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?
Drop by my other blog from time to time
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?
Drop by my other blog from time to time
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