“Hey, Congratulations! You are going to have a baby! How exciting!”
“Does this mean you are going back to work?”
We’ve been asked this question a lot recently
(The answer is no, but thanks for asking)
After all… raising kids is expensive… isn’t it? The USDA estimates that (on average) raising a child to age 18 costs $245,000. Add to this the average cost of a 4-year degree, another $100k-$200k, and kids look like a guaranteed financial disaster
In the face of these incredible costs, what is a family to do?
Don’t be average
The USDA Data
Visual Economics created a great infographic from the earlier/cheaper 2009 USDA report that makes the data easier to digest (click to view at full size)
The USDA report (see calculator with background data here) includes a great number of assumptions that don’t apply to us… owning a car, working parents, living in a typical home in a “good” school district (one room bigger for each child), public school and daycare, a 1-week annual vacation, and (as per the infographic) dressing your children like rock stars and princesses.
But I think the key takeaway is not the numbers at all, because the real cost of raising a child isn’t based on which part of the United States a family lives in, the size of the family income, or whether there are 1 or 2 parents. The cost of raising a child is based on the values of the parent(s.)
To other parents, past, present, and future: Your values are wonderful. Your choices were and are perfect. Ours might be different (not right, not wrong, just different.)
Daily Life Expenses of Raising a Child
The 3 largest categories of spending in the report are Housing, Transportation, and Education and Childcare. All together these total more than $9,000 per year, but could be much more or much less
A big house in the best (and most expensive) school district costs more than a comfortable home in a good school district or home schooling while traveling around the world. Private school costs more than public school. Providing chauffeur service in a new SUV costs more than riding a bicycle and taking public transit.
All of these areas reflect parental values, and children pick up on these at a very young age. Recently we were waiting for the bus and we overheard a grandmother say to her ~4 year old grandson: “Oh, that bus is so loud and look at all of that exhaust. Buses are really bad.” The child’s response? “Grandma, when I grow up, I’ll drive a car.”
A Reflection of Values
I don’t expect our needs in housing or transportation to change. I don’t foresee having childcare expenses. I also don’t foresee our education expenses to be significant, despite that we are unlikely to follow traditional eduction models
All together the USDA’s 3 largest categories of child raising expenses, instead of being over $9,000 per year, will be basically zero
The remaining categories of food, clothing, healthcare, and miscellaneous are estimated at a total of a few hundred dollars a month (~$325.) Even here the average seems much too high
For the first decade spending on clothing and miscellaneous will be low, reflecting our own. I expect our children will play with some of my own favorite childhood toys, Wired Magazine’s 5 Best Toys of All Time. As we spend more evenings at home reading children’s books, spending on groceries will increase while spending on restaurants and bars will decline. When additional tax benefits are factored in, our total spending may even go down
Sure, there will be the occasional plane ticket and an extra serving of brussell sprouts, but those expenses are already a minuscule percentage of our total spending so a little more won’t make much difference
College
But what about the most intimidating expense of all? College
Reasonably, a lot of people are concerned about future college costs. Tuition costs have been skyrocketing over the past decades, rising much faster than the rate of inflation. Many recent graduates are drowning under massive student loan debt.
It can now cost $100k – $200k to put a child through 4 years at at University, and possibly more with Graduate School.
I don’t expect this trend to continue. MIT now offers their courses online for free and many other universities are doing the same. This should democratize education, dropping its price substantially. Possibly even to free
College also isn’t the the right solution for many. James Altucher wrote a great book called the 40 Alternatives to College
. Most people should probably choose one of them “to help keep innovation, creativity, and youthful energy alive and well”
But maybe college prices will continue to rise, and maybe our children will choose to attend one of the more expensive options, and maybe they won’t save any money during their 18 years, and maybe they won’t qualify for any scholarships. Maybe
If this perfect storm of college expense hell were to occur, 19 years from now, we’ll just pay cash. Even 529 plans don’t seem very interesting. $200k of inflation adjusted dollars in 2 decades requires putting only $55k in the market today. It looks like we’ve already saved for college before we even have kids. Compound interest is a wonderful thing
Conclusions
At least at first glance, it appears that the values and priorities that got us this far in life will set us up well for the financial aspects of child raising as well.
Achieving financial independence before having a child offers significant advantages, allowing us to minimize expenses while maximizing family time. The total real cost might even be close to zero. It also allows us to take advantage of very long term compound interest for major future expenses such as college
At least we can rest assured that, while we may screw up many aspects of parenting, at least finances won’t be one of them
What do you think? Let us know your thoughts in the comments
I think you might be overestimating how much you can save compared to the average, simply because you are projecting expenses about a situation that you are not currently in. I’m sure hte USDA can’t cover all the expenses in their study. There isn’t any specific expense that I think you’re underestimating, just that it’s hard to predict the expenses of raising a child when you have been without one for so long.
