Oh, baby! What's it going to cost?
The biggest investment of your life won't come cheap. As you anticipate the joys of parenthood, a few mundane matters beg to be considered. One of the most fundamental is the question of money.
The bottom line is, inquiring minds want to know: What's it going to cost me?
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Good question. Unfortunately, there's no easy answer. The glib answer is this: a lot. A whole lot. Probably more than you really care to ponder. But of course, the intangible rewards will always outweigh the financial investment associated with having a baby and raising it to healthy young adulthood. That said, there are some rough guidelines regarding what you can expect to spend over the next 18 years or so.
From diapers to formula to car seats, from cribs and baby-room curtains to insurance and medical care, your expenses are about to increase dramatically. And if you think you've got it harder than your parents, chances are you're absolutely right. According to one government estimate, published in the late 1990s, the cost of raising a child from birth to 18 had risen by 20 percent since 1960. And most estimates do not take into account lost wages due to one parent taking time off to raise the children. How is your hard-earned cash about to evaporate? Let me count the ways.
Some figures to ponder
For purposes of this discussion, estimates are based on the costs of raising a child in a dual-parent, two-child family. Costs for single parent families and only-child families will vary somewhat. Estimates are based on data collected by the U. S. Department of Agriculture from 1990 through 1992 through the Consumer Expenditure Survey. Figures have been adjusted to 1998 dollars.
Lower income
Households with a before-tax income of up to $ 36,000 can expect to spend about $ 115,000 per child to raise a child from cradle to 18. This does not take into account the considerable expenses of prenatal care and delivery, nor does it consider the skyrocketing costs of a college education. What the estimate does include is expenditures for housing, food, transportation, clothing, health care, childcare/education and a little extra for miscellaneous expenses (Pokémon cards?).
Middle income
Couples in the $ 36,000 to $ 60,600 annual income category can expect to spend even more. Raising just one of the two children used for the purposes of this illustration will cost this couple $ 156,690 in 1998 dollars. And remember, this estimate does not include the costs of prenatal care or delivery. Nor does it make allowances for children of less-than-average health.
Higher income
Higher income couples, earning in excess of $ 60,600 per year can expect to spend about $ 228,690 per child. The USDA expects that parents of an only child will spend slightly more on that child, and suggests multiplying the appropriate figure above by 1.24 to arrive at a more realistic estimate. Conversely, parents of three or more children are generally expected to spend slightly less per child, and USDA recommends multiplying the appropriate single child cost by 0.77. Costs drop slightly with each additional child, due to the "buy-in-bulk" factor, among other reasons.
What about "before and after" costs?
Naturally, everyone's expenses will be different. Infertility treatments and problem pregnancies can cause initial expenses to skyrocket, before your baby ever arrives. Likewise the costs of adoption. On the other end of the equation, college expenses vary wildly, depending on whether your child will qualify for scholarships or financial aid, and whether he or she plans to attend a state college or a private institution. Generally speaking, the cheapest higher education is available at state institutions. Expect to pay far more for private and out-of-state institutions.
In the 1990s, the average cost of a college education in this nation rose approximately 7.5% per year, while overall inflation was a more palatable 2.6%. Clearly, managing the cost of higher education is an enormous challenge for the average American family. At the same time, attaining an undergraduate degree has never been more important to attaining a middle-class lifestyle.
Parents hoping to put their children through college have no choice but to begin investing in some form of college savings or investment plan as early as possible. Waiting until kindergarten, for example, can nearly double the amount you will need to sock away each month, just to catch up, thanks to the magic of compounded growth.
Early financial planning can help
There are several steps you can take now, which will improve your overall financial picture. First, look into the insurance coverage offered by your employer. Find out what types of prenatal and pregnancy/delivery benefits are available to you. Second, determine if your wife will qualify for disability coverage while on maternity leave. Next, find out what it will cost to add dependents to your medical insurance plan. If both parents work, one parent's coverage may be more cost-effective than the other's. Consider starting a savings account dedicated to baby-related expenses, such as buying furniture or redecorating the baby's room.
If you are a two-career couple, take a hard look at the costs of paying for quality childcare versus the income generated by the spouse in the lower-income job. In some cases, when transportation costs are factored in, it makes more sense financially for one parent to stay at home to raise the child, rather than paying someone else to do so. Given the high cost of childcare, one income with no childcare expenses may actually be more cost-effective than two, with childcare expenses.
Another important tool for cutting your expenses is the use of pre-tax dollar childcare plans, offered by some larger employers. If this plan is available to you, be sure to sign up. It can significantly reduce your childcare expenses, which will be paid with pre-tax dollars. If such a plan is unavailable to you, be sure to take the childcare tax credit on your income tax return.
Consider forming a baby-sitting cooperative in your area to save on the costs of an occasional night out. By swapping sitting duties, everyone gets a scheduled break, and no one pays.
Finally, as children age, train them to be smart shoppers and responsible money handlers. By teaching them the value of money -- how to earn it, how to spend wisely and how to save -- everyone wins in the long run.
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