Impact of children on your financial path

When thinking about your future, there are many factors and life choices you will have to plan and save for—whether that’s purchasing your first home, buying a car, or growing your retirement nest egg. Starting your family is one of the most rewarding experiences in life, but it carries some significant financial costs. No one wants to financially evaluate having a child the same way they would the purchase of a car, but it’s incredibly important to plan ahead.

The U.S. Department of Agriculture used to publish an annual report that calculated the average cost of raising a child to adulthood, not including college expenses. It was last published in 2017 and found the cost of raising a child born in 2015 was a total of $233,610 through age 17. When you break it down per year, and we account for increased costs over the past six years (2% annually), this works out to $15,745 or $1,289 per month in 2021. These numbers aren't necessarily reflective of every family's experiences, though. Families with lower incomes are expected to spend about 25% less ($174,690 in 2015 dollars) and families with higher incomes are expected to spend 59% more ($372,210 in 2015 dollars).

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While you take a moment to take a deep breath, let’s discuss how children could cost this much. This average includes everything you may spend on a child, such as:

  • Housing
  • Food
  • Transportation
  • Healthcare
  • Childcare & education
  • Clothing

Keep in mind there are several circumstances and choices that can increase or decrease the cost of raising a child.

Housing costs

By far, housing is the biggest expense accounting for 29% of a child’s price tag but can vary widely on the region that you live. This category includes mortgage payments, property taxes, home repairs, rent, utilities, furnishings, and equipment, such as house appliances. If you already own a home with an extra bedroom, you probably won’t see a drastic increase in expenses. Your utilities will be higher, and you will likely need to buy new furniture. Parents who want or need to move into a bigger home will likely see their housing expenses increase more significantly.  Sure, having a house with plenty of space for your kids is nice, but a higher house payment might stretch your budget.

Food

If you already have children, you know they eat a lot, so it may come as no surprise that this is the second largest cost of raising a child. Before my wife and I had children our kitchen was a relatively snack-free zone, but its unavoidable now that we have two daughters. and why our grocery budget continues to grow. I think this joke summarizes most children’s eating habits perfectly:

Kids have two stomachs. One is the meal stomach. It's about the size of a pea. This is why children cannot consume a full breakfast, lunch, dinner. The second stomach is the snack stomach. This stomach stretches and has infinite amount of space.

The good news is, as they get older it can get easier since they can start eating the same meals as their parents, which allows you to buy more items in bulk and save money on food costs. Just beware that your child’s teenage years are often the time that you will spend the most on food.

Childcare & education

Probably the biggest expense you'll incur once the baby is born is for childcare, which is especially expensive for infants. If you have more than two children, you may prefer a nanny over daycare as nannies don’t often charge double in the same way daycare centers tend to. However, daycare centers may be more inclined to give you a discount if you have more than one child enrolled in their services.

Another option is to provide childcare on your own or through a family member, which can decrease this expense significantly. However, if one parent stays at home this means a loss of income. Even if staying a home is temporary, there are certain drawbacks. Parents with employment gaps can be perceived as unemployable and may experience lower wages later in life.

Even when your child is old enough to go to school, you'll have after-school care, summer camps, and other related expenses. Remember that $233,610 total cost figure earlier? That doesn’t even include the cost of college!

Transportation

If we look at expenses as they correlate to the child’s age, transportation costs the most for teenagers since that’s when they can get a driver’s license. This, in turn, means that some families buy a vehicle for their children and include them on their insurance. Unfortunately, the average car insurance cost is the highest for teenage drivers. The good news is, with the creation of ride-sharing services and driverless cars, we may not need to spend as much on transportation costs as prior generations.

Medical costs

study published in Health Affairs by the University of Michigan found that in 2015, the average cost of giving birth was $4,500—even with insurance. That's including pregnancy, labor and delivery, and three months of postpartum care. The costs of having a child include more than just the actual childbirth. These costs also include the regular check-ups, tests and prenatal care associated with pregnancy.

While employers may subsidize or cover the full cost of healthcare premiums for their employees, adding a spouse and and/or children to the plan often increases the cost significantly. If both you and your spouse have health insurance available through your employer, look at the terms and costs of both policies. Decide whether it makes more sense financially to have you all covered on one plan or to split the coverage between the two plans. For those families without employer provided health insurance, they’ll want to purchase a policy through a government exchange or marketplace (commonly referred to as ACA plans), or they can buy health insurance from private insurers.

Clothing

Children are constantly growing and active, so you will wind up replacing their wardrobe multiple times over their life. With another set of clothes to wash, this means more laundry. Rarely a week goes by where my wife doesn’t complain about how much laundry there is with two toddler daughters! More loads of laundry, also means higher energy and water bills each month.

Kids do have some financial benefits!

While most people might consider having children to be a drain on finances, there are some benefits to having kids that most people never consider:

  • Increased motivation to look at your situation and get your finances in order
  • Increased savings at tax time – there are several credits that can help ease the cost of children
  • Dads make more money (unfortunately this doesn’t hold true for moms)

While couples often discuss whether they can afford children, parenthood should not be reduced to a financial decision. Rather than asking if you can afford children, a better question may be whether you are willing to shift money away from your current expenses to accommodate the needs of a child. Ask yourself, are you willing to make those sacrifices?