That being said, considering how much the average American spends, I know for certain that the average put out by the USDA is much too high. And knowing that you two are pretty smart about what is actually worth your money and what isn’t, I think you’ll be able to adapt to whatever situation you find yourself in, without having to go back to work.
By the way, the increases in tuition at many universities over the last 5-10 years have far outpaced inflation.
We might be over optimistic, but if so it should be by hundreds of dollars and not thousands of dollars. Since we track our spending in great detail, it will be interesting to see how spending changes over time
Re: university tuition. It has far outpaced inflation, that is true. My main concern is not whether its price has increased by more or less than a gallon of milk percentage wise, but whether we would need to make any radical changes (including finding a job) to pay for it if need be
Using the period from 1974 to 2014, which covers periods of high inflation, boom times, market crashes (Black Monday), and long periods of stagflation, the CPI has increased by about 5x. The average price of college tuition has increased by 13.5x. Over the same period, excluding dividends, the S&P500 has increased in value by 18x.
Since innovative companies should grow in value much faster than knowledge transfer companies (universities) this makes sense, and should continue to be the case. By putting savings into the stock market now, we should have more than enough in 2 decades to pay for any tuition needs at that time, even if tuition continues to grow as it has over the past 30 years (which I find unlikely)
I think your analysis of potential child costs you will face are pretty realistic.
The only areas where I would say you might face some limited additional costs would be housing and transportation. At some point you will find a 2 bedroom apartment or house is probably what you want instead of a 1 BR for extended stays. Having the kiddo in their own space and not sharing a room with you is a nice luxury. Maybe this is my thinking with 3 kids and you can get by in smaller digs with only 1 kid! But the delta in price between a 1 BR or studio and a 2 BR isn’t really that steep. I think you guys ended up in 2+ BR apartments or houses occasionally, so you’re already paying for kid accommodations in your actual spending.
For traveling on shorter trips, a kid will put constraints on where you might ideally want to stay. You might not be able to stay at budget accommodations or in places where you have to walk a good distance to get to town or the bus stop (at least in our experience). Maybe it won’t be an issue with 1 kid since you can carry them in those front loading kangaroo thingies or strap them on your back with those slings.
Similarly with transportation, if you’re paying per person, it’s flights (which you acknowledge) and bus tickets, ferry tickets, etc. Often kid’s tickets are discounted, sometimes they aren’t. Regardless, I imagine it won’t add a ton to your budget.
Food will cost a little extra eventually, but there are economies of scale (at least in the US). Cooking for 5 isn’t much more work than cooking for 2 in my experience, and you’re more likely to use up ingredients before they expire. Dining at restaurants will always cost more with extra people though. But there are ways to economize. An extra large pizza isn’t much more expensive than a medium or large. Sometimes a whole chicken with sides (at a Mexican or Peruvian restaurant) is just a few bucks more than a quarter or half chicken. And you can always share plates. I don’t know how well this translates to restaurant spending overseas, but there’s always a way to economize.
Your take on college is good. Try inflating current college costs at 7-8% per year and you’ll see that you would be better off just giving your kids the cash at HS graduation and letting them retire at age 18 lol. I have the same thoughts about the currently unknown potential of disruptive learning technologies. MOOCs, distance education, virtual classes, etc might be the new trend in higher education in another decade. At some price point, it just won’t make sense to send kids to university for hundreds of thousands of dollars when the increase in earnings won’t justify the price tag.
I’m budgeting college tuition (at least) for our kids, but I also know there’s a significant chance at least one won’t make the decision to go to college. And I accept that that choice could be the best thing for them.
You summed it up well: “At least at first glance, it appears that the values and priorities that got us this far in life will set us up well for the financial aspects of child raising as well.”
People like us who hit FI at an early age are different animals. We think a little differently and seem to be more “flexible” and able to achieve a lot more at a lower cost than the average American. It’s not magic, it’s something systemic in the way we think maybe? In any event, the life skills that got you to FI at a very young age are the same skills that will let you stay FI while raising a kid. You can stay on the road and raise a little globe trotter, or settle down (Taiwan? US?) and raise the kiddo in a more traditional way.
Hi Justin
Thanks for your feedback
Even now, we don’t like to rent places off the beaten path. We primarily look for housing on/near major public transit, and at least for the past 2 years we’ve had an extra room in most cases. Even now this place is technically a 2 bedroom, it just happens that one of them is filled with exercise equipment. I could probably say we have spent too much on housing to date, and that will be the new normal with a child. Net net will be close to zero delta I think.
