Raise a Child, Not a Fortune


Our bundle of joy!

Our bundle of joy!

It was over 10 years ago.  Yet, I remember even the smell of the hospital sheets the day TFR Junior was born.   I was in the hospital operating room after donning a protective gown when the doctors started to do a C-section on my wife.   It was over in minutes and they handed the precious little thing into my waiting hands.  At 8 ½ pounds and 21 inches, TFR Jr. wasn’t a tiny baby.  Yet, he felt like the lightest thing I had held in my arms. I was so worried about accidentally dropping him that I lowered my arms in glacially slow motion onto the bed beside his mom. “First time dad, huh?” quipped the operating doctor. 

TFR Jr. arrived not only into the loving family of TFR but also into this material world with over $30,000 in hard-working assets (invested in 100% equities).  That put him right near the middle of American population’s net worth. Right on the day he was born!  How did this happen? My wife and I started allocating a college fund for him even when we decided to have a baby because we were scared witless, thanks to media reports about how expensive it is to raise a child and future college costs.     

There is a powerful infographic chart below from creditloan.com (click on the image to see the source) that summarizes why we all should be afraid….very afraid, of raising a child.   It is a breakdown of the headline news from US Department of Agriculture (USDA) research that it costs $245,000, on average, to raise a child from birth till 18, and this doesn’t include college costs!

If you are a young adult reading this, remember this figure the next time you try to ‘slip one past the goal’.   This chart is a powerful motivator for birth control, though USDA probably did not intend it that way.

Does a child really cost a fortune?
Motivation for birth control?

Motivation for birth control?

I am not covering pregnancy and delivery costs in detail because the figures vary with location and insurance coverage.  I will give you a broad summary here. Since we went to a HMO-covered hospital, our entire hospitalization costs for delivering our baby worked to just $350.  The multiple doctor visits during pregnancy and scans, would add another $1000, since they were only partly covered by insurance.  Your mileage may vary.

An average family, USDA estimates, spends around $1000 a month, month-after-month, year-after-year, from birth till 17, as the chart shows.   There is no respite at all.  As you may expect, USDA says it costs a bit less to raise a child in rural America than in urban areas.  It also costs more in urban upper north-east than in south.   All understandable, because this is in line with cost of living in these areas.   But even rural America is not ‘cheap’.  If it costs between $9,000-$10,000 a year even in rural areas to raise a child in America, this can be a large financial burden for average families.  

Using the broad numbers as a guideline, imagine spending $1000 a month raising your kid while earning $4000 (net of deductions/taxes), based on median U.S. household income.  Even if your salary increases with inflation, so will these costs.  By gobbling up 25% of your income for 17 years and beyond (for college), having a child becomes a scary prospect for many young couples.  

If financial media already goes crazy about how sacrificing a $4 daily latte secures your retirement, what about having a child with these costs?   Maybe that’s why the fertility rates have dropped to the lowest level ever in the U.S.  Using the first year of child-raising costs as per the chart ($11,700) as a guide, the 4% rule would say, you need assets of nearly $300,000!  And this doesn’t even include college.  

Reality Check

While we haven’t done down-to-the-dollar budgeting of costs, we are fairly rigorous in tracking our spends (well within 10%).  Right from the first day we brought our bundle of joy home until now (as a sprightly 10-year old discovering his strengths and interests), I can give you a picture of our real costs of raising a child.   For comparison, I have used USDA age-wise data from the same chart.

In doing this analysis, I have ignored various gifts, freebies and outright discounts that TFR Jr. has enjoyed.   We have certainly bought several toys and clothes over the years, but many toys were bought from Craigslist and clothes from Wal*Mart (they outgrow them well before the colors fade).   Others bought our kid gifts too.  Doting on the little guy is a privilege reserved not only for the parents but for extended family and friends as well.  

In addition, I am ignoring the sizable monetary gifts from grandparents, which are in a separate fund on his name.   His birthday cash gifts over the years are also in a separate fund.  I am also ignoring some reduction in costs as a couple we have had to endure as a result of staying at home more often to care for the little guy.  Foregoing one fine dinner pays for a month’s food supply for a baby, so the table includes the baby food costs but our savings from foregoing the fine restaurant meal aren’t in this table.  

Also excluded are the child tax credit and the additional personal exemption that US federal tax law provides.  So, Junior worked hard to save taxes for his dad even before he could say “dada”.

Only the direct full costs without any related reductions are included.   So, you can safely say that the costs I have mentioned below over-states what we actually have spent so far in raising the kid.  

Child's AgeUSDA Average/yearTFR Actuals/yearReasons
0-2 $11,700 $7500 * High part-time daycare costs as we both were working during the first year * Much lower second year onwards as Mrs. TFR quit her job * Multiple doctor visits, new parents learning
3-5 $11,730 $4200 * Preschool plus home care not expensive if creative work-share with school is done
6-8 $11,650 $3600 * Same with elementary school, plus buying in discount stores * TFR Junior health improves, less doctor visits
9-11 $12,420 $4000 * More board game toys, less electronic toys * Friends and parents who think and spend similarly
12-14 $13,090 ?? Expect to be considerably lower than USDA Average based on past experience.
15-17 $13,370 ?? Expect to be considerably lower than USDA Average based on past experience.

So, there you have it.  A way above average income family spending far below average in raising a child.

Adorable Square Roots

So, are we shortchanging our child?  Is he going to grow up feeling deprived?

