If you already have children, this should come as no surprise to you: kids are expensive. While no one wants to price out the potential of "investing" in a child, like the way you would a car or a house, the reality is that the amount of money it takes to raise a child may cost as much as a house by the time they reach 18.
According to a recent survey by NerdWallet, many couples seriously underestimate the cost of a newborn baby, and the costs only continue from there. The actual cost of raising a baby through their first year of life is around $21,000 (for a household earning $40,000) and $52,000 (for one bringing home $200,000). According to the poll, 18% of parents thought it would cost $1,000 or less and another 36% put the price tag at between $1,001 and $5,000! Uh, right. Additionally, according to a study from the US Department of Agriculture in 2017, it will cost you somewhere around $233,610 by the time that child reaches age 18 and then college is another story.
This is not meant to discourage you from having children, but rather nothing that you should be aware of the costs so they can be better managed and controlled. I was inspired by this article from Investopedia to investigate some of the major areas where kids costs need to be budgeted and managed constantly. Here are the major considerations:
1. Housing Costs
If you think about it, housing related expenses result in about 29% of a child's price tag. Why? These are a bunch of little items that really add up: mortgage/rent payments (on a larger home), taxes, repairs, insurance, utilities, and all the "stuff" you have to buy for inside the home. However, this doesn't mean that more kids here means it costs more money: if you have more children the costs don't double or triple because generally these resources are shared. 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. For instance, a 35-year-old dad is probably using more water and electricity than his 6-month-old daughter. On top of this, it also depends on where you live as housing costs are much higher in cities than in rural areas.
2. Childcare and Education
It seems like a no brainer, but they are some of the priciest parts about having a kid. According to a 2016 report from New America, parents pay an average of $180 per week per child at a full-time daycare center. That's about 16% of the median family's household income ($57,827). Again, this all depends on where you live as well: Massachusetts residents pay an average of $320 per week while Arkansas residents would pay around $126 per week. Nannies are also a more economical way to go if you have more than one child since they generally won't charge double the price for two children the way a daycare center would. For education though, this does NOT include college: the average annual cost of a public college for the 2016-2017 academic year comes in at $24,610; for a private college, it's $49,320 per year, according to the College Board. That means saving early and utilizing a 529 plan or other investment vehicle to keep kids from graduating with a large amount of debt. Stay tuned for information on the 529 plan in the coming weeks.
Food is crucial for me, and probably you too. If you have kids, you know that they are constantly hungry, constantly eating. Too bad you can't get a dollar for every time your kid said,"I'm hungry." So, the USDA's report breaks expenses for food down into four spending levels: lower income families or those who can stretch their budgets, there’s the low-cost “thrifty plan.” This is followed by the “low-cost plan,” the “moderate-cost plan” and, finally, the “liberal plan."
For a 1-year-old child, costs range from $93.60 per month to $173.20, with the moderate plan running $141.70 a month. By the time a child is 9 years old, that moderate-cost plan has risen to $266.10. On the same plan, a male 18-year-old eats $304.60 worth of food every month, and a female, $245.20. Food expenses came in around 18% of the total from birth through age 17.
So What's the Damage?
There are obviously far more expenses than the aforementioned here: transportation accounted for 15%; healthcare, a surprisingly low 9%; clothing came in at 6%; and all other expenses, 7%. In total, once a child reaches age 18, parents will have spent an average of $233,610. Overall, expenses were up $380 from 2014 with transportation accounting for the largest increase.
What about where you live?
Purchasing a home is important, but is vital when you have to consider raising a child. Child-rearing costs vary by more than $340,000, depending on where you live. For example, in Washington D.C., you need $106,493 to make ends meet if you're a family of 4. In Nassau-Suffolk, N.Y., you'll need $103,606 and in New York City, $98,722.
Single vs Married?
Obviously, a dual income household is much more economical when it comes to raising a child, so your relationship status can definitely impact on how much it costs to raise a child. Single parents will spend an average of 7% less than two-parent families, but that’s mainly because single parents are more likely to be in a lower income bracket. According to the USDA's report, 83% of single earners, but only 33% of two-parent families, fall into the lowest bracket (income less than $59,200). Although single parents might spend less than two-parent families, the percentage of their income that goes to their children is much higher.
Ultimately, nobody really wants to think of their children as just a financial burden, but with an average annual cost of up to $15,000 (which could be higher, thanks to where you live and childcare costs in those areas), the financial side of child-rearing can’t be ignored, and families need to plan carefully for everyone's sake.
(This article was originally published on GradMoney on September 15, 2017)
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