Moms and Money

Add this to the list of praises heaped on moms this Mother's Day: Mothers are more influential than fathers in teaching Americans how to manage their money. In a survey conducted for Ameriprise Financial, 50% of those responding said their mother had more influence in teaching money management skills, compared with 38% who said it was their father.

Further, about 70% of those interviewed said that Mom was a good financial role model. More than half characterized their mother as a saver, while 24% viewed her as a spender.

Those results square with other surveys on the role mothers play in managing family finances. By margins of 60%-plus, women tend to be the ones who pay the family bills and balance the checkbook. Because they carry so much financial clout, women shouldn't hesitate to take on a leading role in providing for their family's security.

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Deep in the heart of every married woman lurks the fear that her husband will die prematurely, leaving her and the children in desperate financial straits. Yet women are often reluctant to talk about their fears, perhaps because they worry that just saying the words will make them a reality. Sometimes women simply assume that their husbands have taken care of things.

But no one is born knowing how much life insurance to buy or how to set up a retirement plan for a stay-at-home mom. That's knowledge that either spouse can acquire. Much as you may love your husband, being money-smart means never depending on him alone to plan for your future or your family's -- especially because you're statistically more likely to be the survivor.

Top priority. Start by buying enough life insurance. Once you have children, life insurance becomes a family priority because your kids would suffer financially if you weren't around to provide for them. Women are particularly vulnerable if they are stay-at-home mothers who are dependent on their husbands' income. But even working moms could be at a serious financial disadvantage if they were left to bring up a family alone.

As a rough rule of thumb, figure that insurance coverage should equal eight to ten times your total household income, including any coverage you have through your employer. (For a more precise estimate, use our insurance calculator.)

Although women are most often the ones who benefit from life insurance, don't underestimate your own importance and value -- financial and otherwise -- in supporting your family. If you have a paying job outside the home, add together both your income and your spouse's to figure your total need for coverage, and divide it proportionately between individual policies on each spouse.

Even if you are a stay-at-home parent, your loss could be a financial blow to your family. Salary.com estimates that if the typical stay-at-home mom were paid for her work as a housekeeper, cook and psychologist, among other roles, she'd earn more than $138,000 a year. And a mother who works outside the home would earn an additional $86,000 for her at-home work.

To keep things both simple and inexpensive, buy term life insurance. Premiums have been dropping so precipitously that you can buy several hundred thousand dollars' worth of coverage for just a few hundred dollars per year. To price policies, go to Insure.com or AccuQuote.

Recalculate your life insurance needs at various points in your life. You may need more coverage, for example, if you have another child. On the other hand, once your children finish college and are less dependent on your income, you may need less insurance -- or none at all.

Retirement for stay-at-home moms. For women, one of the great features of an individual retirement account is that you can have one even if you don't have a paying job, as long as your husband is employed. In 2007, he can contribute up to $4,000 of his compensation ($5,000 if you're 50 or older) to an account for you, in addition to putting $4,000 in his own IRA. You can open either a traditional IRA, or, if you meet income requirements, a Roth IRA.

Not only does this give stay-at-home mothers their own retirement stash that they can invest and control, but it also doubles the tax breaks and savings power available to you as a couple.

Write a will. Three words: Anna Nicole Smith. The former Playboy centerfold and show business personality had drafted a will in 2001, leaving her property in trust for her son, Daniel. But Daniel died before his mother, who died in February of a drug overdose, and that caused the will to lapse. When Smith died, state intestacy law made her infant daughter, Dannielynn, the sole heir -- and put Dannielynn's upbringing and her assets at the disposal of state law and the courts. (For more on what we can all learn from Smith's messy state of affairs, see Five Ways to Avoid the Anna Nicole Estate Drama.)

In the absence of a will (intestate, in legal-speak), your state's one-size-fits-all estate plan kicks in, and it may not be tailored to your needs or your children's. For example, as the surviving spouse, you may get only a fraction of your husband's assets, with the rest going to your children. If you and your spouse both die, the state decides who will raise your kids.

With a will, you call all these shots. You can divide your property just about any way you like and design creative trusts for your children that distribute money at specified ages, for example, or tie assets to specific purposes, such as paying for college. Review your will after the birth of each child.

Choose a guardian. Think of a will as a way to protect your most precious assets -- your children -- if something should happen to you and your husband while the kids are still minors.

Parents are often tempted to rely on informal guardianship arrangements: "My sister has agreed to take care of our children if we aren't around." But an informal arrangement doesn't have the legal standing of a formal guardianship.

And if both you and your husband should die without having formally named a guardian, the courts will decide who's going to bring up your kids. It's possible that a judge could choose the one relative you wouldn't want.

Worse, a family battle could ensue, and the cost of a court fight would come out of your estate -- that is, your kids' pockets. You can avoid all of these hassles by naming a guardian in your will.

Who gets what? Just as important as setting up a will is reviewing the beneficiary designations on insurance policies, pension and profit-sharing plans, IRAs, 401(k)s and other retirement plans. These assets go to whomever you've named as beneficiaries; they're not covered by your will. So the designated beneficiary will always trump someone you've named in your will.

If you fail to update beneficiaries, you could find yourself in the position of Caroline, who was unexpectedly widowed at the age of 32. Before Caroline and her husband met, he had named his mother as the beneficiary of his retirement account and had never bothered to update the papers after he married. When he died, there was nothing Caroline could do to get access to that money for herself and her young daughter.

That's why it's important to talk to your husband about what arrangements both of you should make in the event of his death, or yours. If he's reluctant, try bringing up the subject in a roundabout way by mentioning someone else you may have heard or read about who was left in a difficult situation. Tell him you know he'd never want anything like that to happen to you and the kids.

Husbands sometimes go to the other extreme, making plans in the event of their death but neglecting to fill in their wives -- possibly as a way of trying to protect them. But you don't want to be left in the dark about any arrangements your husband has made. Be informed, not ignored.

Adapted from Kiplinger's Money Smart Women (Kaplan, $15.95), by Janet Bodnar, deputy editor of Kiplinger's Personal Finance magazine. Available at a 40% discount through the Kiplinger store.

"Other books, like Kiplinger's Money Smart Women by Janet Bodnar, avoid the patronizing finger wagging and stick to giving advice that women can really use -- like explaining when you can tap your Roth IRA to help with a down payment on your first house. You'll save so much money, you may decide to treat yourself to a latte. After all, you've earned it." -- Time magazine, April 16, 2007