Well, let’s see.  The little slugger is having an over-the-top luxurious childhood that his parents never had and importantly, not many of his peers even do.   He gets to live in a large house, plays with friends and family, watches Pokemon to his heart’s content, has a closet full of clothes and toys (many of which we donate periodically after he outgrows them) and generally gets what he really wants (after convincing his dad).  Above all, he has the love and affection of so many people in his family and enjoys the wonderful camaraderie of his growing friends network.  He has an engaging smile and a funny bone that is hard to ignore.  It makes even a bad day at work for Mr. TFR into something lot more tolerable.  He is so excited about each day that we have trouble getting him to sleep on time.  

Think of children when you get into the car....

Cute little square roots!

From 10 years of first-hand experience, I can tell you raising a child need not cost a fortune.  It doesn’t even have to cost anywhere near the scary ‘average’ that USDA estimates.   Kids want your time and attention more than expensive gifts, lavish vacations, overpriced tutors and royal treatment summer camps.   If you treat your child as just another member of your family (and not as a pampered prince/princess), and share the things and experiences that you anyway do with your family, a kid will not break your bank.  

In fact, a different math applies here (see table below). The square root (SQRT) principle moderates cost increases with increasing family size – it holds good in our case and for the families that we know. 

Family SizeExpense IndexPercent Increase over BaselineWhy?
1 SQRT(1) = 1.00 -- Baseline case. Multiply your monthly expense by the expense index to estimate total expense for family size
2 SQRT(2) = 1.41 41% more than Single Marriage (or Couple) Benefit. Economies of scale from sharing housing, food and other costs,
3 SQRT(3) = 1.73 23% more than Couple. 73% more than Single All the benefits of sharing accrue, only incremental costs for the kid.
4 SQRT(4) =2.00 Only 16% more than 3-person family. 42% more than Couple Family size doubled but cost over couple went up only 42%. More economies of scale with second child than with just one child

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8 comments on “Raise a Child, Not a Fortune”

  1. By Lily | The Frugal Gene

    ‘ ‘slip one past the goal’.’

    Lol!!! Ahhh your little ones are so cute! What gorgeous hair! I think the US figures are off as well. Some bloggers are documenting the cost in detail (I believe J$ is?), which I think is pretty neat!

    • By TFRadmin

      Thanks Lily. There is only one, who baby picture at the top of the post. As you will soon discover, it is possible to raise your child well without breaking the bank!

  2. By Mustard Seed Money

    We’ve been really fortunate so far and Craigslist has been our best friend. We have been able to get tons of free stuff from people giving away items. We also went dumpster diving and were able to get amazing strollers that were virtually brand new. We also have been able to get bags full of clothes and figure why spend money on things that he’ll outgrow so fast especially since he doesn’t care what onesy he’s in. Hopefully by saving this money now that in the future we’ll be able to afford some other things.

  3. By My Money Design

    Kids are no doubt expensive! My wife and I were just talking about spring-fling dresses and the class Washington DC trip for our daughter. Despite all of that, the thing those statistics always miss is what you get in return. Coming home every day and seeing their smiling faces is priceless!

  4. By Max

    You might be missing a few things from your estimate to be fully comparable.

    30% of the USDA’s estimate is housing. If you remove 30% of the USDA cost, then you should be on a comparative basis (or add a % of your housing costs related to the cost increase of a 2 bedroom vs 1 bedroom [or 3BR vs 2BR, etc.] to your costs).

    Another 16% of the USDA’s estimate is food. Did you include a % of food costs for TFR Jr.?

    Another 14% of the USDA’s estimate is transportation. If you remove 14% of the USDA cost, then you should be on a comparative basis (or add a % of your transportation costs to get him to the doctor, daycare, school, etc. to your costs).

    Kids are expensive if you include all the incremental indirect costs as well. We had to move from a 1BR apartment that was super cheap to a 2BR apartment which drove up our costs of living significantly (though we’re in the NYC area, but DC should be somewhat comparable). I definitely agree on the economies of scale with ‘square roots’ though, haha!

    • By TFR

      We never put Junior in a separate bedroom till much older, but we already were staying in 2 bedroom apt when he was born with frequent family visits occupying second bedroom, no extra housing cost for junior. Another reason for having the infant sleep in our bedroom is we don’t believe in the infant self-soothe method – generations of parenting experience in our family shows otherwise. My article clearly says food is included. Transport is also included but these visits you refer to added only a small part to the bill because daycare and other doctor offices were enroute to our workplace.

      Did you read the entire paragraphs about the savings I EXCLUDED from the analysis? If I were to do true incremental costing, I should also consider all the savings, which would bring all my cost figures down substantially. Either way, the USDA Average estimate is way off based on the 10 years of personal experience I have summarized in this post.

  5. By The Green Swan

    Taking daycare and healthcare out of the equation for us and we’d be averaging a little below $2k in expenses for the first 2.5 years of our little boys life, a far cry from the USDA estimates. Although I believe they put in an estimate for housing which we don’t consider dependent on having children or not.

    So our household would completely agree with you. Jr isn’t being short changed in life at all and yet it isn’t nearly as expensive as the estimates.

    • By TFR

      Thanks GS for your comment. Our relatively high costs in the first 2 years are a result of expensive day-care in the Washington DC area. Still, the total wasn’t even close to USDA “average” estimate.

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