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Wedding finances: How to pay for your child’s big day

Jun 21, 2021 | RBC Wealth Management


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Did you know this about money management? Average wedding costs dropped in 2020 due to the pandemic, but they're expected to rise again.

Infographic for The Knot

A child's wedding day is a proud moment for parents. Their child is starting a new chapter in life, and most want to mark the occasion with the perfect ceremony and reception. Whether parents plan on paying for a child's wedding entirely, or help financially, the cost of a wedding celebration can add up.

According to The Knot Real Weddings Study, the average cost of a wedding in the United States in 2020 was $19,000. That was a $9,000 decrease from 2019, largely due to the COVID-19 pandemic, with many couples opting for hometown weddings and smaller guest counts because of restrictions on travel and large gatherings.   

However, looking ahead to life post-pandemic, the average cost of weddings won’t stay low forever. According to The Knot’s study, 32 percent of couples who initially set their wedding date for 2020 opted just to have a ceremony, and instead push their reception to a later date, while 15 percent postponed their entire wedding into 2021 or beyond. What’s more, one-third of couples who got married and held a reception in 2020 plan to have a sequel celebration in 2021, according to The Knot.

Where those couples decide to have their celebration will matter, The Knot says. In a more normal year, for example, a Manhattan wedding would average more than $80,000, while a wedding held in the Midwest might cost slightly more than $20,000.

According to the Knot, couples reported the budget for their upcoming reception to be $22,500, nearly in line with the $23,000 budget reported in 2019. After a pandemic year, it appears couples are planning to celebrate a return to normalcy and hold the wedding they always wanted.  

Wedding finance tips

Parents looking to pay, or at least assist in paying for the event, should start setting aside money well in advance, says Angie O'Leary, head of wealth planning at RBC Wealth Management-U.S.

“A wedding is a big ticket expenditure,” says O'Leary. “Parents want to ensure they understand how they are going to fund that wedding — and the impact it could have on their long-term wealth plan.”

For example, O'Leary says parents planning on using their investment assets will want to avoid taking out the funds at a time when the markets are down. This can mean setting aside the money in a separate investment account, with less risk, months or maybe even years in advance.

“We often recommend that people put the money aside in a separate account, like you would a college fund,” says O'Leary. “Prepare for it. Be ahead of it.”

Another strategy could be to take out a line of credit, given the current low-interest rate environment, and pay it back when investment returns are higher.

O'Leary says some parents like to gift the money to their kids, and have them pay for the nuptials or use the money for other reasons, such as a down payment on a house; but they should be aware of the $14,000 per year, per person gift tax limit. Anything above that amount may subject the parents to gift-tax complications.

Couples can receive four, or even eight times, that amount since the $14,000 is per child per parent. In other words, gifts can be $56,000 per parent couple, or up to $112,000 if both sets of parents gift to each child. That's enough to pay for the average wedding, even in in New York City.

If the wedding is going to cost even more, O'Leary recommends the gift money be spread over more than a year.

Strategies to split costs

Some couples contribute their own money to the wedding, either to maintain some control of the event, or if the cost goes over the budget provided by parents. The 2018 American Wedding Study, published by Brides magazine, says 58 percent of couples either pay for or contribute to the cost of their nuptials.

“Since couples are investing their money, they have the freedom to spend it how they want without as much pressure from parents and traditions,” the report says.

This is especially true as couples get married later in life, when they're more financially established, O'Leary says. Or, in some cases, parents may simply refuse to pay for certain costs, such as flying their child's friends to Europe or an island for the big day.

“Setting expectations and limits is important when there are financial considerations,” says O'Leary. “Kids may have different priorities than their parents when it comes to their wedding. You need to figure that out before you start picking venues and placing orders.”

The Brides survey says 89 percent of couples set a wedding budget, and nearly 50 percent spend more than intended, which was up from 30 percent in 2014. It also says 58 percent of couples are willing to increase their budget to get the wedding they really want.

The bride and groom should also set priorities about what they want and need at their wedding, O'Leary says. For example, the flowers and food may be more important than whether or not the music comes from a band or DJ.

Beware of sticker shock

When budgeting for a wedding, whoever is paying needs to remember the extra costs, including tax on goods such as the cake, tuxedo and dresses, as well as the rental hall, caterer and bar.

“Sometimes there can be a little bit of a sticker shock when the final bill comes in,” says O'Leary.

Paul DeLauro, manager of wealth planning at City National Bank in Beverly Hills, Calif., recommends using the services of a wedding planner who has experience sourcing and costing expenses for the big day.

“Having a wedding planner sounds silly to some people, but the fee can easily pay for itself several times over,” DeLauro says. “When you engage with someone who does this for a living — who knows the ins and outs — it just makes sense. Let them focus on costs and spending. That leaves you to focus on the overall budget.”

A wedding planner can also reduce stress from planning the event yourself, or relying on family or friends – who may have your best interests in mind, but not your tastes — to handle the details.

“Having a friend or family member plan your wedding can be disastrous,” says DeLauro. “What's more, you want someone to have recourse against should something not go as planned.”

Wedding costs in an overall wealth plan

Too often, DeLauro says parents forget to mention to their financial advisors they plan on paying for their child's nuptials, which means the best strategies to finance the event can get overlooked. Parents need to include that goal in their overall wealth plan.

It's also the job of advisors to determine the potential future expense with their clients. “A good advisor is always going to bring it up with parents,” DeLauro says. “It's a looming expense that you need to build into a plan, alongside paying for college or a down payment on a house.”

A good advisor will also help parents pull the money out of the right places, at the right time.

DeLauro says there are two places parents should never take money from to fund a child's wedding – their home and assets intended to pay for retirement.

“There are a million ways to get married, but there's only one way to retire,” he says.

With those tips in mind, parents can start to plan ahead for what can be one of the happiest days of their lives, and hopefully their child's, too.

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