Mike Earl, CFP®, CPWA®
My wife Krista and I have been blessed with three children. In case you have lost count, Austin and his wife Jennifer have been blessed with eight children (and counting?).
As Austin likes to say, “I’m not an expert on parenting; I just have a lot of experience.” When it comes to the financial side of raising children, the team here at The Wealth Group has a lot of experience. Between our 8 team members here, we are collectively raising 23 children (with more on the way).
If you looked to the financial media for advice on whether to have children, you might never have any children at all. It seems that most articles focus on how darn expensive children are, rather than the incredible blessing children are to a family.
Speaking strictly of finances, it’s true that children are a significant expense. Just ask Austin how much cereal his older sons can consume in one sitting. However, children don’t need to be anywhere near as expensive as the estimated costs published in various media/government outlets.
One prominent report by the U.S. Department of Agriculture pegged the cost of raising a child from birth through age 17 at $233,610. When an 18-year expense is stated as a lump sum figure like that, it can be overwhelming and scary. That figure averages out to $12,980 annually per child in a middle-income ($59,200-$107,400), two-child, married-couple family – in today’s dollars. Furthermore, those figures don’t include the cost of college. Ouch.
Fact or Fiction?
For families in the upper third of the income distribution (before-tax household income > $107,400), the average spending per child is even higher – over $20,000 per year, per child – or $340,000 to raise a child through age 17!
While reports like this USDA report may not prevent couples from having any children at all, they can certainly persuade couples to have fewer children than they had originally hoped for.
It’s true there is no “one size fits all” cost of raising children. But I think the averages stated in reports like the USDA report are well above what prudent families should spend to raise children. Also of note, the Federal Child Tax Credit is now at $2,000 per child, per year (for families with income less than $400,000). This is a meaningful cost savings for raising children. The USDA understandably did not include tax credits in their estimated costs, but I will do so in this post.
The table below outlines the USDA estimates for middle-income families vs. my family’s estimated costs per child. The supporting data/rationale for my cost estimates are also included below. These are not intended to be the final word on the costs of raising children; I know it’s easy to debate these figures. Rather, my intention is just to show how overstated the average costs of raising a child are.
Important note: these costs are average annual costs for the entire 18 year period of child-rearing. Of course, year-by-year costs can vary considerably. For instance, child care costs early in a child’s life can be very high for a family, then go to nearly zero once the child starts full-time in school.
Now, the rationale for how I came up with my own family’s estimated costs per child.
Since we got married 6 years ago, my wife and I have tracked every penny we spend as a household. With regard to our children, we have two simple categories for the “direct costs” of raising children:
Children’s other items (diapers; strollers; toys/games; bikes/scooters; furniture; etc.)
Using our actual spending data for 2017-2019, our average monthly expenditure per child has been:
Clothing = $29 per child, per month
Other items = $48 per child, per month
Thus, our direct costs per child have been just $77 per month, or $924 per child, per year.
However, those are just the direct costs. There are many “indirect costs” of having and raising children. Let’s explore and estimate some of those costs for our family (using both the USDA data and my own family’s data):
Housing – this is one area where I diverge sharply from the USDA estimates. I put this category for my family at $0 per year. My wife and I would live in our current home whether we had 0 children or up to 5 children. It’s possible we will someday buy a larger home (our current home is 1,850 square feet), but we are perfectly happy where we are.
For the USDA, housing is the largest expense in raising children. They pegged housing costs at $3,764 per child, per year – or 29% of the annual cost of raising a child.
Comments: to estimate costs for this category, we need a “control group” – that is, what would a couple’s housing cost be without any children? Do middle-income and high-income couples with no children spend significantly less on housing than the average middle-income family with 2 children? I don’t think they do.
Food – my estimate is $182.50 per month, per child (assumes $2 per meal, per child). The USDA estimates the food costs per child at $195 per month, so we are close on this one.
Our own costs thus far have been a lot lower than the $182.50 figure, but I am aiming to be err on the high side for costs. As our children grow older (and bigger), I know their food costs will increase. If we are blessed with 8 children like the Colbys (unlikely to happen, my wife says), there’s always rice and beans as a menu option.
My wife is very smart about our grocery spending. She makes frequent trips to Aldi, Cub, and Costco. Having said that, we eat great food and don’t skimp on what we buy.
For 2018, we averaged $617 per month of grocery spending.
Transportation – the USDA estimates this category at 15% of the cost of raising a child, or $1,950 per year. But this category is very similar to housing. People without children are generally driving very similar vehicles to those with children. Most vehicles on the road today easily seat up to 2 children. With a two-child family, four people easily fit into the same size of vehicle as the folks without children. The one added cost I see in this category with children is some increased gasoline costs from transporting children to activities. I estimate this category at $25 per child, per month ($300 per year).
Life Insurance – if my wife or I died tomorrow, that would be a catastrophic financial risk to the surviving spouse. Thus, we insure against that risk with cheap term life insurance. My $1,000,000 policy costs us just $25 per month. My wife’s $500,000 policy costs us about $14 per month. So let’s estimate this category at $50 per month, to be conservative. I included this cost in the “miscellaneous” section of the estimated total costs.
Child Care & Education – the USDA estimates this category at $2,077 per year, per child. I’ll take this figure at face value and use it for my estimate. For my family, this number is close to zero, with my wife working inside the home. However, for the purpose of this estimate for the average family (where typically both spouses work outside the home), we’ll use the USDA data.
Health Care – the USDA puts this at $97.35 per month, per child. I won’t argue with that one, either.
WHAT DOES THIS MEAN TO YOU, OUR CLIENT?
In general, don’t let finances dictate whether you and your spouse have children (or whether you should have more children). While children certainly cost a good bit of money, they do not have to be nearly as expensive as what the average American family spends. Children are of eternal value, and they are a great blessing to have.
The average new-car payment in America today is around $550 per month (with a term of 69 months). Thus, if a person has a car loan like that for 18 years, they will have spent $119,000 on buying vehicles alone (not accounting for gas, maintenance & repairs, car insurance).
Think of it this way: each child in a household can cost less than the average new-car payment in America.