can create financial strain and drain resources. Planning, especially with the assistanceof experienced financial professionals who have dealt with these scenarios before, can help, Libbe says.
College savings is a particularly tricky area, and Libbe urges parents to pursue a plan that's fair for all kids. "Every child might know that you can contribute up to maybe in-state tuition; if they go out of state, they will have to fund the rest. Then it becomes a structure everyone can follow," she says.
That's exactly the approach Smith's family took. Just as with each child's first car, her parents offered to match whatever college savings their kids put away. "They would help provide for our daily living expenses and college tuition, but we had to support ourselves as a student with a part-time job," Smith says. With that matching program in place, Smith continued her education, eventually becoming a tax professional and financial blogger, and today often writes about many of those early financial lessons her family imparted.
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