Housing, health care fuel record costs to raise a kid

Nanci Hellmich | USA TODAY

If you think the cost of rearing a child is getting more expensive, you're right.

A new government report says child-rearing has increased 23% since 1960 even adjusted for inflation. A lot of the reason has to do with more expensive housing as well as higher costs for health care and child care.

Parents with a baby born in 2012 will spend $217,000 to half a million dollars to raise the child to age 18, not including the cost of college, according to statistics out Wednesday from the U.S. Department of Agriculture. The exact amount families spend varies depending on income.

Child-rearing expenditures included the usual suspects, housing, food, transportation, clothing, health care, child care and education.

But the expenses don't include the cost of sending a child to college (an average of about $17,860 a year for tuition, fees, room and board at a four-year public college and $39,500 at a private, non-profit college) or indirect costs such as lost earnings from a parent leaving the workforce, reducing their hours to take care of the child or all the time spent taking care of children and running them to activities.

"Although children can be a great joy, they are costly and consume a large part of the family budget," says the study's author Mark Lino, a USDA economist. He says that other research has found that the indirect costs of rearing a child are even higher than the direct expenses outlined in this report.

The amount spent on raising a child varies by household income. Husband-wife families with annual before-tax incomes of more than $105,000 in 2012 will spend a whopping $501,250 to raise a child born in 2012 to age 18.

Parents with before-tax annual incomes of $60,640 to $105,000, considered the middle-range income group for this analysis, will spend about $301,970. Those with before-tax incomes of less than $60,640 a year will spend $216,910 to rear a child.

These estimates are based on rearing the younger child in husband-wife families with two children and assume an average inflation rate of 2.5%.

Housing is the largest expense for rearing a child in all incomes. For the middle and highest-income groups, child care/education is the second largest expenditure on the child.

The USDA has been doing annual estimates on child-rearing expenditures since 1960. Although the latest statistics aren't directly comparable to previous years because of changes in methodology in the calculations, there can be some general comparisons, the report says.

For instance, in 1960 a middle-income husband-wife household spent about $25,229 to rear a child, which would be $195,690 in 2012 dollars. To rear that child today would be $241,080 in 2012 dollars, an increase of 23%.

The reasons for the increase: Housing expenses on children increased because of larger homes with more bathrooms, Lino says. "Also, parents are covering a larger proportion of children's health care costs with higher co-payments and premiums than in 1960. In addition, as more mothers entered the labor force since 1960, child care became a major new expense many families did not face in 1960."

The latest USDA statistics were calculated from the 2005-2006 Consumer Expenditure Survey, which is considered the most comprehensive national data on household expenditures. The data were adjusted to 2012 dollars to do the analysis.

"This report gives families with children an awareness of the expenses they face, helping them in their financial planning," says Robert Post, acting executive director of the USDA's Center for Nutrition Policy and Promotion. "In addition, it helps educators show students how much it really costs to raise a child, and it helps states set child support and foster care guidelines."

Among the other findings for expenditures of a child born in 2012:

-- Housing represents about a third of the total expenses of rearing a child in a husband-wife, two-child family.

-- Kids cost more as they get older for both husband-wife and single-parent households. For instance, the annual cost for a middle-income, husband-wife family to rear a 2-year-old for a year is about $12,710. For a 17-year-old, it costs $14,700 a year. The extra cost for older kids is mostly due to increased food and transportation expenses, Lino says.

-- Husband-wife families in the urban South and rural areas have the lowest child-rearing costs. Not surprisingly, the highest costs are in the urban Northeast, followed by urban West and then urban Midwest.

-- Single-parent households in the lowest-income group (less than $60,640 annual income) spend 7% less on child-rearing expenses than husband-wife families.

-- Husband-wife families with only one child spend about 25% more on their child and those with three or more kids spend about 22% less on each child than families with two children would spend on each of their kids.

"What we found is that the cheaper-by-the-dozen effect does apply," Lino says. "Children can share a bedroom and clothing and toys can be handed down. Food can be purchased in larger and more economical packages."

Joe Burgo, a psychologist in Chapel Hill, N.C., and author of Why Do I Do That?, isn't surprised that the cost of rearing children today is so high. Too often parents get caught up in the "more" mentality for their kids -- more sports, more extracurricular activities, more musical instruments, more educational summer camps, he says. "Musical instruction, tutors, private sports club leagues -- all cost a lot of money."

Parents also may buy into the idea that they have to spend a lot of money on the type of clothing and possessions owned by their child's peer group, in the mistaken belief that if they don't, their kids will feel inferior, he says.

But "allowing a child to discover his passions and then helping him to pursue them will go much further toward building genuine self-confidence," he says.

"Sharing quality time doing things you enjoy with your children -- preferably activities that don't involve spending a lot money -- will help them grow up happy and well-adjusted much more than footing the bill for them to be one of the cool kids."