The Real Cost of Having Children

My upcoming book is devoted to family finances. In it I spend a fair number of pages discussing the things on which people waste their money. One chapter covers dependants, including pets and kids. I do not mean to say that all kids are a waste of money but I wanted readers to understand exactly how much of a financial commitment is needed to raise their children. Then they can decide for themselves if they can really afford more children.

In a recent post I discussed several articles that suggested the ultimate cost to raise a youngster through high-school is somewhere around $200,000. The consensus was that housing costs are approximately one-third of that amount. As luck would have it, I am a real estate expert so I happen to know a bit about that topic. In my blog article I pointed out a few flaws in the reasoning of the other articles (There are actually a lot of them). I just didn’t go into them. The bottom line is I think the total housing cost attributable to any additional child is approximately $10,000 over the child’s lifetime. That is well under the amount the other articles suggested (one-third of $200,000 = $66,667).

Here are some of the other categories in the MSN article (and similar ones) considered in raising children through age 17, and my comments:

• Food – The article says it takes $26,490 - $39,470 per child. The higher number equals nearly $200/month. I suppose if you take your newborn to a fancy restaurant every day you could spend that amount but if breast feeding is in your plans, it will be a lot cheaper. After that, as they get older, they eat more. In the end, I accepted the article’s lower number. Therefore it takes $26, 490 in food to raise a child through age 17.
• Clothing - The article says that it takes somewhere between $8,490 and $12,810 in clothing to raise a child. That is between $500 and $750 per year. That seems high for the toddlers but reasonable for teenagers. It ignores the savings of hand-me-down clothes, gifts from others, tax deductions when you donate the clothes, and other factors. However, I still use the lower number as I did with the food budget. Therefore, allow something like $8,490 to put clothes on a kids back until the age mentioned.
• Child care – MSN allowed themselves all sorts of wiggle room in this category, but they are justified. They say it will cost between $12,090 and $33,870. If one parent works outside of the home, the cost is higher but if somebody stays home with the child the cost is minimal, until you factor in the lost wages. Then there are options like licensed and unlicensed daycare, baby-sitting and professional help, as with Nannies and Au Pairs. Also, there comes a point where kids can take care of themselves or each other. There are so many variables it is hard to assign a specific number, but I will say it takes $24,000 in child care costs.
• Healthcare - Once again, there is a broad range. Some families have work provided insurance. Some people have co-pay and so on. The study says the medical cost to raise a child is between $10,680 and $15,870, but there are a lot of people who pay nothing and just take their chances. Furthermore, we are moving toward more government provided services. In that event, we may not pay directly for the services, but if your taxes go up or your employer cannot give you a raise because they are funding a health care plan for you, then you are still paying for the service. In the end, I adjusted the article’s out-of-pocket number downward to $4,000.
• Transportation – According to the MSN article, this is a major expense. They say to allow $18,660 to $34,860 for this activity. But I say they have exaggerated and overlooked lots of off-setting factors. For example, they have only considered the child’s driving years. They have ignored the times mom and dad drive the kids to other activities. This would not be a major cost because no additional car is needed, but it should at least be mentioned. The bigger flaw in their reasoning lies in the expectation that mom and dad intend to buy a car for the teenager. I have the audacity to suggest that junior should pay for most or all of his own vehicle. Furthermore, when a car is two years old, it still has substantial resale value so that amount is not lost or spent. In the end I say the parents should not be held responsible for more that $5,000 over the two-years in question.
• Miscellaneous – MSN says all the odds and ends add up to $13,380 to $32,460. They suggest this includes books, personal items and entertainment. You won’t be surprised that I adjusted the number downward, to $10,200.

My conclusion is that the MSN article, and the others like it, seem to misunderstand their own objectives. Presumably, they are trying to identify how much money is “needed” to raise children. But when they allow themselves to use such broad price ranges, they are allowing for what some of the wealthier people “spend” on their kids, rather than what is actually needed. For example, those people may indeed buy new and bigger homes every time they have a new child or they might actually buy each child a brand new car at driving age, but that is not necessary.

I try to eliminate as much of the “fluff’ as possible and I come up with a total real cost to raise a typical child of $87,180. That is still an incredible financial responsibility but it is way less than half of what the “experts” say.

What are your thoughts?

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Tired of Bad Tire Deals?

About a year ago, my niece needed to buy her first set of new tires. I was honored that she asked me to go along. In that exercise, I showed her four different ways that the sales reps try to “add on” to a final bill. Here is a list and the savings she enjoyed.

