What are common "scams" or bad financial deals targeting new parents?
September 1, 2017 11:56 AM Subscribe
I've been going to baby shows and get ads for things like cord/stem cell banking and life insurance for the baby. Do babies need life insurance?? What are things to steer clear of as new parents?
Life insurance is generally intended to replace the income earned by one who has passed away. Babies and kids don't earn income. So why would anyone get life insurance for a baby? Is it just a fee-earner for the insurance company that gives you worse returns than a good mutual fund? What about education 529 plans? Why use that instead of just a low-fee index mutual fund?
Life insurance is generally intended to replace the income earned by one who has passed away. Babies and kids don't earn income. So why would anyone get life insurance for a baby? Is it just a fee-earner for the insurance company that gives you worse returns than a good mutual fund? What about education 529 plans? Why use that instead of just a low-fee index mutual fund?
I think they advertise life insurance to new parents "for babies" not so that you would buy an insurance policy to financially compensate you for the lost life your child but for parents to purchase coverage for themselves to provide for the financial needs of their children should they themselves be injured or die.
529 plans work by allowing you to use the income generated by (post-tax) investments to pay for education tax free. Its like a Roth IRA but for tuition, not retirement.
posted by Exceptional_Hubris at 12:09 PM on September 1, 2017 [3 favorites]
529 plans work by allowing you to use the income generated by (post-tax) investments to pay for education tax free. Its like a Roth IRA but for tuition, not retirement.
posted by Exceptional_Hubris at 12:09 PM on September 1, 2017 [3 favorites]
The insurance policies are probably the very confusing "whole life" investment type of insurance. (My grandparents bought me one, I have no idea if it will be meaningful at all financially when I'm older.) It's not a scam, it's just not what most financial advisors are recommending anymore.
posted by Lyn Never at 12:22 PM on September 1, 2017
posted by Lyn Never at 12:22 PM on September 1, 2017
Actually I think baby life insurance has a relatively low payout - I believe it is designed to cover just funeral expenses.i figure all insurance is designed to make money for the insurer - unless it is the kind of expense where I am willing to pay extra (a lot of extra) that i never see again to avoid the risk of the low probability/ high payout expense, I don't do it.
529 is nice because the money gets to grow tax free and if it is used for college you never have to pay taxes on the earnings. There also some exceptions that allow you to withdraw on paying a penalty so it is not completely locked up. It is a good vehicle for family members to make a donation - kind of like buying savings bonds for a child but more flexible and better earnings. So, grandparents are more likely to put money into a 529 account for the kid than into your general mutual fund account.
posted by metahawk at 12:23 PM on September 1, 2017
529 is nice because the money gets to grow tax free and if it is used for college you never have to pay taxes on the earnings. There also some exceptions that allow you to withdraw on paying a penalty so it is not completely locked up. It is a good vehicle for family members to make a donation - kind of like buying savings bonds for a child but more flexible and better earnings. So, grandparents are more likely to put money into a 529 account for the kid than into your general mutual fund account.
posted by metahawk at 12:23 PM on September 1, 2017
Should have done my research: Here is a classic baby life insurance. You can get payouts up to $50k - so more than just the funeral. It is a whole life plan - you can google that for a fuller discussion but I think the general advice re: whole vs term is to pay for term and invest the rest to create your own cash value.
posted by metahawk at 12:26 PM on September 1, 2017 [1 favorite]
posted by metahawk at 12:26 PM on September 1, 2017 [1 favorite]
Life insurance for children is a complete scam that preys on the emotions and ignorance of new parents. Babies don't earn money, so they don't need insurance. If you want to save for your child, there are many far superior methods.
529 plans are a useful savings tax break . (However, the program's social value is unclear. They primarily benefit the rich and do not seem to increase overall savings.)
In general, I think the stuff to steer clear of is most baby stuff sold at baby shows (or baby stores). Before you have a kid, get as little baby gear (stroller, car seat, crib, etc.) as you can. Then if needs arise, get stuff to address that need. For example, we got a wipes warmer because a parent said their infant screamed unless they warmed the wipes. Turns out most kids don't care; we never used it.
Do get more baby washcloths than you think you'll ever need. They are all messy.
posted by Mr.Know-it-some at 12:31 PM on September 1, 2017 [7 favorites]
529 plans are a useful savings tax break . (However, the program's social value is unclear. They primarily benefit the rich and do not seem to increase overall savings.)
