Despite low or stagnant measures of inflation, at least as those numbers are reported by the government, families are faced with expenses that continue to rise. It’s been a while since I last wrote about the Department of Agriculture’s calculation of the cost of raising a child. The last time I wrote about this was in 2006, when the average cost of raising a baby to the age of 18 was $190,980.
I haven’t been tracking this figure in the intermediary years, but according to the latest report released by the Department of Agriculture, a child born in 2011 to a middle-income family will cost $234,900 to raise. That calculation doesn’t factor in the effects of future inflation. A family earning less than $59,400 in annual income is projected to spend significantly less, $169,080, while a family earning more than $102,870 will spend $389,670 to support their child through the age of 18.
This is a 3.5 percent increase since last year’s figures. That increase is similar to what economists expect average inflation to be over the long-term, so the increase doesn’t surprise me. For families, the cost of raising a child is likely to be a major expense, so employers who base cost-of-living increases on government-reported inflation may not be doing enough to ensure their employees maintain their purchasing power year over year. An important idea to take away from this is that you shouldn’t rely on your employer for increasing your wealth; it’s more effective to build it for yourself.
Costs per child decrease as the number of children in the family increase, according to the report. The concept of economies of scale seems to apply to family-building in addition to business.
I ran some figures through the USDA’s calculator to determine the costs of a child per year, assuming I were married and had one child born in 2011. The most significant cost is housing. The cost of shelter, including mortgage payments, utilities, furnishings, repairs, and insurance, would be $10,600 higher each year due to raising a child. Child care and education would subtract $7,538 from my bank account each year over the course of eighteen years. If one parent were to stay home to reduce child care expenses and if the child were to attend public school, this particular expense could be considerably lower.
Transportation costs affect my projected expenses by increasing the annual total by $3,125. This includes car loans, gasoline, and public transportation. This figure could be significantly higher if I were to buy a bigger car designed to transport a child more comfortably as he or she grows. Food, clothing, health care, and miscellaneous expenses add to these figures to bring my total expenses to $28,500 per year.
With expenses at this level, having children would never look like the right choice to make for one’s life based on financial calculations. People use the “return on investment” excuse for not taking part in other activities that enrich their lives, but ask them about the financial return on investment for having their children to stump them. Obviously, having children — when it is a choice at all — is a choice people make for life goal fulfillment and happiness, not for growing wealth.
Studies like the above can help bring attention to the costs of raising children and can inspire families to think about how they’re spending their money. There are always opportunities to save money with children.
- I received handed-down clothing from a family friend. The same clothing was often kept for my younger brother. The clothing, though, was of higher quality than most cheap clothing today, which seems to be manufactured to be more disposable. Is handed-down clothing as socially acceptable today?
- I don’t remember specifics, but there were times as a child I received an allowance. I am sure that today’s teenager has higher allowance demands, so it’s worthwhile to make sure that allowance comes with lessons in managing money.
The other side of the equation is earning more money. In many cases, earning more money is a more efficient method of covering growing expenses than finding ways to cut back. And there are gurus who proclaim that everyone should strike out on their own in order to build wealth rather than worrying about shaving 10 percent here and 5 percent there off their budgets. There is some truth to this. Cutting back on expenses can rarely provide the kind of unlimited growth that you could experience through earning more money. Growing income can be as simple as positioning yourself for a significant raise or promotion or building your own business. When you have children, however, not only does your occupation often become a lower priority in your life, but the time you would need to spend building your own business is relatively non-existent.
With Father’s Day around the corner, now might be a good time to thank your parents for their personal financial sacrifices as they raised you until and perhaps beyond the age of 18.
If you have children, how do keep up with the growing expenses of raising a child? How do you cut costs and what do you do to teach your children about money management? Have you been able to grow your income to keep up with your expenses?