Curious how much does it cost to raise a child (or more) these days?
There are the big things to account for: childcare costs (daycare, nannies, sitters), basic needs (food, shelter, clothing), activities (sports, drama club, camp), college tuition, and just maybe, weddings.
It’s all about how you approach the ideas and beliefs (and myths!) of raising kids that will decide how much of an impact they’ll have on your early retirement goals. Those sensationalized “news” articles are intended to scare you with ridiculous statistics about the cost of raising kids in America. Scare you into buying something from one of their advertisers to allay the pain. Brother…
How Much Does It Cost to Raise a Child: The Common View
The total cost cited in the Huffington Post article linked above is a staggering $233,610. And that doesn’t even include the cost of college! WT, right?!? If you’re like me and have two kids, you’re all the sudden facing a tab of $467,220. And now I’m all the sudden feeling a bit queasy… This is my Rolaids Moment comin’ on…
Let’s start to feel better by examining the costs a bit deeper. First under the microscope is our good friend Housing. According to the U.S. Department of Agriculture, which compiles this figure on an annual basis, your housing costs comprise 30% of the total cost.
But what if you’re not easily swayed by those pesky Jones’s next door, who’ve added on another 3,000 square feet to their 3,000 square foot home? What if you choose to make a modest 1,500 square foot starter homework, like 90% of Americans did up until the 80s?
In that case, we can reduce our $467,220 tab down to $327,054. That’s better. Rolaids are starting to kick in. Yep, we keep our two minions sharing a bedroom at age four. They’ll be sharing a bedroom up until age 10.
At around 11 or 12 we’ll put one of them in the finished basement, where I’ll have installed heated floors and another egress window. Crazy how a small house suffices, right?
The Child Tax Credit Helps Immensely
The new tax bill that recently passed isn’t without controversy. For this post, let’s focus on just one facet of interest – the Child Tax Credit. It had been $1,000 per child. It’s now $1,600*. Not too shabby! See, raising kids (plural) ain’t so bad… Right??
If we were to take that credit and invest it over the allowed 17 year period, how much money do you suppose you’ll have saved on your taxes during that stretch? Assuming a 7% inflation-adjusted annual return, the yield is $98,688.70. I left in the 70 cents for effect. Pretty neat, huh?
Our new tally is $228,366. We can breathe a little easier now.
*Note: Since posting this, I learned the credit was DOUBLED to $2,000 per child in the final bill. And bonus, the income ceiling was doubled as well, so 99% of us can expect the credit in full.
Go make some babies, young people! But wait, before you go procreate, let’s see what else is lurking behind the numbers.
Dreaded Daycare Takes a Huge Bite
We ran into this ourselves. I won’t be ready to retire until after the kids have started public school, but at least Mrs. Cubert’s work schedule allowed us to minimize childcare hours to about 30 per week. The US Ag Department figures that childcare will cost you $37,378 per child. Again, with two, that’s a pretty big figure of $74,756.
Thanks to the tax code, we should be able to reduce that figure down a bit. There’s the Dependent Care Credit, which allows you to claim up to 35% of the cost of child-care, up to a maximum of $3,000 for a single child under 13, or $6,000 for two or more children under 13.
There’s typically a five-year window from birth to kindergarten, where most of the childcare cost burden is felt. Assuming you’re like us and paying for 30 or more hours per week, you could save up to $2,100 per year. And knowing how stellar you are about making your hard-earned dollars work for you, the investment returns of those savings would knock off an additional $12,076.
And by the way, there’s also the Earned Income Tax Credit, which for lower-income families (couples earning less than $50K per year) allows access to even more credit – up to about $6,300 per year.
We chipped away a little here: $216,290.
Other Large Child-Rearing Expenses
Food and Transportation account for roughly equal parts of 33% of the $233,610 original “supposed” total cost to raise one kid. That’s a staggering $154,182 over those wonderful 18 years with two precious, adorable kids. But what is that figure telling us about how we choose to live?
When grandpa used to complain about walking to school through 2-foot snowdrifts, uphill, both ways, that’s not far off from the truth. We eventually got a busing service established, courtesy of property tax dollars. But still, how the f**k do you wind up paying over $75K to get your kids from point A to point B?
Part of the problem is where we choose to live and the activities we choose to burden our kids with. We’ve made the conscious choice to live in a neighborhood with good enough schools that are within walking or biking distance. Select activities will be available to our kids but will require pedal power to reach. Mom and Dad are not a taxi service.