Awhile back I saw a piece of news where a young woman was saying she couldn’t pay her $200k in student loans on her $40k/year teacher’s salary. If tuition continues to grow as in recent years, then this would be the norm rather than the exception (I sure hope she wasn’t a math teacher!)
I like the idea of giving 18 year-old HS graduates seed money to start a risky business vs giving them college tuition also. Things like Kickstarter and Cabbage make this easier as well.
But who knows what will happen. We will see how Go Curry Cookie turns out personality and temperament wise, and try to provide the background and education opportunities so he/she can make good choices on where and what to do (entrepreneur, university, musician, artist, surf bum, ….)
Fair enough. I didn’t know if you guys occasionally stay in hostels or get a single room in someone else’s home. I know when I was shopping for apartments this summer I eliminated a lot of options when I put “2 Bedroom” in the search filter. We paid a little more, but nothing huge ($50-60/nt instead of $40-$50 probably).
The biggest “cost” will be your time. Kids consume a lot of it. Which also means you have less time to money on other pursuits.
And maybe you guys will have more energy than we did, but quick weekend getaways quickly lose their appeal when you have to cart a baby and all their stuff with you. Of course you’re already on a lifetime getaway, so no rush for just the weekend, right?
Even now we aren’t really “weekend getaway” people. It’s a lot of work to get somewhere for 2 days, fight traffic and crowds, and then get back. A month though… I can do that. It’s much better value that way too
I’m not yet sure how we will adapt with GCCjr in tow… neither one of us has any experience so we’ll have to figure it out :)
Glad to see I’m not the only anti-weekend getaway person. I think my minimum is 4 days. And I once saw a rule where the time at the place you are visiting must equal 20 times the round trip flight time to get there. 2 hours each way on the plane? Must spend at least 80 hours at your destination. Sounds about right for us. You have to get the hassle to enjoyment ratio low enough to make it worthwhile.
I think traveling with kids is a highly individual experience. And traveling with 1 kid is easier than 3 I have learned (the hard way). We are going on a week long cruise in a few days that involves driving 800 miles to Miami. We’re leaving the 2 year old at home with his grandparents (both sets live nearby). He has a hard time with long drives, but the 8 and 9 year olds are troopers, and have done the drive before at age 4 and 5. Just requires a few extra stops to stretch legs.
We spend about $20k to $25k a year, including paying for high deductible health insurance. We have three kids from age ~2 to ~7 years old, we homeschool. Nope, kids don’t cost very much. The oldest does want her own room though (some of her cousins/friends in homeschool coop have their own rooms). I figure if that is what she really values when she gets older she can work extra hard to have rooms for each of her kids.
PS. It’s great living around family and being around other people with kids. We rarely buy the kids any clothes. And, of course, we buy our own clothes at second hand shops. And we use cloth diapers – I wonder how much that actually saves – don’t know if it is worth it if you travel a lot and if your not planning on having multiple kids, of course, you can sell them after you are done with them, if they haven’t worn out.
Living in a small camper with three children makes a one bedroom sound luxuriously large. Unfortunately in the U.S. the standard law for housing outside of a camper is only 2 people per bedroom. But since you guys are flexible, mobile and great at thinking out of the box I’m sure you’ll have no problem finding accommodations. I can’t wait to meet mini go curry cracker.sa
We will figure it out. We’ve mostly been renting 2 bedrooms in any case.
We may follow your lead on this one, as RV’ing around the US and Canadian National Parks is something we have on our list. The Bumfuzzle crew just started this as the next part of their travel adventures too:
http://www.bumfuzzle.com/
Perfectly written. As others have stated you will be surprised by some of the complications and costs of kids, but this quote from you really sums it up perfectly:
Don’t be average.
You’ve already proven you are not average, many times over. You will be fine. I hope winnie is feeling ok. My wife had a rough go from about week 7 to 13. A lot of morning sickness. I hope all goes well.
Hi Cheddar Stacker-er
It will be interesting to see how our expenses change. The important thing is that we planned in advance and have flexibility
I’m not sure why they call it morning sickness, because Winnie seems to have it all day and all night. It’s a bit rough, but Winnie is teaching me to fetch
Thank you
Jeremy
Looking at the dollar cost of having kids is really not the right way to look at as it is incredibly variable depending on one’s own circumstances. The true expense of kids is really an opportunity cost. And that opportunity cost is some function of time, money, social capital, space, and stuff. And the more you have or are willing to use of one of those elements the less you need of the others. For instance, if you already live in a big enough place, have an assortment of stuff around the house, have doting grandparents nearby, and plenty of time…well then you wouldn’t need all that much money.
