MARK RIEPE: We're going to kick things off today with one of my favorite types of episodes. It's a favorite of mine because it's an episode about a topic I know little about. And we're going to start things off with a quiz. Question one, do you have a pet? Question two, are you thinking about getting a pet? Question three, do you have a pet? And are thinking about getting another one? If you answered yes to any of those questions, then this episode is for you.
I'm Mark Riepe, and I head up the Schwab Center for Financial Research and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision making and the cognitive and emotional biases that can cloud our judgment.
Americans love pets. 66% of U.S. households, that's 87 million homes, have a pet.[1] What's more, 97% of pet owners consider their pets to be family members. Dogs are the most popular with 65 million households owning at least one dog. Cats are in 47 million households. And fish swam their way to third place with 11 million households. But of course, owning a pet means that you're going to be spending more money, time, and other resources in exchange for all that companionship and unconditional love.
We're going to examine the cost of pet ownership, responsibilities, unexpected expenses, and other factors that crop up when you commit to taking care of little Luna or Charlie. And if you're wondering why I said Luna and why I said Charlie, the reason is that those are the most popular names for female and male dogs, according to Rover.com[2].
We've already established that I don't know anything about pets, but I know someone who does and that's Susan Hirshman. She's a director of wealth management for Schwab Wealth Advisory and the Schwab Center for Financial Research. She's also a Chartered Financial Analyst, a Certified Financial Planner and a Certified Public Accountant and has worked for many years as an advisor to high net worth and ultra-high net worth investors. So Susan Hirshman, welcome back to the podcast.
SUSAN HIRSHMAN: Thank you, Mark. Always a pleasure to be here.
MARK: Susan, we've had you on a couple of episodes and we always try to like, you know, credentialize all of our guests to make sure they know what they're talking about. And obviously you've got a lot of financial expertise, but today's episode is about pets. And so the first question before we go any further is, are you in fact a pet owner?
SUSAN: I am. And I have a, what I like to call a crazy, adorable, sweet, needy multi-mix rescue named Lulu.
MARK: So for those maybe who are listening, who are maybe contemplating getting a pet, I know, at least in the neighborhood where I live, a lot of empty nesters and they all seem to end up with pets. So any learning experiences in your time with Lulu or maybe pets you've had in the past that people who are contemplating a pet really should think about?
SUSAN: Yeah, I think you can sum it up in one word, like the big learning is that it is always more: more responsibility, more costs, more attachment, just more than you anticipate. So we can talk about responsibility, right? And we all know they need love, they need attention, they need care. And if you're like me who works full time, you have an active social life and you like to travel, balancing your time away with the needs of the pet is really challenging. And then more costs than you anticipate between the teeth cleaning, the grooming, the nail trimming, the doggy daycare, house sitters, high quality food treats, vet fees, emergency vet fees and on and on. It all adds up and adds up fast and sometimes the dollars feel like they're just flying out the door.
And I think, in fact, I'm not alone because according to a recent survey from USA Today, 91% of the people that they surveyed say they've experienced some degree of financial stress in the past year related to the cost of pet care. And nearly half of those respondents have gone into debt to pay for animal care. So really something to anticipate. And then the last part, which really adds to the cost, is more attachment than you anticipate. For many of us, your pet becomes part of your family. And if you're like me, you will more than likely do anything and everything to keep that pet healthy and alive. And that really often equates to large dollars in vet fees, special diets, medicines, and so on. To sum it up, it's just more.
MARK: When we think about some of the financial aspects there, and certainly just sort of anecdotally, it definitely seems that people are spending more money on their pets than in decades past. Do you think when people are kind of contemplating obtaining a pet, becoming a pet owner, are they paying enough attention to the financial planning aspects?
SUSAN: I hope so, but you know, when you look at the number of dogs or pets that were put back into a shelter after the COVID rush and the number of social media searches for selling a dog at that same time, it really shows that perhaps not, right? And also that same survey we were talking about said 66% of their respondents said that the cost of dog care meant that they had to cut back on their basic necessities, their own necessities, like food and personal health care. But I really do believe that people are starting to talk about it more. And I think that's a big thank you to social media.
Because in fact, if you Google "financial cost of pet ownership," there are over 30 pages, 30 pages worth of Google hits. And people are starting to talk about it more at work because we're starting to see a trend of pet insurance as an employee benefit.
