How much does raising a child cost?
So you want to have a baby? Great! We love our babies very much. One thing I hear among couples our age a lot is worry about how much it costs to raise children. The internet is littered with quotes like "It’s no secret that babies are expensive":
- Business Insider: "44% said they can't afford to have more children, and 43% said they waited to have kids because of financial instability".
- One of my favorite moments in Parks & Rec, when Dr. Saperstein discovers triplets: "I just multiplied all our future expenses by 3, and you know what happened? The numbers got a lot higher."
Personally, I have a theory around child-related spending that is similar to Parkinson's law, the idea that work expands to fill the time allotted for its completion. I think the same is likely for how much time and money parents spend on their children. Yes, you do have to spend some $$ to actually grow and birth a baby, keep them safe, fed, and clothed, but there are a lot of ways to save, and to make it work. I like how Vox put it: "Yes, kids are expensive. But if you’re wondering how parents manage to afford it, the answer is, they just do."
That said, how does one plan for the added expense of raising children?
The Internet
USDA
The USDA estimates that, as of 2015, raising a child in a middle-income ($59k-$107k) household through age 17, will cost $233,610.
A few things to note:
- This does not include college expenses.
- This averages to $12,980 per year (12-22% of a middle-income family's income). Expenses vary widely depending on the age of the child.
- "For a middle-income family, housing accounts for the largest share at 29% of total child-rearing costs. Food is second at 18%, and child care/education (for those with the expense) is third at 16%.” Over 18 years, that averages to:
- ~$6,900 housing/year
- ~$4,300 food/year (typically smaller in earlier years, larger in later years)
- ~$3,800 child care & education/year (typically larger in earlier years, smaller in later years)
- "The higher a family’s income the more was spent on a child, particularly for child care/education and miscellaneous expenses."
- The USDA's report was written in 2015. Using this inflation calculator, that's $292,052 in 2022 dollars: $16,225/year (averaged over 18 years).
Breaking it down
Notes:
- "Family-related transportation expenses and miscellaneous expenses were allocated by using a per capita method. This method is preferable over a marginal cost method that measures child-rearing expenditures as the difference in expenses between equivalent couples with and without children"
- "The average cost of an additional bedroom approach was used to estimate housing expenses on a child."
Nerd Wallet
NerdWallet, Mar 2017:
| Category | Cost (0-18 years) | Includes |
|---|---|---|
| Basics | $260,366 | Food, housing, clothing, transportation, health care and health insurance |
| Deluxe essentials | $342,976 | All of the above with more expensive choices for food and clothing, and life insurance for the parents |
| Deluxe perks | $745,634 | All of the above plus extras for early childhood care, college savings, education, music and sports lessons, family vacations, electronics and gaming, and other purchases "just because" (expensive birthday gifts, new car) |
For just the basics:
| Category | Basic Spending (0-18 years) | Annual |
|---|---|---|
| Housing | $84,420 | $4,690 |
| Transportation | $60,192 | $3,344 |
| Health Care | $40,214 | $2,234 |
| Health Insurance | $34,895 | $1,939 |
| Food | $28,509 | $1,584 |
| Total | $248,230 | $13,791 |
Baby's First Year
These numbers seem... big. But it's hard to fully grasp what $292,052 over the course of 18 years means. So let's focus on the average, inflation-adjusted annual number: $16,225/year.
Our kids are not fully grown, so we can't really say how accurate this is over 18 years. But we have been diligently tracking what we actually spent on our two babies (~3 and ~1) so far.
Breaking down just the first year, this NerdWallet calculator told me it would cost $22,261 (!) for year 1 of baby's life with these answers:
- CO: Denver-Aurora-Lakewood metro area
- Food: Keep it simple
- College Savings: $0
- Life insurance: No
- Child care: Keep it simple (center-based child care)
- Health care: $2,097 (based on per capita annual health care spending, plus the average cost of health insurance)
- Clothes: Keep it simple
- Toys: Keep it simple
- Misc: Keep it simple (stroller, diapers, crib)
Spoiler alert: we didn't spend that much.
While NerdWallet's methodology is reasonably solid, but it doesn't take into account our myriad personal differences. For instance, it used the Diaper Bank Network estimate of $75/month, which significantly overestimated the amount of money we spent on diapers: $16/month.
TODO
https://www.investopedia.com/articles/pf/08/budgeting-for-baby.asp