If you ask around the office, you’ll hear about co-workers who live out in the boonies having to drive their boys to hockey practice and cross-state tournaments, ALL.THE.TIME. It sounds like a fun life. Not.
I’m going to go out on a limb and reduce the transportation costs by a full $75,000. Thanks, bikes, and feet! I left a few hundred bucks in the mix to account for car seats and the marginal fuel of carrying an extra hundred pounds of human cargo.
New figure: $141,290.
Food and Clothes
Food can realistically be a bigger expense. You’ve got to feed them well. But there are some money-saving tips that not only will help your bottom line, but they’ll also help your kids grow up to be healthier, and fitter too.
We spend about $800 a month on food. This is before accounting for rewards money from our AMEX Blue and Citi Costco Visa cards — Two wallet-worthy credit cards that are quite generous with grocery points. After taking rewards redemption into account, our true monthly spend is about $690. Annually, that’s $8,280.
Assuming the kids eat about 50% of that total, we’re in for 16 years at a total of $66,240 in food. The USDA isn’t that far off from the Cubert household, though with some credit card tactics and a few other stealth moves* we’ve clipped off about $13,000 from the total.
*1.) No snacking – what the hell ever got into parents with the “snacking everywhere and the minivan” thing??? and 2.) 80% vegetarian household. Save big on the cost of meat.
This is a bit of a head-turner. 6% of the total cost goes to clothing thy children. $14,016 over 18 years. $800 per child per year. Wowie. I’d bet most of that is the cost of new shoes, as junior continues to shoot up like a weed.
Fortunately, many of us have parents and in-laws who are more than happy to help clothe their grandchildren during the first four or five years of utter cuteness.
We’ve been blessed with generous grandparents. For every other clothing need, we try to use consignment shops or get hand-me-downs from good friends and neighbors.
As the kids grow up and move along into grade school, we’ll concede to the need for fashionable duds. But that can still happen without frequent trips to the mall. I’m thinking eBay might have some sweet deals for kids (like it does for the old man!)
With this in mind, I’ll go out on another limb, and cut this $28,032 line item in half. Wish us luck once the girl reaches 14. 🙂
Tally: $114,274. Remember, for TWO kids.
Opportunity Costs of Raising Kids
I’m going to take one more haircut before we go further and wrap this up. Studies have shown that combined, working couples make roughly 2% more when they have kids. Sadly, Dad’s pay goes up, while Mom’s pay goes down. That needs to be fixed. The net of it is 2%, and we’ll use every penny of that money for this next part…
For now, we’ll assume our hypothetical power couple brings home $150,000 total, per year. A 2% raise is a decent bump of $3,000. After taxes, you just might put those dollars into a 529 account. If you do, your kids will be thankful for the $67,998 you set aside for their college education.
Lastly, if you’re a reader who happens to be a parent, you might agree with this notion. When you have kids, you simply don’t do as much as you used to. The fun money can’t be spent for at least three to five years, maybe more.
Kids require a lot of attention and effort on our parts. You can’t just jet off to Paris for two weeks like you used to. Further, you’re less likely to join in on spontaneous happy hours and dining-out with your child-free friends.
In our case, travel spending got cut in half, from $6,000 to $3,000. Our weekly “dining out” allowance similarly got cut in half, from $200 (insane) to $100. Annually, we now save $8,200 simply because we’re either too exhausted, or we simply enjoy spending time with our family at home. Novel.
I’d expect as the kids get a little older we’ll travel more, and dining out will surely cost more as appetites grow substantially with age. With that in mind, I’ll take a small cut of that $8,200 – say, $3,000, multiply it by 18 years, and subtract that from our final total. Here’s where we land:
$60,274 for two kids. Over 18 years. Or, $30,137 per kid. A far cry from $233,610, no?
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Mr. Freaky Frugal says
I have two adult children and I retired early – just barely – at 52.
You may want to add in college for a more realistic number. I dropped $200,000 total for college expenses.
52 is a great number, Mr. FF!
I snuck-in that $60K+ figure in the middle of my post to show you can take some of the benefits of having kids (e.g., raises) and put those dollars into 529s. I don’t plan to fully fund my kids’ college. They’ll be expected to work a little, study a lot (scholarships), and choose schools wisely (in-state.)
Matthew in Michigan says
What a good post. It’s true that kids cost as much as parents think they NEED to spend….or something like that.
We have 3 kids, they aren’t cheap but they aren’t terribly expensive either. We have it a little easier as we are fairly frugal to begin with so we don’t have the latest and greatest of everything. However it does get a bit more difficult as they age, they become naturally more materialistic, our oldest is in middle school now so she see’s what the “Jones’s” have :-).
