Protecting Costs to Raise Child
The stakes may be higher for new parents than in previous generations, thanks to a combination of changing demographics and economic pressures. Nobody wants to financially evaluate a child as they would the purchase of a car or home, but by the time a child reaches the age of 18, they will have cost their parents more than some houses. Be prepared to pay a lot of money for that cute little bundle. For example, parents who have a child today will spend, on average, $284,570 by the time the baby turns 18, according to Department of Agriculture (USDA) data.
The figure cited is for a middle-income married couple with two children and the USDA assumes that they had childcare and education expenses. Knowing these numbers will allow parents to better control their costs.
Planning on Having Kids?
Don’t know where to start? First, financial experts recommend socking away six months of living expenses, which will help if a parent wants to take unpaid time off from work or if the family encounters surprises. Here are a few things to consider:
The Top Cost: Housing
The largest expense, by far, is housing. Expenses include mortgage or rent payments, taxes, repairs, insurance, utilities, and all of the “stuff” parents buy for their home. These expenses accounted for 29% of a child’s price tag, according to the USDA study. But take heart. If you have more children, you don’t double or triple the expenses of one child because many of the resources are shared.1 You may have to add an extra bedroom but not a kitchen or living room.
Naturally, you have to divide the housing expenses by the number of people in the home and consider that the use of these resources isn’t equal among family members. A 30-year-old dad is probably using more water and electricity than his six-month-old daughter. Of course, the authors of the report have already made those adjustments.
Food Costs
If you already have children, you know they eat a lot, so it may come as no surprise that this is the second largest cost of raising a child. If you had one dollar for every time your kid said, “I’m hungry,” you could probably offset most of your annual food expenditures. Food expenses came in around 18% of the total from birth through age 17.
Childcare and Education
Childcare and education for parents who have this expense account for 16% of the cost of raising a child, according to the USDA. The cost of childcare in the U.S. ranges from $5,436 to $24,243 annually, according to the Economic Policy Institute (EPI). Needless to say, the cost of childcare depends on where you live.
There is some good news when it comes to the cost of raising a child in America. Economies of scale also apply to the number of children you have. The USDA points out that each additional child costs less because siblings can share a bedroom and a family can buy food in larger, more cost-effective quantities. And while your offspring might not necessarily like it, clothing and toys can be handed down, and older siblings can often babysit younger ones.
Lastly, create a will and take out life insurance before the baby arrives, financial experts say.
Saving for a child’s college education is another step, although 529 plans are typically opened for a child after their birth because it requires a Social Security number for the beneficiary. Consider asking family members to contribute, rather than buying a new toy or clothing, experts say. College costs rose more than 3% last year, outpacing inflation, and the average private college now costs almost $47,000 annually.
Bottom line advice for people who may be thinking of starting a family: “Start saving.”
Thanks for reading and have a great day!