Financial Planning Considerations For Orthodox Jewish Families

Every demographic has its own unique set of planning nuances. For Orthodox Jewish families this includes their strict observance of Jewish law such as observing the Sabbath and eating kosher food. Taking the time to understand certain nuances related to living an Orthodox Jewish lifestyle is an essential first step for developing a sensible strategy to achieve their financial objectives.

Below are some of the recurring circumstances that frequently come up with this demographic, as well as financial planning solutions to consider.

Financial Challenges for Orthodox Jewish Families:

High housing costs: Housing prices vary significantly based on location. However, it’s generally true that predominantly Orthodox Jewish areas tend to be more expensive than their surrounding areas. That is a function of Orthodox Jews looking for neighborhoods that already have the infrastructure in which they can easily maintain their lifestyle. This may include a local market for easily purchasing kosher food, being near a ritual bath called a mikvah, having an eruv, which is a ritual enclosure, and being within walking distance of a synagogue since Orthodox Jews do not drive on the Sabbath.

Costs of kosher food: Purchasing kosher food and maintaining a kosher home is not cheap. There are strict requirements for how kosher food, like chicken and meat, is prepared. The process must also be supervised appropriately. The costs associated with this process and oversight cause kosher food prices to be higher than their non-kosher equivalents.

Additionally, a large component of the Jewish lifestyle, similar to other cultures, centers on gathering around the table and sharing a delicious meal. However, where the Jewish community may diverge from others is that the celebration occurs weekly on the Sabbath.

Expenses Associated with Jewish Holidays: Families tend to have a spike in expenses when preparing for the Fall and Spring Jewish Holiday seasons. In line with the prior point, some of these expenses include hosting large meals. Additionally, there are various holiday requirements that will cause a large cash outlay. Planning for this increase in expenses is imperative.

Family Structure: Orthodox Jews tend to get married on the earlier side. According to data assembled by the Pew institute, 50% of Modern Orthodox Jews get married before age 24. This relatively younger age of marriage has obvious consequences when it comes to financial planning. For example, newlyweds may be less settled in their career or still in university or graduate school, which has an impact on cash flow. Furthermore, children may come into the picture earlier than the average population, which would necessitate getting proper insurance at a younger age.

In terms of children, Orthodox Jews also have more children on average. According to data from Statista, in 2022, there were an average of 1.94 children under the age of 18 per family in the United States. By comparison, according to data from the Pew institute, the Orthodox Jewish community has approximately 4.1 children per household. Naturally, there are financial implications of a larger family structure which present their own unique set of challenges.

Jewish Education: Every parent understands that kids are expensive. For Orthodox Jews there is the additional costs associated with Jewish elementary and high school. These Jewish schools are called “Yeshivas.”

According to Pew, the overwhelming majority of Orthodox parents find it important to send their kids to Jewish schools. Yeshivas typically teach both secular and religious studies. Their costs may vary substantially based on the school and the geographic location. Anecdotally, I have clients that pay between $15,000 to $25,000 for elementary school and $30,000 to $55,000 for high school. This cost is per child for one year of education. Assuming a family has the average 4 kids, these costs can be quite significant.

Start with an Investment Policy Statement

According to the 2013 survey by the Pew institute, being Jewish, with all the associated customs, traditions, and laws, is extremely important to virtually all Orthodox Jews. It’s infused into every aspect of their lives. Consequently, any planning needs to start there. Being able to maintain a Jewish lifestyle is probably far more important to Orthodox Jews than simply accumulating the most amount of wealth or only saving for retirement.

In that vein, an important first step in the planning process is to draft an Investment Policy Statement (IPS). This will be helpful in identifying, and focusing on, the family’s actual goals. It should include a list of lifestyle decisions that are of utmost importance and specify where they are comfortable cutting expenses.

I recommend starting this process with a blank sheet of paper with two columns. One side should include what is important in their lives and the other side should include what is not. This may sound elementary, but it is an extremely effective method for identifying priorities.

Given some of the themes that were outlined earlier, examples of what is important may include buying a home in a Jewish community, sending kids to Yeshivas, eating kosher food, and supporting their local Jewish community. It may also include goals that are not necessarily Jewish, such as “Being able to retire by age 65” or “leaving a legacy for their children” to name just a few.

