Background: The DCIIA RRC and Commonwealth recently published a joint study on how parenting and caregiving expenses are influencing individuals earning low to moderate incomes (LMI) and their ability to save for emergencies and retirement. This research was designed to understand the interconnectedness of caregiving expenses, retirement savings behavior, and planning for a child’s future education.

Approximately 1,000 individuals were surveyed, including 66% LMI and 34% non-LMI full-time workers who have access to a retirement plan but may or may not participate. A nationally representative sample of Black and Latinx respondents was used, oversampling for those that were eligible but not participating in their 401(k) plan. This report focuses on the caregiving of children only.

Findings: Caring for children incurs significant expenses, with average estimated costs totaling about $300,000 from birth to age 17. These expenses, when combined with lower earnings, created an additional hurdle for LMI workers in saving for their children’s higher education. According to this study, 60% of respondents noted that caregiving expenses are adversely affecting their ability to save for retirement, while 58% reported a similar negative impact on their ability to manage caregiving expenses.

This survey uncovered three important findings:

Caregiving expenses are making it difficult for LMI workers to save for

emergencies and/or retirement.

LMI workers are less likely than higher earners (defined as a household income with $75k or more) to be aware of and using 529 plans. 23% of LMI workers use 529 plans, which includes employer-sponsored and non-employer plans, as compared to 53% of workers with higher incomes. However, LMI workers did have an interest in enrolling in an employer-sponsored 529 plan once made aware of it. From the worker’s perspective, the most important features in an employer sponsored 529 plan were accessibility and portability.

Bottom line: LMI workers encounter financial challenges when it comes to saving for their own retirement and their children’s higher education, in part due to significant caregiving costs. Despite their lower utilization rates of 529 plans, there is still an interest among LMI workers in these savings vehicles. The next Research Minute will delve deeper into potential actions that employers could take to assist workers in saving for higher education while managing immediate caregiving expenses and planning for their own retirement.