#38 The Cost of Raising Kids

cost of raising kids financial planning

The Cost of Raising Kids – what to expect

The amount you spend will vary based on several factors including:

  • where you live,
  • will you send them to private or public school,
  • do they need daycare,
  • what schooling is available and what kind are you comfortable sending them to

It will also very based on each child:

  • Do they need special help or attention?
  • Does the child like certain activities that you want them to pursue?
  • What college plans happen for each child?
  • How many years do they need support?

There is a lot of variation from child to child, this blog has very general numbers but hopefully we will touch on many of the larger expenses to help you start planning.

Costs during First 2 Years

These little buggers start costing you money right away.  The average delivery cost in the US is $3,500.  Add in prenatal, delivery-related and postpartum healthcare, and you’re looking at an $8,802 tab.  Health insurance will pay a good amount of this above your deductible but I’m starting the costs at $3,000 out of pocket. $3,000

Note that this is for easy pregnancies with no complications and no special costs to have the kid.  People pay around $10k to $15k for adoptions and about $12k for in vitro fertilization.  We’ll skip this because I’m going with low-end numbers throughout this assuming a healthy kid and average spending.

Disposable diapers will cost about $1,500 for the average child for two years. $1,500

The average cost for baby clothes is about $60/month for the first year.  Add another $1,400

Luckily babies don’t eat that much food but formula is about $100/month then solid food $60/month.  So for the first two years: $1,680

Babies are very dependent for everything for the first few years.  Every couple hours they need to eat and poop.  In addition to not sleeping, someone in the family will be working less.  The average income in the US is about $30,000 per year.  I’m going to say it costs about one year’s salary for all the time you’ll miss through the years but especially the first couple years (and that’s if you have a healthy baby). $30,000

Help with Young Kids

Now that you’ve spent all of this time having a kid you’ll need to pay to get the out of the house so they don’t drive you crazy.

The average cost of daycare in the United States is $11,666 per year ($972 a month), but prices range from $3,582 to $18,773 a year.  The alternative is that someone doesn’t work and you’re stuck at home with these monsters.  I’ll stick with the average for ages 2 to 5 years old.  $35,000

Babysitter fees average about $10/hour.  My wife doesn’t trust babysitters with our precious kids, so we don’t go on dates and we pay for marriage counselors instead.  I’m adding in 2 hours per week or $1,000 per year from ages 3 to 10. $7,000

Some people have live in help, such as a young cute au pair.  I’m going to leave this out (about $10k/yr) because I don’t want to get into the extremely high cost of divorce.

Of course there could be private school costs, after school care, summer camp, and even costs for attending public schools.  I’ll assume that’s not the case.

Costs from 2 years old until they are gone

At times parenting feels like you took on a second job as an uber driver.  Transportation costs average $1,300 per year per kid from ages 2 to 17.  I’m assuming that you will not need to pay for anything more than a bike beyond that. $20,800

My girls both like dance.  The cost of shoes, lessons, outfits and performances all add up.  Out of school activities average of $100 per month from years 6 to 17. $13,200

Clothing averages $650 per year per kid.  For 18 years: $11,700

Vacations become more expensive, only kids two and under fly free (if you really want to fly with a baby and share a seat).  There will also be the cost of birthday parties and weekly entertainment.  I’m not adding anything for this – these are variable expenses that can be adjusted with your budget.  You’re also giving up some costs when you have kids, like going out drinking with your friends and going climbing.

They are going to want a cell phone, so add another $40 per month from years 11 to 21 or about: $4,800

Teens can eat like no other species.  The average per child food costs are about $2,000 from ages 2 to 17.  $32,000

Even with healthy kids there are healthcare costs for insurance, shots …, about $1,000 per year.  $18,000

College Cost

You’ve gotten them this far, you can help them get a good education and hopefully a job or you can plan on having them live with you for another 18 years.

Even with scholarships, financial aid (put all your money in an LLC so you qualify), you’re going to have some cost here.

In State tuition to a state university is $8,000 to $30,000 per year. Out of State tuition is about $20,000 to $50,000 a year. Private schools go up from there. Room and board is about $10,000 to $15,000 a year.  At the very lower end, today’s cost could be about $20,000 per year.  For four years (hopefully it’s only four years), that’s $80,000.  Assuming the kid takes out some loans, gets some financial aid help, and maybe even works, I’m putting down $40,000 per kid for the parents. $40,000

Because collage costs are such a large part of child costs, let me briefly explain how the expected family contribution (EFC) is calculated.  The EFC is the amount the family should contribute each year with the remainder covered by support.  However, just because you qualify for support does not mean you will get it.  A college may be impoverished or moderately well off and not be able to fully support your entitlement with grants or even with a combination of grants and loans.

When calculating the EFC, about $50k of the parents’ salary and savings is exempt from the calculation. The EFC is calculated as follows:

Parents’ adjusted income x (up to 47%) +
Parents’ assets x (up to 6%) +
Student’s income x (up to 50%) +
Student’s assets x (20%)

You can find tables and calculators on the web.  Here is one example, if the parents’ assets (not including home) are about $100k and their income is $60k/yr, with two kids, they would responsible for about $10k per year.

Costs of Adult Children and Grandchildren

The expenses never end.  There are gifts, trips and visitors – but this is too far in the future to try to predict.  If you don’t have any money at this point you can start re-gifting the ashtrays your kids made for you.

Total Cost

To keep it simple, I’m assuming that all costs increase at the same rate of inflation.  Per kid the total (in today’s dollars) is about $220,000.

The top costs leading to the $220,000 amount are:

  1. College – $40,000
  2. Daycare – $35,000
  3. Food – $33,680
  4. Care during the first 2 years (reduced salary) – $30,000
  5. Transportation – $20,800
  6. Healthcare – $18,000
  7. Out of School Activities – $13,200
  8. Clothing – $13,100
  9. Babysitter – $7,000
  10. Cell phone – $4,800
  11. Baby delivery – $3,000
  12. Diapers – $1,500

Keep in mind that these are rough estimates.  I spent a few years in Nicaragua and Mexico where spending on raising a kid was no where near a tenth this expensive.  People adjust with the resources they have.  On the other hand, there are thousands of ways to spend more on your child and $220,000 may be just a starting point.

Some people have one kid and for some reason have another – that was $220,000 per kid.  In the US, families average 1.9 kids per family.  So for most that’s: $440,000.

With $454,000, you could buy:

  • 20 consecutive year long trips around the world
  • Retirement 14 years early, for the average person
  • A Lamborghini Aventadors
  • 75 pounds of marijuana
  • A private island
  • A ticket to mars (according to Elon Musk)

Why We Do It

Given all this cost and time and effort, why do we keep having kids generation after generation instead of buying more trips around the world or retiring early?

I offer three reasons:

  • We are exposed to lots of role models when we are young and growing of people (like our parents and grandparents) who made this choice.
  • The reproduction gene has been strengthening for 4 billion years. The non-reproduction gene tends to die off fast.
  • Guys don’t like using condoms.

 

I appreciate any feedback.  Let me know if you think of any cost I’ve left out. You can comment here or contact me through Facebook, Twitter, email (bill@aiofinancial.com), or call 520-325-0769. Click here to schedule a free meeting with Bill Holliday, CFP.

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