The dispensing of advice is a paternal tradition: Dads pretty universally like to stick their two cents in. So, in honor of Father's Day, Alison Southwick and Robert Brokamp are dedicating an episode of Motley Fool Answers to giving some back, with money tips for men at three different stages of their parenting careers.
In this segment, it's advice for fathers of teens. The average father of a child that age is in the 45- to 54-year-old range himself, and at the peak of his income-making arc, but possibly at the nadir of a different arc, which the Fools will discuss. And what issues should these dads be getting sorted? First, don't wait to prepare for the trauma that is the college tuition bill -- there's more to this than just saving money. Second, brace yourself for the impact of a teen driver on your car insurance -- and look into ways to cushion the blow. Third, make their first job a learning opportunity. And finally, get yourself a retirement plan checkup.
A full transcript follows the video.
This video was recorded on June 12, 2018.
Alison Southwick: Let's move on to the next phase of dadness, and that is teenager.
Robert Brokamp: The father of teenagers.
Southwick: This is a fun time for them.
Brokamp: [laughs] Oh, it is.
Southwick: A very fun time.
Brokamp: Let me tell you, as a father of three teenagers. The typical dad of teenagers is at the height of his money-making powers. Income peaks between the ages of 45 and 54. The median income for such men is $59,800. But, if you have a college degree, a post-graduate degree, you're making 25-50% even more than that. So, you are at the height of your income.
According to studies by both Fidelity and T. Rowe Price, people in the mid to late 40s should have about four to six times their household income already saved for retirement. Unfortunately, the average person that age seems to be a little bit behind. According to the Federal Reserve, the median net worth of households led by folks in that 45-54 age range, their net worth was just $124,000 in 2016. 2017 was a good year for the stock market, so hopefully it's gone up a little bit, but a lot of people are behind.
If you're in your mid-40s or late 40s and you're feeling a little beaten down by life, know that you're not alone. Several studies have found that lifetime happiness is actually U-shaped. When we're kids, we're pretty happy. Then, it begins to decline in early adulthood, reaching its low point at about 46. This is a global phenomenon, by the way. In some countries, it's a little earlier, like Sweden. In some countries, it's later, like the Ukraine. But, globally, people in their mid-40s are reaching the low point in their lives in terms of happiness.
Southwick: Really?! I've yelled at you guys to watch this, probably, did you ever watch Up documentary series?
Engdahl: It's about the kids who were tracked as they were young and they're older now?
Southwick: Yeah! It's this series that was started way back in the 60s, where every seven years, they check in on this group of a dozen British kids to see how they are going in life. And, as you watch it, at least on camera, peak not-happiness is at, like, 14 and 21.
Brokamp: Oh, really?
Southwick: Right around there, they don't want to look at the camera, they're annoyed. And then, right around in the 30s, then they're actually really happy, because they're married and their life has evened out. But, you're telling me that, no, the worst is ahead?
Brokamp: The worst is ahead, on average. You're above-average, Alison. Let's make that clear.
Southwick: Thank you. [laughs]
Brokamp: But the good news for the teen dad is, it just goes uphill from here! Generally speaking, 70 year olds are actually just as happy as 30 year olds. Generally speaking. That's good.
The other good news is that while you have some financial hurdles ahead of you, at some point, the kids are going to be out of the house, college is going to be paid for, and you're going to have a lot of disposable income. According to a study from the Center for Retirement Research from Boston College, they found that a theoretical couple with two kids, once those kids are out of the house, that couple could afford to save an additional 12% toward their retirement.
Southwick: And should!
Brokamp: And should! So, for those of you who are behind, just know that that opportunity is coming down the road. But, until that day, here are your top few financial priorities.
No. 1, begin preparing for college. In our April 10th episode, we discussed paying for college with Brock and Tim from the thecollegefundingcoach.org. As we explained then, you don't want to wait until they're juniors and seniors in high school to begin preparing for that. You need to start thinking about it in 8th grade, freshman year, arranging your finances for financial aid, and start thinking about, how much do we have, what can we afford, what kinds of schools do we want to limit it to. You don't want your kids going after all the private Ivy Leagues, and then you find out that you actually can't afford those.
No. 2, protect yourself from your teenage driver. Expect that your auto insurance is going to double once you get a teenage driver.
Southwick: Does it then triple if you have two teenage drivers in the house?
Brokamp: I suppose it does. I'll find out here in another year, as my 16 year old, she has her permit. By the way, generally speaking, you don't have to get more insurance once they get the permit. But once they're licensed, you have to put them on the policy. So, be prepared for that.
Talk to your insurer about discounts. There are grades, there are different things now. They can track the car and track the speed that the kid is driving to make sure that they're obeying the laws. Another thing you want to do is get a bigger umbrella liability policy. You have one of these already with your homeowner's insurance and renter's insurance. The basic coverage is just $100,000, sometimes $250,000. You want to move that up to at least a million dollars. I've been saying that for years, but it wasn't until my son started driving that I finally did it. [laughs] And it'll cost you another $250-300 a year to do it, but it's worth it. And just know that, once the kid moves away to college, you still have to cover him or her, but you can adjust the coverage. Once they do move out of the house, you should call the insurance company and say, "They're no longer a primary driver in the car. What can we do about that?"
No. 3, make your kid's first job a learning opportunity. This is when kids start working at McDonald's, or in my son's case, as a lifeguard. This is the first time that you can talk to them about a work ethic. I remember, when I was a teenager, I cut lawns in the neighborhood. I made a little flyer, handed it out to everyone in the neighborhood. I misspelled maintenance. But I still got plenty of people calling me, asking me to do odd jobs, or I had a few steady, weekly mowing jobs. And my dad sat me down and said, "This is what you do, you go there and you don't just do that job. If you see that their garbage cans need to be brought in, you bring those in. If it looks like they need some weeding done, you do that. You do more than what's expected of you." Kids start getting their paychecks, they're going to see taxes being taken out, so it's a great opportunity to start talking about taxes. Then, once they've earned income, you can open up an IRA, like we did for our son. So, you can then start talking about saving for retirement and investing.
Then, finally, as you may guess, I'm going to say that you should get a thorough retirement checkup. You are now, at this point, within 15-20 years of retirement, definitely on the other side of your career. If you're not on top of these things yourself, you want to get professional help. Even if you are a do-it-yourselfer, I think there's value to getting that second opinion. As we've said before, we're big fans of fee-only advisors. You can find one at the Garrett Planning Network, at NAPFA, the National Association of Personal Financial Advisors, as well as our sister company here at Motley Fool Wealth Management. Just get some objective help to make sure that you're on the right track.