By Maggie Ellis
It is widely taught in financial education that there are only two kinds of debt that can be considered “good debt”: A mortgage and student loans (as long as they aren’t beyond your ability to repay comfortably). We’re always taught that it’s okay to go into debt to buy a house or another piece of real estate like a rental property because real estate is an appreciating asset. Generally you’ll get more when you sell than you paid. Similarly, student loans are a way to ensure you get an education that will (hopefully) increase your earning potential over time. The loan is an investment that should be worth more over time than you pay initially. Almost every financial guru and expert preaches that to go into debt for any other reason is a bad idea.
So imagine my surprise the other day when, while listening to Dave Ramsey’s program, I heard him tell a caller that it would be okay to go into debt in order to have kids. The caller was trying desperately to have children but was having no success the natural way. So she was calling Dave to ask if it was okay to go deeply into debt to either adopt, go through fertility treatments, or pay for a surrogate.
No matter which road she chose she would be looking at anywhere from $10,000 on upwards to $100,000, depending on the method. She didn’t have this kind of money just lying around and health insurance wasn’t going to cover fertility treatments. She confessed that they already had a lot of debt, including about $30K in car loans and $20K in credit cards, plus student loans and a mortgage. Her proposed method of covering her child-getting expenses was through a combination of home equity loans, private loans, and credit cards. They have no emergency fund, no savings, only about $5K in retirement, and no other assets. She asked Dave if she should take on the extra debt to have kids. His answer was yes, his reasoning being that children are such a blessing that they are worth it at any cost.
Now, I know Dave comes from a certain religious perspective that believes children are gifts from God, blessings, worth all sacrifice, etc. And I can respect that, to a point. But taking religion out of the equation and sticking strictly to the numbers, I wondered if it was really such a good idea to go so deeply into debt to have children. I see more than a few problems with saying yes.
First of all, if someone like this caller already has a large debt load, going deeper into the hole to have kids is only going to cause more problems down the road. Much of their income is already going to debt payments. They would likely be strapped already to afford the things a baby needs and adding to that debt burden is only going to make it more difficult. What happens when the child gets sick and needs medical attention that isn’t fully covered by insurance? More debt. What about college? There can be no college savings if all of the income is eaten up by debt. What about necessities? Even buying things used is going to add up to quite a bit of money. How will all of that be paid for when there is so much debt? Daycare? That’s only going to add to the financial stress and if all the income is needed for debt payments, no one can stay home with the child, either. Barring a huge increase in income, I just don’t see how such a debt load can be comfortably managed, especially factoring in the needs of a child. I can only see this couple ending up in a much deeper hole than they started in.
Second, if the caller goes the fertility treatment route, what happens if she gets multiples? Multiples are statistically more likely with fertility treatments. With an already crushing debt load, all of the problems I mentioned above would be multiplied by two or even more. Even for someone with no debt multiples can be an overwhelming financial burden. Buying two or more of everything in a very short time frame is expensive.
As for the risks to the parents, what happens to their retirement? There can be little to no saving for retirement when trying to pay down these kinds of debts. What about the house? Taking out an equity loan to pay for having kids puts the house in danger. If the parents lose a job and can’t make the payments, both they and the kids are homeless. How can the parents scrape together an emergency fund (and with kids you’re going to need one) or put away any kind of savings for a rainy day? I just don’t see how it would be possible under those conditions.
I think in the case of this caller Dave was wrong to give them the okay to go deeper into debt to have kids. He should have told them to get aggressive and pay down all of their other debt first. Get a second job and sock it all away in an emergency fund. Then, if they still wanted to go into more debt for kids, maybe it would be better. At least they wouldn’t have such a crushing debt load and they might have some savings to work with.
What about going into debt to have kids if you have no other debt? Would that be acceptable? I think it depends. Yes, children are a blessing, but perhaps not worth risking your own financial future over. If you had no other debt and were very disciplined about saving, paying more than the minimums, and earning a high income, maybe you could do it and not damage yourself financially. If you could still manage the debt repayments and still afford the child(ren) and take care of your own financial needs like retirement savings and emergency funds, then maybe you could handle $30,000 -$100,000 in debt without too much trouble.
I think that if you already have a lot of debt, adding to it to have kids doesn’t help you and it doesn’t help the kid who will have to grow up in a household burdened by debt and money stress. One lost job and the house of cards will come down. Get your financial house in order before taking on debt to have children. Pay off your existing debts. If at all possible, save like crazy, sell stuff, and cut out all non-necessities to save for the treatments/adoption and pay cash. If you have no debt, maybe you can manage more comfortably, but you still don’t want to take on more than you can comfortably repay.
No matter what, take emotion out of the equation. It’s very easy to get caught up in baby lust, envy of friends who have kids, and wannabe grandparents who are pressuring you. It’s easy to get to a place where you think you have to have kids or die. Sit down and take a cold look at the numbers before jumping into that kind of debt in order to have kids. You wouldn’t take on a large financial commitment like a house without thinking through the numbers; kids shouldn’t be any different. You don’t want to have kids only to end up being unable to give them much of a life. And you don’t want to jeopardize your home, retirement savings, and needs in order to have kids, either. Kids are great, but expensive. Piling on thousands of dollars in debt before the kid even arrives only adds to the financial difficulties.