The cost of raising a child. Will it really cost you a quarter million dollars?

Yes, children are expensive. Yes, you can save more money if you don’t have children.

However, there are also a lot of sensationalized numbers thrown around that lead to a lot of worry and stress in planning, much of which is unnecessary. The most catchy one thrown around is the cost estimate of raising a child from birth to age 18 that comes from the Department of Agriculture. Why the USDA? I don’t know. Maybe a reader can enlighten us at some point. It seems to be from the nutrition department of the USDA so maybe it started on the basis that feeding children was the biggest expense a long time ago? Regardless, the latest study, done in 2013, provided an estimate of $245,340 for this cost.

USDA cost of kids

A quarter million dollars per child!?! Annualized, this is $13,630 per year! $1136 per month, per child! The implication here is that the average American family with 2 kids has to budget $2272 per month in extra spending just to cover the cost of having 2 kids. If you were looking at this based on a 4% withdrawal rule (after all 18 years is sort of like a retirement timeframe if you retire at 65 and live to the average age of early 80s), then you need to save $680,000 just to cover the cost of raising your children. Then your own retirement savings needs to be on top of this. Or alternatively, you need to spend the $27,000 per year to raise them while you’re working and still save a large % of your income to retire yourself at some reasonably young age. No wonder everyone is doomed financially!

The USDA even had a handy calculator so you can see your personal costs based on where you live, your income, and number of children.  When I do this, it’s even worse (but hey, they do thank me for using their calculator!).

Cost of kids calculator

So our 2 young kids cost us $47,550 per year and it’s similar to the national results calculated!  But wait, it’s even worse than this because our actual daycare costs are $20,000 not the $11,000 in the calculator. So if I correct this part, our costs are actually $56,000 per year. And this includes one child in school so it’s just before and after school care for that one. How are you feeling?  I feel depressed and hopeless.

Zion 2005-158
On Angel’s Landing in Zion National Park, UT…..I had not intention of jumping!


Wait! Don’t jump! Something is really wrong here when we start to look at the numbers. Just taking an average household income of $50,000 in America, there just isn’t enough money for this cost of raising children to be true on average.

Another government study, this time from the Bureau of Labor Statistics, pulled from about the same time, shows how people actually spend their money.

Consumer expenditures pie chart

Where are child care and other costs of raising a child if it’s a massive expense for the majority of Americans for a large portion of their lives? It’s not even here. Which means it’s buried in here somewhere. Yes kids do require things that cost money, but they aren’t 50% of every family’s annual spending. The population would be plummeting as everyone started living the high life (or retiring early) without kids if this were the case.

Kids are really just an incremental increase, with the exception of child care (and college which we aren’t covering here). So when you see these estimates, many of these are not “extra” expenses you need to cover if you have a child. Housing is the big one. In the calculator results for me, the extra $17,000 in housing expense is roughly a $300,000 more expensive house (assuming a 3.5% mortgage rate and 30 year loan) that you would buy in order to raise kids. This increase alone is higher than the average home value in the country! This is a bit ridiculous. Transportation is similar. These numbers on transportation ($5,390 per year) are equivalent to leasing a new BMW X5 (keeping any previous vehicles) to cart the kids around. If you do these things, please don’t write to me complaining that it’s impossible to increase your savings rate.

So if these numbers don’t really add up, what do people really do? Here I unfortunately don’t have any good studies or data to share. But based on my own experience and that of every parent I’ve ever talked to, what people actually do is making different spending choices.  Yes, they spend more to raise children, but this increase is largely offset by reductions in other areas of spending. In our case, I’ve tracked our actual expenses from before we had kids up to now and our actual spending over the last 10 years has gone up by less than $10,000. Some of this reduction is from paying off our mortgage and student loans so if I remove this, our spending is $20,000 higher than it was 10 years ago before kids. This coincidentally this is our cost of daycare. If my wife or I stop working, these costs disappear as we continue raising our kids and our spending would be no higher than it was 10 years ago, before we had kids!

In fact, it’s even better than this because I skipped inflation. Our costs should have gone up $15,000 in this time period just from inflation alone but in reality they have stayed flat. This ability to limit spending increases to well below the headline inflation rate is rarely included in financial modeling but it’s actually very common in reality for frugal types like IBFree readers. I’ll delve into this in a future article.

Since the “big three” of housing, food, and transportation account for 60% of the cost of raising kids here, if you don’t make big increases in these categories when you have kids, then you’ll find they don’t cost that much. Instead you’ll find yourself noticing and complaining about the cost of diapers and the kids outgrowing their shoes so quickly…..real expenses but on the order of a few hundred dollars per year, not thousands per month.

Interestingly, the only really big impact expense is daycare if you are dual career. You need daycare so you can work. And you need to work to pay for daycare! Feel like a hamster on a wheel yet?

So where does that leave us? With everything taken together, my best estimate for the cost of raising kids is that they are incremental expenses outside of daycare. Several things go up like food, doctor visits, clothing, and activities, but importantly, other costs go down. This is completely missing from the headlines. Most people seem to reduce their spending in other areas to largely, although not completely, offset the cost of raising kids.

For example, my wife and I vacationed less after kids. This was not a big sacrifice. We certainly enjoy vacations but with young children, the appeal of being away from them for a long time was low (short periods were very appealing though!) and the thought of taking them with us on a big trip didn’t sound fun either. We wanted to be home, and do more vacations visiting family so our parents could spend time with their grandkids (and we’d have a babysitter). The cost of 4 plane tickets also naturally limited the appeal of flying vacations so we did more locally. We spent less time socializing with friends at bars and restaurants. Not due to cost but simply time.  We didn’t have the time or energy for home projects. These were not changes that made us unhappy, it was just a natural shift in our lifestyle that led to reduced spending.

For people with frugal skills who don’t spend blindly but instead make spending choices based on the personal benefit they carefully estimate, kids are much less of an expense than the headlines indicate.  In general, it seems that people rationally shift what they choose to spend money on, naturally reducing in many areas while spending more to raise their children.  Importantly, this does not seem to be because of scarcity, but instead is a natural change in their lifestyles leading to different spending choices.

In the end, I was surprised at how little our spending went up after having kids.  We delayed having children for a while, partly to get on more sound financial footing and to be more established in our careers which I think was helpful.  It’s more difficult to work really hard, including long hours early in your career if you start a family so I still think the best approach is to focus on your own development and career in your 20s and early 30s before adding the responsibilities of parenthood if you want to be in good financial shape by your late 20s or early 30s.  Having a child demands a lot of time and hopefully you’ve reached a point in your career where you can pull back a little before you have them.  It will make your new adventure in parenthood much more pleasant.

Hopefully this article convinces you that children are not as expensive as the mainstream media will tell you and that you have a lot more control in how much they would cost.  IBFree readers should have no problem avoiding really expensive birthday parties, new retail clothes, brand new family vehicles, expensive vacations, and other expenses that can really add up and don’t really create a better life experience for either the parents or the kids.  Many, many parents don’t do these things, regardless of what your immediate social circle does.

Deciding whether or not to have children is a very personal decision.  One of the major benefits of saving a lot early in life is so that the decision is less dependent on finances and depends on other more important personal considerations.  This is a key part of the Freedom philosophy here at IBFree.

Final comment and request:  This is a very complicated topic and I’ve skipped a lot of additional aspects relevant to the topic.  It’s also a highly emotional one.  I expect I will get my share of “haters” from this one, but I also hope to get some useful comments from readers who see things a bit differently.  Please send in your comments.


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