And SHRM, which is the Society of Human Resource Management, they say around 20% of organizations are offering that coverage and they believe that the number is expected to keep increasing. Employers are finding that it's really good for employee morale and retention. In fact, one study found that almost 70% of employees that responded said if offered another job at similar pay, they would decline it since they value the pet insurance benefits at their current employer.
MARK: Wow, that is a big number. I would not have guessed that. Let's talk a little bit about… You know, we talk about planning a lot, but I don't know how many episodes where we talk about, "Hey, before you make a decision, you really should think it through and put together some sort of a plan." So what are some of those basic questions that anybody should be asking themselves before they decide to get a new pet?
SUSAN: I think there's four essential questions that you really need to ask yourself. And the key is to be really thoughtful and truthful with your answers. And so I want you to think about lifestyle, living, and budgets.
So my first question, what is my lifestyle like? Or to put it simply, are you a person like me that's out more than you're in? And if you're out, think about how that would affect the cost, the care and the needs of the pet. And is that affordable to you?
The second is do you expect any changes in your lifestyle in the near future? Any moves, marriage, babies? And if the answer is "yes," how would those changes affect your financial and living situation?
The third is, are your current living conditions conducive to owning a pet? Because you want to understand if you would have additional costs that would be added to your living expenses. For example, higher rents, higher deposits, higher insurance, fees, cleaning, all those things need to be put into perspective.
And then lastly, do you have the resources available to support a pet now and in the future? My question always to people is, "What would happen if you lost your job? Would you be able to support you and your pet?"
MARK: Susan, I want to get to, particularly, that third and fourth point you raised, and kind of boil it down to numbers to the extent that's possible. How much room in the monthly budget should someone probably set aside to reflect the cost of a pet? Are there any recurring expenses that people really should think about that they'll probably forget to account for when they put together a budget like this?
SUSAN: Yeah, I love that question because the first part of that question, "how much should they set aside," is more about do you know? So the first step is to make sure we know what is our free cash flow. For example, "What is my take home pay?" And then subtract from that, what are my fixed expenses like rent, mortgage, student loan payments, utilities, all those types of things. And then subtract out my variable costs. My variable costs are my nice-to-haves, like travel, entertainment, subscription services, all those types of things. And then I get my number.
And then I should compare that number to the averages. And when we look at the averages of pet care, what we see is that it's around $400 a month for dogs and a little less for cats. So do I have that extra $400 per month to be able to give to my pet? And if I don't, then the question is, "Am I willing to make some trade-offs?" Because that's what financial planning is all about, as we all know. It's about trade-offs. "Am I willing to give up some of my entertainment, my vacations?", all those types of things to make my numbers work so that I am able to get that pet? And again, Mark, I always say, really be honest, honest, honest with yourself.
MARK: I'm going to get back to my interview with Susan in a few minutes, but I wanted to jump in here because implicitly we've made a big assumption in this episode. We're assuming that the humans are paying the bills, and the pets are financially dependent on them. That's not an outrageous assumption, of course. The vast majority of pet owners are financially supporting their pets, but there are a few pets out there who are raking in the big bucks.
One cat whose name I can't pronounce, because I didn't pay any attention during my French classes in college, inherited $13 million from her owner, the late fashion designer, Karl Lagerfeld.[3] Earlier this year, an elderly Shanghai woman announced that she was leaving her $2.8 million estate to her cats because her children never visited her.3 Finally, the widow of Star Trek creator, Gene Roddenberry, set up a $4 million trust for her dogs and another $1 million for their caretaker.4
From the sampling, you might think that leaving money to your pets is only for the uber-wealthy. That is not so according to recent reports.4 Estate attorneys say they're seeing more people make financial plans for their pets after they die. And 29 states have enacted pet trust laws since 2008 and now all 50 states and Washington D.C. have some form of guidelines.[4]
It's not always smooth sailing though. For one thing, pets are considered property so you can't actually leave them money. A common workaround is to name someone as a guardian for the pet and leave money and property to that person.
An additional safeguard recommended by estate planners is to name a separate trustee for the trust who is not the pet's caretaker. With two people administering the terms of the trust, it's far more likely the pet owners wishes will be carried out. Another problem is that disinherited heirs sometimes challenge these trusts in court, sometimes successfully.