In general, I think the stuff to steer clear of is most baby stuff sold at baby shows (or baby stores). Before you have a kid, get as little baby gear (stroller, car seat, crib, etc.) as you can. Then if needs arise, get stuff to address that need. For example, we got a wipes warmer because a parent said their infant screamed unless they warmed the wipes. Turns out most kids don't care; we never used it.
Do get more baby washcloths than you think you'll ever need. They are all messy.
posted by Mr.Know-it-some at 12:31 PM on September 1, 2017 [7 favorites]
My parents got me life insurance when I was a baby and I still have it. The interest pays for the insurance now, so it's nice to have and not worry about. Also, I don't have to buy one now as an adult. Not sure about what you are being advertised, but I think there are reasonable reasons to get insurance for your baby that aren't just about death. Also, I think I could borrow against it - but I don't know much about that, so don't quote me!
posted by Toddles at 12:31 PM on September 1, 2017 [1 favorite]
posted by Toddles at 12:31 PM on September 1, 2017 [1 favorite]
My parents got me life insurance as a child, and I was able to borrow against it. I bought life insurance for my babies because I would not otherwise have been able to afford to bury them if they died. Also, if your child later develops a serious medical condition, he/she will not be able to buy life insurance. You can automatically upgrade life insurance bought for babies when they're adults no matter what their health situation is. So it's not really a scam. It's a bad idea to buy as an investment though, which is sometimes how they sell it.
posted by FencingGal at 2:20 PM on September 1, 2017 [1 favorite]
posted by FencingGal at 2:20 PM on September 1, 2017 [1 favorite]
The big scam that hits everyone is the idea is that babies need a lot of stuff.
You need A LOT less than what the baby goods industry thinks you do. You need a car seat and a way to carry the baby like a carrier or a stroller. You need diapers. You probably need a blanket good for swaddling. After a couple weeks old you will start to introduce a few interesting sensory toys. Then add love, care, time. That's about it for a while.
You do not need a special decorated room, or a changing table, a diaper genie, big letters on the wall, video cameras, remote walkie talkies, fancy mobiles, baby vibrators, or baby swings. If you cosleep you don't even need a crib. You don't need a new Honda Odyssey or SUV for your first child. If you don't have too much stuff you can have a smaller house which will be cheaper.
posted by friendofstone at 4:02 PM on September 1, 2017 [8 favorites]
You need A LOT less than what the baby goods industry thinks you do. You need a car seat and a way to carry the baby like a carrier or a stroller. You need diapers. You probably need a blanket good for swaddling. After a couple weeks old you will start to introduce a few interesting sensory toys. Then add love, care, time. That's about it for a while.
You do not need a special decorated room, or a changing table, a diaper genie, big letters on the wall, video cameras, remote walkie talkies, fancy mobiles, baby vibrators, or baby swings. If you cosleep you don't even need a crib. You don't need a new Honda Odyssey or SUV for your first child. If you don't have too much stuff you can have a smaller house which will be cheaper.
posted by friendofstone at 4:02 PM on September 1, 2017 [8 favorites]
Don't pay for private cord blood banking; instead see if there is a public bank.
posted by SyraCarol at 6:01 PM on September 1, 2017 [2 favorites]
posted by SyraCarol at 6:01 PM on September 1, 2017 [2 favorites]
Life insurance for babies dates back to when babies died quite frequently, and were marketed to very poor parents (tenement poor), who for a penny or two a month, would receive a sum adequate to bury their child decently if he or she died very young. Parents these days don't really have a need for it. Even back then it was something of a scam that made money for insurance companies (because they could cancel the policy and keep the money if the penny payment was missed), but then it actually provided a service that might otherwise be inaccessible to very poor parents with no access to other financial products (because banks were for the rich, not the retail customer). It's kind-of interesting when you run across it in an old novel, but there's not much point to it now.
Education 529 plans can be good -- you get a slightly better rate of return due to the tax deferral, in exchange for locking up the money for limited uses. You need to research their potential uses (in-state public colleges only? any college?), associated fees (can be quite low or quite high), available funds (good or bad), and so on.
