I understand that two adults living under the same roof does not cause the consumption rate to instantly double. The monthly cost for utilities will increase slightly, but some payments will remain the same like rent and retirement contributions. In the article, children are assumed to consume 70% of an adult's rate of consumption which I feel is inaccurate. I would increase the consumption rate of the child because a child requires considerably more than a typical adult in early years. Before determining life insurance premiums, I would first designate a budget for the child that maximizes my living standard and decreases every year until the child is 19. Also, if the parents are interested in planning for Frito's college they should open a 529 plan and start investing into that account. In my opinion, the life insurance policy is for the wife in this scenario, because if John were to unexpectedly pass, she would have the means to continue her life and support her child while retaining the same living standard. If the wife were to pass, John's income would make up the difference and still be able to support the child.
I was shocked to see that the difference between having and not having life insurance for the Madigan's was not more drastic. Especially as they add another member to the family with their child, Frito. I was surprised that the most drastic change would be in their discretionary spending. Being one of three kids, I was aware that having a child is very expensive but did not expect kids to consume at a rate that is 70% of an adult. It makes so much sense thinking about it now, but it was definitely something I was blind to and found very interesting. In the same way that the discretionary spending was sensitive to the addition of a child, I expected life insurance to be the same way. You hear so much about the importance of having other kinds of insurance as an adult, and life insurance seems like it would be one that would make the biggest difference to have, but the changes were minimal for the Madigan's. This is very helpful to learn about, and I would love to read more about the Madigan's as they expand their family to learn more on these topics.
Prior to reading this article I was unaware of how far in advance parents need to plan for their children, specifically considering your child’s college plans before they are even born. Something I am curious about is the changes in living standard depending on how many children you have.
After reviewing the article and considering all of the alternate plans and subsequent outcomes I was very interested in the minor discrepancy between the alternate plans. If I had to guess I would have thought that the change in life insurance would have been rather significant when factoring in a child. Additionally, I am curious to see what the effect of John and Kelsey getting life insurance ten years earlier would have on their standard of living. If both individuals were 30 years old and began a life insurance plan how would their standard of living been affected. Would this be the most advantageous use of their money or would investing it in alternative assets be more lucrative? Another aspect I become curious about is the return that Frito would have to his parents. Although phrasing it as a return on your investment, when looking at the pure output of capital when raising a child, it prompts the question of how Frito might help John and Kelsey later in life. The importance of life insurance is highlighted throughout the passage and it makes one consider what their future plan might look like depending on their living scenario.
One question that arose when reviewing this scenario was the notion that Frito's parents pay less in life insurance if they have a child due to lower living standards, combined with the expectation that Frito's parents will pay for Frito's education in college. If Frito were to receive a scholarship, or perhaps choose not to attend university after high school, would this effectively re-raise the cost of life insurance for Frito's parents, given that they will now have a higher living standard since they no longer have to pay for his education? How would a factor like this be considered in the scope of life insurance?
I understand that the Madigan’s decreased living standard with frito accounts for the lack of increased life insurance. This makes me wonder how much households with multiple kids adjust their life insurance policies as their living standards adjust with their children. It’s counter intuitive to think that you would potentially need less life insurance with more mouths to feed. I also found it interesting that even if Frito were to be supported 3 years longer, need for life insurance would only increase slightly. I suppose this can be due to decreased living standard that comes with saving $100,000.
While I figured the Madigan's discretionary spending was going to drop after the birth of Frito, I was surprised to see how much it dropped. I was not expecting a $6000 drop in optimal discretionary spending. This drop in discretionary spending, coupled with the fact that children consume at a rate of 70% of an adult is fascinating. I was, however, surprised to see the life insurance didn't change. I expected the life insurance to rise a lot more than it did due to the birth of Frito. Deciding on children is a big choice for all couples, and this post does a great job applying what would occur in the real world if they choose on having children.
I found it rather interesting that the Madigans' life insurance needs did not change too drastically when making the decision that they were going to support Frito through college. It does make sense however, that the impact is not as significant in comparison to the span of their lifetime and overall consumption. In addition, I was not aware that children typically consumed at about 70 percent of the level as adults, this really demonstrates the need for couples to save accordingly and adjust their living standard and future plans.
