Sunday, January 16, 2011

the cost of raising a child

i've been wanting to write a post about the financial cost of raising a child ever since i read this article last year.  i'd highly recommend reading it as it is a pertinent and interesting subject for new parents.  one of the first questions james and i asked ourselves in the shock of finding out we were pregnant was, "how much is a baby going to cost?" our answer: we have absolutely no idea.  the money watch article claims that middle class families will spend $286,000 over the first 18 years of a child's life (not including the cost of college or loss of income from a stay at home spouse).  upper income families (income > $98,000) are likely to spend $475,000 in 18 years per kid.

these numbers sound absolutely outrageous and make kids seem very unaffordable.  however, i would argue the cost of raising a child can be much lower than these averages with a few easy steps and our cost of parker's first year was much lower than our expectations.  the article mentions that middle income families will spend $11-13,000 a year and upper income families $19-23,000.  i am happy to report that in parker's first year of life, we spent less than half of any of those numbers.  and without sharing too many personal details about our finances, it is helpful to breakdown where we spent our money:

1. childcare (about 50%).  thankfully we didn't have parker in full-time day care all year and our work situation is very conducive to reducing expenditures in this category since james watches parker most week days.  full-time childcare in arkansas is about $8-10,000/year and while i hear sooo many people complain about the crazy costs of childcare, it actually works out to less than $3/hr so hating the system seems unjustified.  plus many of my friends are either SAHM's or have relatives watch their children so that helps significantly in this category.

2. health costs.  for my personal calculation, i added the incremental cost of adding parker to health insurance + hospital/doctor's bills.  i am very thankful for parker's good health and that we did not have to have extra for staying in the nicu or going to the emergency room during the year.  did we still pay a few thousand dollars for premiums, prenatal/delivery costs, etc?  maybe.  but i don't think a few thousand dollars for these things is anything to complain about either--we get excellent care in america and should help pay for quality doctors.

3. baby supplies.  this is the area where i was pleasantly surprised to see low numbers in our budget.  diapers are not really that expensive!  for parker's first year of life we spent less than $100 a month on all feeding and diapering supplies (granted i breastfed over half of it, but still...the generic formulas that most babies can eat are not awfully priced either).  we got most of our clothes, furniture, etc. at baby showers and garage sales, so there was not much we really had to buy brand new in terms of supplies.

4. tax break.  i originally didn't have this in my expense list, but i think it makes sense to add back in the money saved in taxes into the cost equation.  child tax credit of $1,000 per child (if income is <$110k married filing joint) + dependent exemption ($3,650*whatever tax bracket you are in) = more than the cost of diapers and other baby supplies most of the time.

5. income loss--i didn't factor this into the equation even though i took extra unpaid time after parker's birth, but i think that is more a personal choice to stay at home longer (or forever) and while it directly affects available funds and is linked to the cost of raising a child, it is not a direct cost (plus the numbers for this are all over the board making it hard to have a true average).

anyway, i write this post not to brag about how we were super frugal with parker, but to encourage others that raising a child can be very affordable.  with a little planning, shopping around, etc. most stay at home moms can easily raise a child for less than $5,000 / year.  just to throw a number out there (which may be arguable with many, many contributing factors), i think any family with a member earning $40-50k or above can have the other parent stay at home with one child and make it work.  the more kids added to the family the harder this becomes, but finances should be considered before having more children if at all possible.  also i think it is helpful to breakdown baby expenses month by month and see how much you are really spending on your children.  i plan to continue tracking all of our kids' expenses every year and see where we end up.

did anyone else watch the oprah special this week with suze ortman and nadya suleman?  i loved it.  and i love suze ortman--sometimes i think we could be best friends if we were in the same friend group. 

until next time, hope everyone is having a wonderful sunday.  i had to add a picture of how parker and i spent our saturday since daddy was at work.  go packers!!!!!!!!!! (and jayhawks!)  love yall.


Susan said...

I totally agree, Silvy. When I talked to people about how much it would cost each month to take care of Caleb, the estimates were way higher than it has been for us. Granted he's only been around for about 4 months now, but things can be done cheaply. My estimate for costs for delivery, taking care of Caleb, and equipment is only around $2500 for the year if my predicitions are correct. I do have free child care and we were given a ton of stuff at the beginning, but if you just spend a little time bargain hunting at garage sales, thrift stores, and craigslist, etc. you can make things work!

kristina said...

i like your thoughts silvy. rhys and i are both so awful at finances and budgeting and the like. we save for the next trip, which is not great when you have children. so when we move to america, you are going to be are personal accountant. :) i like the way you do it!

Jenny Clements said...

Having Ava was significantly cheaper than we expected. However, we don't expect it to be as cheap the second time around due to a lack of baby showers. We only had to buy diapers starting month 7 (not including the 6 weeks of nb size we didn't anticipate needing). We had a full supply until then which really helped. I breastfed as well, and when I stopped, we switched to the target brand formula which was 50%the cost of brands such as enfamil- we saved $50 per month just on formula.

I'm so thankful to be a sahm now, however, even though we fall into that >40,000 bracket, it wasn't possible for me to stay home due to the debt my husband had before we married. We had to pay a lot of that down, and it was months of extreme frugality and two incomes. Even though we still have about two years worth of debt to pay off, by learning to live more frugal, and live on a strict monthly budget, I'm able to stay home (I also babysit part-time to contribute financially).

Great Post!

Erin said...

As I was reading this post, I made a mental note to mention the Susie Orman / Oprah / Nadia interview from last week. I was home with a migraine, and happened to see it. I thought it was really interesting and relevant to a lot of normal families. Her extreme case highlighted how detrimental it can be for children when parents put there own desires ahead of the financial health of the family.

I also love Susie Orman, and I think I would really enjoy being a financial adviser. Did you know that the AVERAGE family spends $1,000 playing the lottery each year?! I don't know if you have heard about these new interest lottery savings accounts, but I think it is an excellent idea.

Anyway, I am totally serious about coming to visit this summer. I have only applied to 1 job that would require me to start at the beginning of July. We will hopefully know where we are moving in the next couple months, and (cross your fingers) I will graduate the end of June!

Diet DP Loving Mom said...

I wish having Bella was that inexpensive. But with full time daycare, the expensive formula,plus everything else we easily spent 20K the first year, including the loss of income when I took off 10 weeks. Daycare here is the Philly area runs about 12-13K a year. And in Philly you can barely make ends meet on 40-50K on your own, maybe with a couple roomates. But that's just the cost of living difference.