How Much Does It Cost to Raise a Child?

“Hey, Congratulations! You are going to have a baby! How exciting!”

“Does this mean you are going back to work?”

We’ve been asked this question a lot recently

(The answer is no, but thanks for asking)

After all… raising kids is expensive… isn’t it? The USDA estimates that (on average) raising a child to age 18 costs $245,000. Add to this the average cost of a 4-year degree, another $100k-$200k, and kids look like a guaranteed financial disaster

In the face of these incredible costs, what is a family to do?

Don’t be average

The USDA Data

Visual Economics created a great infographic from the earlier/cheaper 2009 USDA report that makes the data easier to digest (click to view at full size)

The USDA report (see calculator with background data here) includes a great number of assumptions that don’t apply to us… owning a car, working parents, living in a typical home in a “good” school district (one room bigger for each child), public school and daycare, a 1-week annual vacation, and (as per the infographic) dressing your children like rock stars and princesses.

But I think the key takeaway is not the numbers at all, because the real cost of raising a child isn’t based on which part of the United States a family lives in, the size of the family income, or whether there are 1 or 2 parents. The cost of raising a child is based on the values of the parent(s.)

To other parents, past, present, and future: Your values are wonderful. Your choices were and are perfect. Ours might be different (not right, not wrong, just different.)

Daily Life Expenses of Raising a Child

The 3 largest categories of spending in the report are Housing, Transportation, and Education and Childcare. All together these total more than $9,000 per year, but could be much more or much less

A big house in the best (and most expensive) school district costs more than a comfortable home in a good school district or home schooling while traveling around the world. Private school costs more than public school. Providing chauffeur service in a new SUV costs more than riding a bicycle and taking public transit.

All of these areas reflect parental values, and children pick up on these at a very young age. Recently we were waiting for the bus and we overheard a grandmother say to her ~4 year old grandson: “Oh, that bus is so loud and look at all of that exhaust. Buses are really bad.” The child’s response? “Grandma, when I grow up, I’ll drive a car.”

I don’t expect our needs in housing or transportation to change. I don’t foresee having childcare expenses. I also don’t foresee our education expenses to be significant, despite that we are unlikely to follow traditional eduction models

All together the USDA’s 3 largest categories of child raising expenses, instead of being over $9,000 per year, will be basically zero

The remaining categories of food, clothing, healthcare, and miscellaneous are estimated at a total of a few hundred dollars a month (~$325.) Even here the average seems much too high

For the first decade spending on clothing and miscellaneous will be low, reflecting our own. I expect our children will play with some of my own favorite childhood toys, Wired Magazine’s 5 Best Toys of All Time. As we spend more evenings at home reading children’s books, spending on groceries will increase while spending on restaurants and bars will decline. When additional tax benefits are factored in, our total spending may even go down

Sure, there will be the occasional plane ticket and an extra serving of brussell sprouts, but those expenses are already a minuscule percentage of our total spending so a little more won’t make much difference

College

But what about the most intimidating expense of all? College

Reasonably, a lot of people are concerned about future college costs. Tuition costs have been skyrocketing over the past decades, rising much faster than the rate of inflation. Many recent graduates are drowning under massive student loan debt.

It can now cost $100k – $200k to put a child through 4 years at at University, and possibly more with Graduate School.

I don’t expect this trend to continue. MIT now offers their courses online for free and many other universities are doing the same. This should democratize education, dropping its price substantially. Possibly even to free

College also isn’t the the right solution for many. James Altucher wrote a great book called the 40 Alternatives to College . Most people should probably choose one of them “to help keep innovation, creativity, and youthful energy alive and well”

But maybe college prices will continue to rise, and maybe our children will choose to attend one of the more expensive options, and maybe they won’t save any money during their 18 years, and maybe they won’t qualify for any scholarships. Maybe

If this perfect storm of college expense hell were to occur, 19 years from now, we’ll just pay cash. Even 529 plans don’t seem very interesting. $200k of inflation adjusted dollars in 2 decades requires putting only $55k in the market today. It looks like we’ve already saved for college before we even have kids. Compound interest is a wonderful thing

Conclusions

At least at first glance, it appears that the values and priorities that got us this far in life will set us up well for the financial aspects of child raising as well.

Achieving financial independence before having a child offers significant advantages, allowing us to minimize expenses while maximizing family time. The total real cost might even be close to zero. It also allows us to take advantage of very long term compound interest for major future expenses such as college

At least we can rest assured that, while we may screw up many aspects of parenting, at least finances won’t be one of them

What do you think? Let us know your thoughts in the comments