So here's another option for pet owners concerned about their pets outliving them. You can leave a sum of money to an animal protection group whose mission is to care for cats and dogs after their owners have passed on. These shelters will try to find the pets a new home.
With that, let's get back to my interview with Susan.
So Susan, a lot of what you were just talking about are, to a certain extent, forecastable expenses that you might expect if you sat down and thought about it for a little bit. But we all know, of course, in any situation, there are going to be unexpected expenses. What's the best way to deal with that? Is it just a matter of, you know, kind of saving more and make sure you've got that amount of extra money in the checking account, or is that where really insurance comes into play?
SUSAN: I think it's a combination of both, you know, and here's why I say it. I think the first is you have to think about your unexpected as well as your pet's unexpected.
So your own unexpected, like we talked about, if you were to lose a job, how would that affect your ability to care for the pet? So with an emergency fund that we always recommend people to have, like three to six months of savings to set aside, we want people to think about including in that emergency fund, the cost for caring for a pet with those months that you might be out of a paycheck.
But a pet also, as you mentioned, has unexpected expenses and they can typically run from a few hundred dollars to easily several thousand dollars and more depending on the issues. And that's where we want to say, "Should I have insurance?" And so the question you have to ask yourself is "How emotionally attached am I to that pet? Will I do anything and everything to help my pet?" And if the answer is yes, "Do I have enough free liquid assets to cover these costs or would I like to insure against some of these costs?" So that's where the pet insurance really comes into play. A lot about those unexpected expenses.
MARK: So probably a lot of people listening, they've got some experience with insurance markets, either car insurance, homeowners insurance, health insurance, life insurance. What's the process to compare policies in the pet insurance arena? What are some of the different things that people need to be looking at? What kinds of questions do they need to be asking?
SUSAN: It's very similar to any type of insurance and the terms, quote unquote, or the vocabulary is very similar.
And so what you need to look at are the different reimbursement percentages, the deductibles, the waiting periods, the coverage and the exclusions. So just like health insurance, the more extensive the coverage, the higher the reimbursement percentage, the lower your deductible, the higher the premium. The most important point is that you really need to read the fine print and see what makes sense from a premium amount to fit into your budget.
You can Google online, there are some tools to help you compare different policies. But my best advice is really to take your time, evaluate your choices, really understand the details of a policy before you buy it. And so know that like for a guideline, an average pet insurance policy with, let's say, $5,000 of annual coverage, $250 deductible, an 80% reimbursement level, will cost about $50 per month in 2024. And that was according to Forbes Advisor. So again, do your research. See what makes sense for you, your pet, and your budget.
MARK: It's probably pretty obvious to most people that different types of animals, the expenses we've been talking about are probably going to be all over the map depending on the type of animal. But you were telling me earlier before we started recording that even within dogs and cats, the different breeds can have very different financial impacts. So tell me more about that.
SUSAN: Yeah. And I'm glad you mentioned that also because pet insurance, unlike health insurance now looks at your pet's health, and does not cover preexisting conditions.
So it's really when you're thinking about pet insurance, think about it earlier than later, and then understand what your pet is like. So as I like to say, genes are genes, right? Even for pets, and especially with pure breeds, they may have a higher propensity for certain type of illnesses or afflictions. And you have to think about how that's going to affect your budget.
So as I was telling you, we had a Cocker Spaniel, and Cockers are really known for having terrible teeth, horrible gums, and really bad skin issues and especially as they age. And let me just tell you that Cocker had all of them and taking care of those issues really added up to a small fortune.
So again, do your research and see if that breed will have a high probability of high health costs as they age and think about "Should I consider pet insurance?" Because again, they do not cover existing conditions. So earlier than later, especially if your breed is prone to ailments.
MARK: I can imagine listeners hearing this and thinking, "Wow, this is a big deal and maybe not something I want to jump into." And that's really not the purpose of this episode. We just want people to be informed. So for that person who may be feeling a little bit discouraged right now by some of the realities and risks that you've just been talking about, what are some of the creative workarounds for people who maybe they've been listening and some of these obstacles seem a little high and they're kind of second guessing their choices? What are some of the creative workarounds to some of the issues we've been talking about?
SUSAN: I say the three F's: foster, friends, and family.
