6-figure Cost of Raising a Child

 A middle-income family will spend $241,080 to raise a baby born in 2012 until the age of 18, according to a report released today by the U.S. Department of Agriculture.That’s an increase of $6,180 over the previous year, according to the annual “Expenditures on Children by Families” study. But it’s a little lower than usual, just 2.6% vs. the normal average increase of 4.4% from year to year. This is likely due to the fact that housing costs did not increase significantly in 2012.The study defines “middle income” as between $60,640 and $105,000, pretax. Kids got more expensive for the other two income groups as well.

Households earning less than $60,640 will spend $173,490 (an increase of $4,410). Those who bring home more than $105,000 will ante up a whopping $399,780 (a jump of $10,110).

Do kids really cost this much? And is there any way around it?

The answers are “maybe” and “definitely” — but compromise is just as important as common sense.

Common sense would dictate that moving to an expensive area means a higher cost of raising a family. Job searches could thus be focused on the more affordable regions of the country.

Overall expenses are highest for those in the urban Northeast, urban West and urban Midwest, according to the study. Those living in rural areas or the urban South spent the least.

Yet compromise is necessary for those whose jobs and/or family ties already have them anchored down in an expensive region. Do you move to a cheaper state and save money immediately, or do you stay where you already have work and a support system and focus on saving money in other ways?

The pressure to overspend
It’s tempting to dismiss such large dollar amounts as the result of people spending frivolously on their kids. But the two largest expenses are housing and education/child care (as much as 33% and 23%, respectively) and the third-highest expense, food, takes up to 18% of the total budget. None of these three categories is discretionary.

It’s easy to spend a bundle on your bundle of joy even if you don’t go in for high-end clothing or pricey preschools. Parents overextend themselves buying homes near good schools and by paying for lessons, sports fees and other activities they believe will benefit their kids (especially during the college search).

“Competitive educational environments and an awareness of what it takes for children to succeed are prompting more spending,” notes an article in Bloomberg Businessweek.

“It’s not just the cost, it’s the pressure,” Ellen Galinsky of the Families and Work Institute told Bloomberg. Families don’t get the support they need to help them “navigate” the process of bringing up children, she said.

That process has changed considerably since the first study, in 1960. Housing was also the largest single expense back then, but health care was only 4% of the total budget (now it’s as much as 8%) and education/child care just 2%.

Food costs have actually gone down since 1960, when it was the second-biggest component. The difference is likely due to changes in agriculture, according to the USDA.

Interestingly, clothing and miscellaneous expenses also decreased by a few percentage points despite today’s emphasis on designer labels. The drop in clothing costs is likely due to “technological changes and globalization (having) made clothing less expensive,” study authors say. Miscellaneous spending probably decreased due to the growth in other categories, “which are often seen as discretionary.”

Understanding the true costs
Having trouble wrapping your mind around those dollar amounts? Check out this interactive visualization tool produced by the USDA and FutureAdvisor, an online investment adviser company.

You can search costs by region and look at expenses by birth year. For example, the total amount to raise my older nephew, born in 2001, is projected to be $242,736. His younger brother, who came along five years later, will cost $245,733 — an increase of about $3,000.

Seeing that kind of trend could help parents decide when (or whether) to have another child. Those who are considering kids “someday” might decide to start a little sooner — or to wait until they’re on a more solid financial footing.

They can also make carefully considered choices. For example, do you really need a four-bedroom home and a monster minivan if you’re planning just one or two kids? Having one parent home with the kid(s) will nix the second-biggest expense, although you must factor in both the loss of income and the impact on retirement.

You can also trim expenses via tried-and-true frugal hacks such as cooperative or multigenerational housing, thrift stores, gardening, couponing, home cooking, bulk buying, keeping automobiles longer and being a late adopter of technology.

But unless you’re living in a paid-off home in a rural area or the urban South, there’s only so much you can do to reduce costs. Keep long-term expenses in mind when considering the size of your future family, advises Bo Lu of FutureAdvisor.

“Couples know children can be expensive, but they often don’t understand the true cost,” he says. “Children are expensive, and families should plan for that.”

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