We also have been up front about mom and dad not fully funding their college, so get good grades/scholarships, attend smaller university/trade school and plan on working as well. We have 529’s for each of them but they will not cover the entire cost.
Good stuff, Matt! Funny, I just replied to Mr. Freaky Frugal with similar sentiments on how we’ll fund our kids’ college education.
I do worry about how materialistic our kids will become. It’s only natural to gravitate to stuff at a young age, but only over time realize the fleeting value of it all.
Tom from Dividends Diversify says
Cubert, Very interesting and thoughtful post. Assuming the kids in the picture are yours?, they are priceless. Tom
Hey Tom! Thanks very much. They are the spawn of Cubert. 🙂
Good Breakdown of how you can have kids and not let it destroy you financially. I’m still happy without having them though hahaha!
LOL! Good for you, Melanie! We put off having kids for a long time. Sure as heck didn’t plan on having twins, but so glad it worked out that way. We’re done now. 🙂
I already spend $10,000 annually on our only child just on childcare ($600 per month for after school care, $3000 for summer camps, $1000 for vacation camps). Have done it for the last 3 years. Preschool was costlier. Brought it down by $3,000 this year by working from home partially. If I had one more kid, I probably wouldn’t have gone to work.
To put it in perspective, our annual expenditure is about $40,000. Compared to child care expenses, every other child related expense is negligible, and I don’t know how much I spend. He already knows that we are not paying for college since we paid for before/after school care 😀
Hey there Busy Mom! Wow – that is a hefty chunk of change! I expect that my early retirement will help us avoid those “shoulder hour” care costs we’d otherwise face, even with full time public school.
You’re doing great at $40K all-in, annually. And yes, nothing wrong with Junior paying his own way for college.
While I’ll agree the initial number is way to high, some of these are not a given for us. Travel for example. I do more with kids because I have more disposable income. It may cost less since I travel hack more, but in general traveling with kids comes down to exposure. Still I’d estimate my kids expenses are not unlike yours now that daycare is gone. Prior to child care removal our number was much larger. Childcare was daily 12k a year per child. That wasn’t a fancy choice either, just enough for both parents to work full time while the child was in chain daycare.
Hey FTF – it sure is unique for each family. That USDA study points out the disparity in what we spend based on geographic region and city vs. rural.
Childcare is such a drag. We’ve spent $25K per year for our twins on nanny care. It’s been a costly four and a half years for us, already having spent $125K. (Though that figure should be offset greatly by all the tax credits, lifestyle trade-offs, and boosted post-fatherhood raises at work!)
Financial Panther says
Really good point about the opportunity cost thing. My nieces were at our house during all of Christmas and New Years, and we rarely went out to eat during that time since it was a pain to get them all ready to go and little kids have to eat at like 5:30pm and go to bed at like 7pm. I also couldn’t eat candy or chips in front of them because otherwise I’d be setting a bad example.
Isn’t it something, Kevin? It was all I could do to finish one beer with you guys at our meetup this past fall, since I had-to / wanted-to be home in time to get the kids ready for bed. Trade offs!
My wife is due with our first child in April, and costs is one thing we’re worried about. Right now we’re working on figuring out daycare. And we’ll be eligible for the Child Tax Credit next year, too!
Congrats, Joe! Best in your journey into parenthood. It’s a riot!!! Look into your options for the child care / dependent care “FSA” account via work. It’ll save you up to $3,000 per year by using pre-tax dollars to pay for care. Best!
My wife and I raised three kids and they cost us very little. My wife wanted to stay at home so I guess you could say that was a cost but her frugal home managment meant the cost for the five of us was less than me as a batchelor would have spent. She developed awesome study skills in them and so all three had completely free rides through college and even had to turn excess money back in to their schools. The cost of clothes and medical care and food was so small and the joy of getting three kids grown into good adults has been immeasurable. Of course they were very intelligent kids who were great students and some kids can’t do that but still, I have always felt the cost estimates were inflated unreasonably to get attention and readers.
On that very last sentence I totally agree, Steve. Sensationalize it to grab attention, and then leave people feeling like they could never have children and hope to thrive financially. Nice.
Sounds like you and Mrs. Ark got it figured out. You certainly can raise multiple kids well, without breaking the bank.
Hey Cubert! Awesome post you have here!