• Buy five tires – As soon as you tell them you want a set of tires, they assume you mean five tires unless you advise them otherwise. They will tell you that your spare is old or the tread does not match the tread of your new tires. If you tell them you will just buy one new tire at a later time if you should need one, they argue that the new tire will have a different diameter than whatever is left of your other tires. Conclusion: This is probably the last set of tires this car will ever need. If she does have a tire problem it will probably be repairable. There is no need for a fifth tire at this time. Take the best of the old tires and make that into the spare. Savings: $67. (Exception: If you expect to keep your vehicle for 60,000 miles or more, a fifth tire is okay provided you include it in your tire rotation cycle)

• Road Hazard Insurance – The idea is if a tire should become defective due to some sort of road hazard, like a pot-hole or nail, the tire store will issue a prorated credit toward a new tire. The problem is that so few tires actually have this problem that the insurance company (the tire store) is always the net-winner and nearly all buyers are net-losers. Conclusion: We said, “No thank you”. Net savings: $16

• Tire disposal fee – The tire store charges $2.50 per tire for this service. However they do not pay such a fee themselves. Some of the better tires, with sufficient tread, are taken to a flea market and sold. The rest of them are hauled off by a fellow who grinds them into a roofing product. Conclusion: We told them if they want to keep the tires, they may have them; otherwise put them in our trunk and we shall dispose of them ourselves. They kept the tires. Net savings $10.



• Cross Cutting the tire for extra stopping capacity – They offer to put the tires on a large wheel and modify the tread by cutting the tire cross-wise. They claim that the vehicle will stop faster. I don’t know about that, but if Firestone or any other manufacturer thought that such an exercise would enhance the breaking capacity, without some off-setting sacrifice, they would surely do it themselves. Conclusion: We said, “No thank you” Savings $40.

By the time we were done, my lovely niece left the tire store with a brand new set of excellent tires that should last for at least four years. She also had an extra $133 in her otherwise empty purse.

We went to lunch and I got a very heartfelt hug. It was a great day for both of us.

Comments by you?

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Costs of Raising Children

According to a recent article by Bankrate.com the cost to raise a child today is approximately $190,000. Not long ago I read a similar article by MSN Money wherein they cited the cost to be somewhere between $180,000 and a high around a quarter-million.YIKES! Personal Finance has the number just above $200,000. So that appears to be the range. But, before you start throwing numbers like those around, I suggest you hold your horses.

In my next book, I devote a full chapter to this concept. I break down the MSN Money study and try to determine if they are realistic. The conclusion: They exaggerate the cost but it is still substantial.

There are several key categories including housing, ffod, transportation, day care and more.

As far as housing is concerned the MSN article says that over one-third of the total cost goes to this category. That would be about $65,000 per child. They suppose that each new child requires new living space, and that is not necessarily true. A century ago people tended to have a lot more kids and they lived in smaller homes.

In a modern-day example, my sister, Jeanine, and her husband, successfully raised two kids in a three bedroom home. Then when those children grew up, four additional children replaced the older ones, all in that same home. Therefore, they have 6 people in a 3-bedroom home. While their home gets a bit crowded from time to time, they have done a splendid job of providing for all of their children. Therefore, it is possible, indeed common, for families to just crowd-in when they have family additions.

One flaw in the MSN projections has to do with their number-crunching. They suggest that each new family member needs 100-150 square feet of living space. Okay, fair enough! But it only costs about $100 per square foot to build a room that size. Therefore the cost of the new room, whether it is added to a previous home or part of a new home in some other area, is approximately $12,000. I suppose we could throw in a few dollars to allow for higher utility costs, higher maintenance and increased property taxes but we are still a long way from the $65,000 that is said to be the housing cost.

Furthermore, even if a family has to acquire a new home to accommodate new members, that money is not necessarily lost. Presumably the new home has more value and will retain that value after the children grow up. In fact there are many cases in which the home actually rises in value over time and enables the parents to eventually resell the bigger home and recapture all or part of the cost. In a lot of other cases the parents actually make a healthy profit.

So housing is an important monetary issue but it does not necessarily follow that each new child adds tens of thousands of dollars to the family overhead. In my book I somewhat reluctantly acknowledge the cost to be somewhere around $10,000 per child, much less than other studies suggest.

What comments have you?

Another MSN study suggests the housing costs are even higher.

Next up: Some of the other categories.

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