I understand that two adults living under the same roof does not cause the consumption rate to instantly double. The monthly cost for utilities will increase slightly, but some payments will remain the same like rent and retirement contributions. In the article, children are assumed to consume 70% of an adult's rate of consumption which I feel is inaccurate. I would increase the consumption rate of the child because a child requires considerably more than a typical adult in early years. Before determining life insurance premiums, I would first designate a budget for the child that maximizes my living standard and decreases every year until the child is 19. Also, if the parents are interested in planning for Frito's college they should open a 529 plan and start investing into that account. In my opinion, the life insurance policy is for the wife in this scenario, because if John were to unexpectedly pass, she would have the means to continue her life and support her child while retaining the same living standard. If the wife were to pass, John's income would make up the difference and still be able to support the child.
I was shocked to see that the difference between having and not having life insurance for the Madigan's was not more drastic. Especially as they add another member to the family with their child, Frito. I was surprised that the most drastic change would be in their discretionary spending. Being one of three kids, I was aware that having a child is very expensive but did not expect kids to consume at a rate that is 70% of an adult. It makes so much sense thinking about it now, but it was definitely something I was blind to and found very interesting. In the same way that the discretionary spending was sensitive to the addition of a child, I expected life insurance to be the same way. You hear so much about the importance of having other kinds of insurance as an adult, and life insurance seems like it would be one that would make the biggest difference to have, but the changes were minimal for the Madigan's. This is very helpful to learn about, and I would love to read more about the Madigan's as they expand their family to learn more on these topics.
Prior to reading this article I was unaware of how far in advance parents need to plan for their children, specifically considering your child’s college plans before they are even born. Something I am curious about is the changes in living standard depending on how many children you have.
After reviewing the article and considering all of the alternate plans and subsequent outcomes I was very interested in the minor discrepancy between the alternate plans. If I had to guess I would have thought that the change in life insurance would have been rather significant when factoring in a child. Additionally, I am curious to see what the effect of John and Kelsey getting life insurance ten years earlier would have on their standard of living. If both individuals were 30 years old and began a life insurance plan how would their standard of living been affected. Would this be the most advantageous use of their money or would investing it in alternative assets be more lucrative? Another aspect I become curious about is the return that Frito would have to his parents. Although phrasing it as a return on your investment, when looking at the pure output of capital when raising a child, it prompts the question of how Frito might help John and Kelsey later in life. The importance of life insurance is highlighted throughout the passage and it makes one consider what their future plan might look like depending on their living scenario.
One question that arose when reviewing this scenario was the notion that Frito's parents pay less in life insurance if they have a child due to lower living standards, combined with the expectation that Frito's parents will pay for Frito's education in college. If Frito were to receive a scholarship, or perhaps choose not to attend university after high school, would this effectively re-raise the cost of life insurance for Frito's parents, given that they will now have a higher living standard since they no longer have to pay for his education? How would a factor like this be considered in the scope of life insurance?
I understand that the Madigan’s decreased living standard with frito accounts for the lack of increased life insurance. This makes me wonder how much households with multiple kids adjust their life insurance policies as their living standards adjust with their children. It’s counter intuitive to think that you would potentially need less life insurance with more mouths to feed. I also found it interesting that even if Frito were to be supported 3 years longer, need for life insurance would only increase slightly. I suppose this can be due to decreased living standard that comes with saving $100,000.
While I figured the Madigan's discretionary spending was going to drop after the birth of Frito, I was surprised to see how much it dropped. I was not expecting a $6000 drop in optimal discretionary spending. This drop in discretionary spending, coupled with the fact that children consume at a rate of 70% of an adult is fascinating. I was, however, surprised to see the life insurance didn't change. I expected the life insurance to rise a lot more than it did due to the birth of Frito. Deciding on children is a big choice for all couples, and this post does a great job applying what would occur in the real world if they choose on having children.
I found it rather interesting that the Madigans' life insurance needs did not change too drastically when making the decision that they were going to support Frito through college. It does make sense however, that the impact is not as significant in comparison to the span of their lifetime and overall consumption. In addition, I was not aware that children typically consumed at about 70 percent of the level as adults, this really demonstrates the need for couples to save accordingly and adjust their living standard and future plans.