My fiance and I don’t have kids yet, and I won’t lie… I do get intimidated (not him). Not just the cost, but the added level of stress and how it will likely eat up a lot of our time. I want one, but not sure when I’ll feel ready. I guess no one ever “feels” ready, right? :O
I laughed when you said “added on another 3,000 square feet to their 3,000 square foot home…” That’s like 6000 square feet total!! I already thought 3000 alone was massive! haha.
I personally love the 1500 sq ft homes way better than the 3000+. I really believe that’s enough for a family w/ kids. You can totally open up the space and design it in a way where it feels big and roomy. It all comes down to maximizing your space and choice of design/decor.
And of course, with the basement, it adds about another 1000 sq ft to your place… you can totally make a basement nice and livable for you and your kids without breaking the bank. I LOVE it!! This just equates to less cleaning, less chores, less of buying and storing stuff, saving more money for vacation/experiences plus your future… not to mention, maximizing your space efficiently also adds value to one’s home. These are all HUGE wins. Idk why many don’t see it this way 😐
Hey there, Savvy! Thank you!!! Yes, kids can be intimidating. They still intimidate me 4.5 years into this adventure. 🙂
Small homes offer savings, but also the opportunity to keep a tight family unit. Give everyone their “space” and the family unit (I think) tends to break down. You call out all the benefits – but missed one key one: Smaller houses help you avoid too many long-term guests. 😉
Accidental Fire says
Great post. It’s nice to see you poke all kinds of holes into mainstream dogma. I find that the mainstream always assumes everyone is a robotic lemming of Ameri-culture when they publish stuff like that Huffington Post article. So when I read that kinda stuff, my first thought is “but this doesn’t apply to me, because I’m Abby Normal” (Young Frankenstein reference)
Thanks, AF! I like how you describe my approach – that’s so adroit! I would definitely like to be known for poking holes in “commonly held notions.” The cost of kids being just one of those topics. Oh, and thank you for the Young Frankenstein reference – an all time fave of mine. -FrankenSTEEEEN…
Miguel (The Rich Miser) says
I just put this in my Evernote, Cubert. We’re planning on getting pregnant this year, and I’ve been all stressed out about the financials, since a friend of mine told me kids cost about $1,500 per month. At that price, we would probably have to make drastic cuts in order to remain in the black if we have two kids.
Thanks for showing that we can do better. Don’t need those Rolaids anymore!
Gotta love Evernote! I wish you all the best in your baby-making journey this year, Miguel! Kids are certainly not cheap or free, but they don’t have to have a material impact on your financial status. No need to limit yourself to one kid either. We’re not Communist China. 🙂
We have a 1.5 year old, and beside daycare, our biggest expense has been hosting and entertaining family and friends who have come to see her. A lot of those visitors are from out of town or country, and stay for days, or weeks.
Btw, I shared a room with my younger sister till we were 21/17 🙂
Hey! Now you’ve got me thinking – maybe ours CAN share their room until they’re out of the house for college… Boy/Girl situation for us, but who knows?
Mr Defined Sight says
Just another case of the media sensationalizing stuff again. Perhaps you “can” spend all sorts of money on your kids but you don’t have to if you are rational about it. I’m aware that it is more expensive in certain areas of the country. I hear how much people have to pay for daycare in other states and I’m blown away.
Great write up as usual sir!
Hello there, old friend! It is crazy. Used to be people had kids to help on the farm or with their small shops. They were “assets.” Not so much these days. Kids are too soft to hold PT jobs in high school or even during college. Sad, sad, sad.
Josh Haste says
Great article and very relevant for my wife and I !! Man life is just expensive, throw in 1 or 2 more lifes in the equation, and boom! I like how your broke down the expenses 🙂 Such a PF blogger thing !
I’m here at your service, good sir! Life is expensive, but NOT as expensive as the mainstream media makes it out to be. And particularly if you’re a mindful personal finance nerd, like THIS community. 🙂
Adorable kids! My younger child is the same age, and I’m looking forward to not writing that preschool check any longer.
For us, expanding the house is the biggest temptation. We have a 3BR in theory that’s a 2BR in practice. We actually gave the kids the bigger room so they can share and still have a little room to play. So far the hassle factor of major renovation has prevented us from spending the money.
And I can see how their personalities might lead to future budget challenges The older kid doesn’t care about her clothes but wants to sign up for every activity; the younger is a homebody but already something of a fashionista.
Thank you, Frieda!
Funny, our “3BR” is also effectively a 2BR in practice. Hopefully we can improve that basement one enough for comfort and natural light – we’ll see.
God help us if our little girl continues her current fashionista ways!!! 🙂