Well said, Bruce
First off, congrats!
I definitely come down on the “people think kids cost that much?” camp. They certainly aren’t free, but they can be happy and flourish without all the material bullshit most think they need.
I don’t even understand why people need bedrooms at all, or multiple ones. Currently all 5 of us sleep in the same room. Excepting for the fact that our prior misguided selves bought standard beds, I’d be fine with roll up futons, that way the space was usable in the daytime as well.
Thanks for your analysis! I don’t think it costs that much to raise a child. However, it requires wisdom to educate kids NOT comparing with others. To engage your child to understand the values you stand for is very critical, I would think!! Good Luck!!
Thank you
Things like gratitude can be hard to teach and learn, especially for children as they haven’t earned their socioeconomic status. “It’s not fair!” is a common childhood refrain
Reminds me a bit of of the Louis CK piece of wisdom:
Good analysis. I’m on your side and think the cost shouldn’t be as high as this studies if you find ways to save money here and there. If you teach your kids the value of money they’ll most likely not “waste” the money as much as the average kids.
I remember MMM saying he estimates they spent about $300/month from 0-2. Now I wish we had kept better track of what we spent (kids are now 8, 6 and 4). We certainly economized, but there are some things I would do differently too. Another thing I believe the chart missed out on: we have 3 kids, and, duh, a lot of things like furniture, bedding and clothing are passed down.
Sending good vibes to Winnie!
Thank you Lisa
$300/month seems reasonable. At the same time, some of this will be offset by lower spending in other areas… fewer trips to the movies, less time getting drinks at a bar with friends, etc… Now I have some renewed enthusiasm for continuing to keep track of our spending
We definitely saw a change in spending more than an increase in spending. Less dining out, more meals at home. Try to dine at a nice restaurant with a screaming 1 year old. No wait, save the other patrons a headache and don’t! ;)
You are not far off the mark, we found that the amount the government in Canada gave out for how much it costs to raise a kid was out to lunch. We both still work so our largest expense is daycare. Outside of that was food. Every study we’ve seen from the government clothed the kids in brand new ikea clothing each year and drove them everywhere in an SUV.
Some time ago I saw a picture on Facebook from a friend of a friend. The photo was the 50 or so different pieces of name brand clothing that Mom bought for their 1-year old kid at a price of thousands of dollars. “But prices (of Western name brand clothes) are so much cheaper in the US!” Of course the kid grew out of the clothes before he had even worn each piece one time
There are financially efficient ways to cloth a kid. This was not one of them :) Of course both efficient and inefficient families make up the average
If you can avoid the strollers, crib, swings, changing pads, and other large baby purchases, the first 5 years really weren’t that expensive except for child care (which you don’t have). We got a lot of used clothes and baby gears as well. Oh unless you decide your child needs those music together, gymnastics, swimming, dance, and ballet classes. Past 6. Wow they sure can eat! It really is an extra mouth to feed and harder to get used clothing, summer camps and sports camp an piano and karate, etc surely adds up. And no more free entries to expensive museums or amusement parks. And those plane tickets back to Taiwan…. Bypassing all thy it really isn’t expensive to raise a child, especially if you’ve got the savings. I do feel that having friends who are have similar beliefs as you are important. Otherwise you really feel the odd person out and start wondering
For us, being working stiffs…childcare was the major cost for us. $15,000/year for two years for infant care, $13,000/year for two years for childcare, $9,800/year for pre-school, $4,500-$5,000/year for Kindergarten/1st/2nd… for after school care and summer camps.
Thrift stores, hand-me-downs, and “mommy” groups rule the world as far as toys, clothes, kid things. We did buy a new carseat, but other than that, most things were used. The library is your friend as far as books.
When they get older, you now have to pay full price for airline tickets (after 2), and junior rates for busses/trains (5-17). Let me tell you, planning a trip, it’s now cost X3, really gets you thinking and looking for ways to cut costs.
Good luck, it’s an amazing journey.
Those are some serious childcare bills!
I’m ok paying full fare for transportation. We move around so slowly that plane/train/bus/boat fare is a really small part of our total spending.