So foster. If you can't afford to have a pet on your own, perhaps you can foster one for several weeks or some short-term type of time and get the benefit of having it but not all the costs. Or perhaps you can get involved in training some service dogs. Or being creative in terms of the care of pets. So perhaps you'd rotate with different friends and family members for pet sitting or dog walking. And then lastly is think about volunteering at your local animal shelter. They always need help, and you can get some of that benefit and love from the pets.
But I want people always to think, again, we're not saying no. And I want people to think about it may not be today, but that doesn't mean never. You know, I can't express the importance of doing it at the right time, with the right resources, with the right support. That will really enhance your joy and allow you to appreciate that unconditional love sometimes I feel you can only receive from a pet.
MARK: Well, I think that is a great sentiment to stop on. So, Susan Hirschman, Director of Wealth Management here at the Schwab Center for Financial Research and Schwab Wealth Advisory. Susan, thanks for being here today.
SUSAN: Thank you, Mark. I really appreciate it.
MARK: While we were preparing this episode, we came across an interesting article in the Wall Street Journal.[5] It pointed out that not all dog breeds are created equal when it comes to the expense of caring for them. And this article created a list of purebred dogs that tended to be great pets, but also were least expensive to own. At number one is the rat terrier, where its estimated lifetime cost is $28,573 and its average lifespan is also 15 years.
This show is about financial decision making and the cognitive and emotional biases that get in the way of making good decisions. It turns out that this gets studied in dogs as well.
In 2024, researchers at the University of Helsinki[6],[7] published a study that focused on the behavior and problem-solving skills of different dog breeds. In one test, researchers placed a treat behind a clear V-shaped wall that required the dog to detour around it if it wanted to get the treat.
Dogs who are persistent quickly solved this puzzle and did so independently without looking to a human for help. In another test, the treat was inside a clear locked box that the dog couldn't open. The researchers wanted to see how long it took before the dog would give up and turn to a person for help.
The point being that persistence is good, but too much suggests getting locked into a course of action and not knowing when it's time to give up on plan A and move to plan B which, after all, is a hallmark of learning. The end result was that breeds known to be persistent were good problem solvers and tend to excel as working dogs and in canine sports, but they're less tractable and trainable at home.
In the locked box experiment, the breeds who look to humans for help usually have higher self-control and are more suitable to be pets. An example of this kind of breed is a golden retriever. That could be why it's the third most popular breed in the U.S. in 2023, according to American Kennel Club registrations.[8]
That's it for this episode of Financial Decoder. As always, thanks for listening. If you'd like to hear more from me, you can follow me on my LinkedIn page, or at X @MarkRiepe, M-A-R-K-R-I-E-P-E.
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For important disclosures, see the show notes at Schwab.com/FinancialDecoder.
[1] Megna, Michelle, "Pet Ownership Statistics 2024," Forbes Advisor, updated January 25, 2024, https://www.forbes.com/advisor/pet-insurance/pet-ownership-statistics/
[2] "Most Popular Dog Names in the USA," rover.com, accessed September 17, 2024, https://www.rover.com/blog/dog-names/
[3] Alain, James, "Top 10 Richest Cats in the World 2024," The Pet Zealot, January 6, 2023, Top 10 Richest Cats in The World 2024 (thepetzealot.com)
[4] Peers, Alexandra, "Can you leave your estate to your pet?" cnn.com, September 14, 2024, Can you can leave your estate to your pet? | CNN Business
[5]Corrigan, Tom, "The Best Dogs for Your Wallet," The Wall Street Journal, https://www.msn.com/en-us/money/companies/the-best-dogs-for-your-wallet/ar-AA1kkgRE
[6] Junttila, Saara; Valros, Anna; Mäki Katariina; Tiira, Katriina; "Do cognitive traits associated with everyday behaviour in the domestic dog, Canis familiaris?" Animal Behaviour, Volume 213, July 2024, pp 71-84, https://www.sciencedirect.com/science/article/pii/S0003347224001258?via%3Dihub
[7] Kluger, Jeffrey, "What Animal Studies Are Revealing About Their Minds—and Ours," time.com, June 5, 2024, https://time.com/6985448/animals-human-behavior-research/
[8] "Most Popular Dog Breeds," akc.org, accessed September 17, 2024, https://www.akc.org/most-popular-breeds/
