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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$10,000 total? Or per year? Because it seems like you could spend that much on childcare alone in one year, more if you do a program like an au pair.
ReplyDelete$10,000 for lifetime housing per child...not $65,000, which is approxiamtely one-third of the 200k as suggested by the other reports.
ReplyDeleteThe truth is, my bias actually leans toward calling the housing matter a "net-zero" cost. Even though there is a point when growing families need bigger houses, real estate tends to go up and even return a net profit. But since some people never buy their own homes or others live in areas where real estate prices remain stagnant, I relented the amount indicated.
However, as you have pointed out in a previous article, you have to pay interest on the $10,000 FOREVER. So maybe that $65,000 number might be close if you factor in interest.
ReplyDeleteIf you do ANY form of childcare Sharon. Day care is around $15K to $25K per year depending on the center and age of the child. I don't know anyone who has full time childcare that only pays $10K per year.
ReplyDelete