Some examples of areas where a family may be comfortable cutting expenses include not driving luxury cars or having a large home, going out to eat, buying new clothes every year, or streaming Netflix
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Determine Your “Rich Life”

When the two lists are made, I ask my clients to prioritize each list. That means they rank the items from the most important to the least important. This exercise is particularly instructive.

One observation I’ve had with my clients, is that they tend to rank sending their kids to Yeshiva towards the top of their list of priorities and saving for college towards the bottom. The reason for this is not because Orthodox Jewish families don’t value higher education. However, there are many financing options available when it comes to paying for college. This includes various types of scholarships, student aid, and taking out loans. Furthermore, choosing a cheaper university is also a practical option. On the other hand, Yeshivas offer fewer financing options. This pushes college savings down from a top priority.

A key next step after completing the ranking is for the family to cut out the activities that are unimportant to their lives and reallocate those resources for things that are important.

The result is your “rich life”, where your cash flow is optimized so your hard-earned dollars are going towards things that are important to you and your family instead of being wasted on things that don’t enhance your life. Afterall, money is not a scorecard. Rather, it’s a tool to help you achieve the life you want. Ultimately, the exercise of creating an IPS is about aligning an investor’s money with their values.

Strategies to Maximize Cash Flow

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Cash flow is the cornerstone of financial planning. It is foundational to being able to live comfortably and prepare for the future. Once a family has determined their “rich life”, they should consider opportunities to maximize their cash flow to be able to achieve those objectives.

Below are some practical guidelines for Orthodox Jewish families to help free up cash, which can be redirected to finance what is important to them:

Don’t overextend yourself: This typically comes up in the context of buying a home or new car. Monthly housing expenses should not exceed 30% of your net household income. This may seem restrictive, but it really is imperative. A home purchase is one of the biggest and most important a family will make. Getting it right can be the difference between living comfortably or worrying how you are going to pay your bills. As a family’s household income increases, they can always expand their home or buy a new one. However, they shouldn’t get ahead of themselves and risk financial hardship later.

A home may need to be in a certain community. Automobile purchases generally are a bit more flexible. It’s important to remember that the main purpose of an automobile is to get from point A to point B. Some people lose sight of that fact, and their car purchase becomes a vanity item. If cash flow is an issue, then leasing, financing, or buying a luxury vehicle should be avoided. Large car payments can have a very meaningful, and unnecessary, negative impact on a family’s cash flow.

Relocate to a cheaper area: This suggestion applies equally to young married couples just starting their lives as well as retirees. There is a tendency for Orthodox families to want to stay near New York City, Los Angeles, or Miami, where there is plenty of Jewish infrastructure. However, in the year 2023, there are numerous Orthodox Jewish communities all around the country where the cost of living is substantially cheaper.

Determining where to live is an extremely important part of the planning discussion. Younger families may not have decided where they want to settle down. Older families may be seeking somewhere to spend the next phase of their life. A cheaper locale may be the most impactful way to help maximize a family’s cash flow.

Life Insurance Planning: When it comes to insurance, doing a needs analysis to determine proper coverage is essential. However, given the aforementioned fact pattern, term life insurance typically makes the most sense for Orthodox families. It gets the family the proper coverage they need without having premiums be a major burden.

There are some instances where permanent life insurance makes sense, including for families whose estates are above the federal or state exemption amount. Though for most families, term insurance is the correct approach.

Asset location: Asset location refers to where an investor decides to put their money. Some investments should be held in a taxable account, while others should be held in a tax advantaged account. Furthermore, there are tax benefits associated with different types of accounts such as IRAs, profit sharing plans, 529 College Savings Accounts, and Health Savings Accounts (HSAs). Efficiently allocating one’s money into the correct accounts to achieve their goals can be extremely beneficial in minimizing a family’s tax bill every year.

Setting the stage for additional planning:

The above concepts of goal setting, lifestyle planning, and maximizing one’s cash flow are foundational. They set the stage for the more involved areas of investment, retirement, and estate planning. If an Orthodox Jewish family gets the foundational elements correct, the subsequent planning becomes more seamless.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Shenkman Wealth Management is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures.