March 17, 2008

What do children cost?

I currently have no children. But in the near future I plan to start a family. This raises the question for me of : What will the expenses related to raising children be?

In the past I've seen article headlines that say things like that it costs $180,000 total to raise a child. So that kind of number averages out to $10,000 per year for 18 years of childhood. I personally can't really see there being $10k / year in expenses for a child. But I'm admittedly pretty ignorant on the costs related to raising children. So I decided to do some quick research.

I hit Google and did a search with keywords "cost of raising children" and fittingly the first hit was this MSN article The Cost of Raising Children It presents a table showing average expenditures for children of varying ages and comparing households of differing income ranges. It has costs for individual expense categories of housing, food, transportation, clothing, health, childcare/education and miscellaneous. They get these figures based on an expenditure survey from the USDA so this is from statistical real world averages. Annually the costs range from low end of around $6,000 to high end of over $14,000. So thats the answer to the posts question, it costs $6k to 14k per year to raise a child.

Looking at the figures a little closer I'll see how I'll have to adjust my budget. I think I can ignore some of these categories altogether and others I've already partially accounted for.

Housing is accounted for and costs in the range of $2,000 to 5,0000 annually per child. This probably accounts for the fact that a single person can live in a 1 bedroom but a family of 4 generally needs 3 bedrooms and the 3 bedroom costs more than the 1 bedroom. But for me housing is a sunk cost [simply put something I've already spent/bought] and individual children will not raise my housing costs. Transportation is another figure that is probably based on increased driving and travel for additional people. I've figured generous gas costs in my retirement budget plus a family vacation budget so I don't honestly see significant increased travel spending otherwise. Housing & Transportation net change = $0

Food is an obvious expense that I've already accounted for. The tables show food costing around $900 to 2500 per year for a child. I've budgeted $1560 in groceries annually so I've got this one covered already. Food net change = $0

Clothing is shown as costing $300 to 1000 per year. I had a family budget of $500 per year for clothing and if I think I might have that I low balled that number a bit. But I don't know what clothes for kids cost so I did some looking over at just to see. I found 5 pairs of Levis @$17.5 each, 5 shirts for $30 total and then some socks and underwear for $30. This totals out to $147.5 and its most of a weeks worth of clothing. So I think $300 per year would be a pretty healthy budget for children clothing. Clothing net change = +$175

Health cost figure is listed at about $400 to 800 per year. I expect some of this is additional health insurance premium costs but I'm not certain. There will undoubtedly be some additional health costs for children with them needing cough medicine and regular doctor visits. I had not budgeted a separate line for health costs so I'll have to add this. I'll go with a lowish figure of $500 per year. Health cost net change = +$500

Childcare and education costs are shown at anywhere from $300 to over $2000. I assume this includes daycare, babysitting, private tuition as well as any fees or other costs related to school. My fiancee and I are planning for her to stay at home with the children full time at least in their early years. So we do not expect significant daycare costs. I do not plan on private tuition so we won't have to account for that. I guess there are likely to be some misc. costs related to school and maybe an occasional babysitting bill. So I'll figure a small amount of costs here. Childcare / education costs net change = +$200

The last category and most vague is for miscellaneous expenses and they show that costing $600 to $1900 per year. Since the article doesn't say, I am not sure what kinds of expenses this figure would include. But I'm sure there are going to be some various expenses for children that are not accounted for already in the main budget categories. I'll put down a low to average number for this expense of rough guess $1000 per year. Miscellaneous costs net change +$1000

So this brings my total net change to the budget of $175, $500, $200 and $1000 = $1875 per year per child.

In order to better budget for 2 children, It looks like I'll have to raise my target retirement budget by $3750 per year.

Note that the expenses are not including college costs or anything else over the age of 18. I'll discuss saving for college in another post. Also these numbers are not perfect by any means and are still just meant as ballpark figuring and I'm sure that I'll have to tweak them in future years.

I also found a calculator How much will it cost to raise a child? on the Equifax website. Using that calculator I can zero out figures that are sunk costs or that I won't have myself. With that calculator I figured average annual costs past what I budgetted with my initial retirement budget and came out with an average figure of $1588 more per year. So now I've got two estimates using different methods with pretty big difference in result. I have high confidence that $1000 to $4000 is the right ballpark. I'll go with the larger estimate for now to have a conservative budget.

Blog Widget by LinkWithin