I have an old roommate who works with cord blood and she says exactly what SyraCarol's link says: "parents should know that a child's own cord blood (stored at birth), would rarely be suitable for a transplant today. It could not be used at present to treat genetic diseases, for example, because the cord blood stem cells carry the same affected genes and. if transplanted, would confer the same condition to the recipient." Almost nothing they treat with cord blood can be treated with the baby's own cord blood because it's got the same genetic problems as the baby, and can only rarely be used to treat others in the family (same reason). But putting it in a private bank prevents it from helping other babies, while costing the parents a shit-ton of money to bank something they can't use. Publicly bank it -- the more people who use public banks, the more likely ALL families are to find a match. Plus it doesn't cost you storage fees for years and years!
A lot of crib bedding sets include soft bumpers and comforters that are not safe for babies. (We did use our soft bumper later on, with a bigger baby who was in a drafty room, but then it was for draft-blocking, not crib-bumpering.) The bumpers and comforters make the sets expensive so they don't want to get rid of those parts!
Baby classes that are advertised as giving your child some developmental advantage are bunk. Go to mommy-and-me music or movement or swim classes because it's a nice way to spend time with your baby, and other parents, and other babies, and it's stimulating and fun! But it's not gonna turn your baby into a turbo-charged genius, so look for the classes that don't charge a billion dollars based on claims that they will genius-ify your baby! I have been looking around in my town and I can take a $500 "baby movement" class for a month that will "help meet my child's unique developmental needs and guide them into personally-tailored further development while bonding with mom" (you sing songs and move the baby's arms and legs around) OR $250 for Gymboree for 4 months OR I can go do the same thing at the library for free. The $500 one is charging $500 for silly jargon. (And having been through OT and PT with an older one, I'm quite clear it's not providing those services or anything like them! It's just Gymboree with advertising puffery.)
posted by Eyebrows McGee at 7:04 PM on September 1, 2017 [2 favorites]
Education 529 plans can be good -- you get a slightly better rate of return due to the tax deferral, in exchange for locking up the money for limited uses. You need to research their potential uses (in-state public colleges only? any college?), associated fees (can be quite low or quite high), available funds (good or bad), and so on.
I have an old roommate who works with cord blood and she says exactly what SyraCarol's link says: "parents should know that a child's own cord blood (stored at birth), would rarely be suitable for a transplant today. It could not be used at present to treat genetic diseases, for example, because the cord blood stem cells carry the same affected genes and. if transplanted, would confer the same condition to the recipient." Almost nothing they treat with cord blood can be treated with the baby's own cord blood because it's got the same genetic problems as the baby, and can only rarely be used to treat others in the family (same reason). But putting it in a private bank prevents it from helping other babies, while costing the parents a shit-ton of money to bank something they can't use. Publicly bank it -- the more people who use public banks, the more likely ALL families are to find a match. Plus it doesn't cost you storage fees for years and years!
A lot of crib bedding sets include soft bumpers and comforters that are not safe for babies. (We did use our soft bumper later on, with a bigger baby who was in a drafty room, but then it was for draft-blocking, not crib-bumpering.) The bumpers and comforters make the sets expensive so they don't want to get rid of those parts!
Baby classes that are advertised as giving your child some developmental advantage are bunk. Go to mommy-and-me music or movement or swim classes because it's a nice way to spend time with your baby, and other parents, and other babies, and it's stimulating and fun! But it's not gonna turn your baby into a turbo-charged genius, so look for the classes that don't charge a billion dollars based on claims that they will genius-ify your baby! I have been looking around in my town and I can take a $500 "baby movement" class for a month that will "help meet my child's unique developmental needs and guide them into personally-tailored further development while bonding with mom" (you sing songs and move the baby's arms and legs around) OR $250 for Gymboree for 4 months OR I can go do the same thing at the library for free. The $500 one is charging $500 for silly jargon. (And having been through OT and PT with an older one, I'm quite clear it's not providing those services or anything like them! It's just Gymboree with advertising puffery.)
posted by Eyebrows McGee at 7:04 PM on September 1, 2017 [2 favorites]
I consider cord blood banking and baby life insurance scams.
posted by medusa at 6:09 AM on September 2, 2017
posted by medusa at 6:09 AM on September 2, 2017
This thread is closed to new comments.
I'm not saying it's necessary, but it's not absurd on its face, either.
posted by holborne at 12:06 PM on September 1, 2017 [7 favorites]