With a full time job and kids in public school or daycare, I can see how trips would be expensive… traveling at peak times for short periods. We will most likely follow non-traditional education methods which will provide some flexibility
Thanks for the tips! We love the library and what better place to get thousands of children’s books
Sometimes kids have health problems. Still hard to believe our first gkid fought leukemia from 7 months to 24 months, when he lost his battle leaving parents heartbroken and medical bill exceeding millions in spite of having insurance. His cousin is on autism spectrum and improves daily with intensive therapy. No one on this blog seems to factor in devastating illnesses. Usually people in this condition become invisible as they trudge daily through adversity. My bubble of optimism is burst. Sorry to be a downer. But I’m over optimism.
I am 60 and my wife is 61 we did not have children as we were always to busy. Mainly busy or selfish. The cost of children always seems to work out fine. Love them, but train them, make them mind and be respectful. Not like American kids! Give them enough but not too much. A happy marriage means happy children!
Our biggest regret is not having children!
Good luck!
Hi
I was just wondering what has happened with the medical cost element and if you have suggestions on your website for healthcare insurance that covers maternity both in the US and abroad. Or are you not using health insurance? My expat health insurance which only covers maternity (and very scary illnesses only) is about 3,600 USD a year which I believe is too high but am looking for alternatives.
Thank you.
Ezabel
I have yet to find a good international health plan that I like. I’ve been quoted $500 a month from options I’ve found via Google (“International Health Insurance”)
The birth of GCCjr will cost around $1000, and we’ll just pay cash
We have three kids and are global travelers. We love work, but have our own ventures/companies, so we have been able to mold our lives as much as possible. We’ve had many friends tell us not to take our children on our adventures, but they have always been there. No, my 6 month old does not remember the Italian countryside, but my 8, 10, and 12 year old have been absolutely molded by their trips to the Orient, Europe, and across the US and South America.
They learn much more in our outside life than school can teach them through that lifestyle. We do own a huge home in the best school district. Our kids play sports, live near their grandparents, and we live mostly traditional lifestyles for the majority of the year. I don’t know that I yearn to live entirely off the grid or traveling, but I do know that you can mold your life to whatever you love and want. It is a matter of dedication and effort, and giving up on having someone else approve your decisions, just as you have shown!
We pack up and adventure all around the globe, always have, always will. We have 10 more years with our kids still involved in what they have chosen for their passions, which keeps us rooted somewhat to a community. We did have a few huge health scares/surgeries in there with our kids, and address everything as it comes. We rented a beach place within hours of our home instead of globe trotting one summer.
I think your blog post is spot on. You don’t need a million diaper bags and things that most people feel are necessary to “lug” around with your baby. You can still choose to be mobile, travel, and even when significant health issues arise, you can make choices for the necessary moments, and not forever. We kept our asthma kid stateside for adventures the year he was in the hospital 12 times. There are still hospitals in every city, and we were still able to enjoy adventures with smaller hikes, and breathing treatments in the car, and our doctor’s cell on speed dial if we had questions along the way. Technology is a beautiful thing, and I do a little extra hospital research when we travel to just know what we would need to do and have access to if crisis strikes.
You are down to earth, as is your wife. Even classes or sports or activities your child will want to try, all can be done at very little to no cost. When you add in more travel expenses, you can find a way around making it less expensive to travel, or make different decisions! We chose to use a miles back card for all our business expenses, so all of our “expensive” trips that none of our friends can afford were “free”. All hotels, air travel, etc are booked through those miles. You make changes to live the lifestyle you want. And we, like you saw a HUGE decrease in restaurant and bar fees with new babies. Our expenses have gotten crazy lately, so I am so glad I stumbled upon your blog. It’s reminding me that I have choices, and need to dial in the life I am living to fully enjoy and execute on the life I want to live with my family. So I will thank you when we are backpacking in Australia this summer with our three kiddos!
Love the blog, your little family is amazing! Can’t wait to hear about your continuing adventure!
Wonderful! Thanks for sharing Linda
Sounds like an awesome life and a great way to raise kids
Great blog, we traveled too, but kids will send you for a ride you might not have expect! To diversify, I’d suggest thinking about adding an income from consulting if you can. Also, a good idea is buy a US rental house in a university area to stay in the summer. That way they build equity for you and you have a hedge against housing inflation if you ever decide to come back!
Life with kids will be different, no doubt
But I won’t be consulting and won’t be buying a house. The income isn’t necessary, and for a hedge against all forms of inflation I prefer the asset with the best track record, equities. We will be renters for life, it’s just better living
First off Big congrats on the baby! I’m glad every one is happy and healthy. I think the hardest part of planning for kids expenses isn’t the spreadsheets and numbers. But just as marriage and sharing life with a person changes the way you see the world a little, kids change it a lot. And it’s different for everyone. You will value things differently, and like things differently. I have a love and appreciation for naps now that I’m pregnant with my 5th, that I could have never imagined before we had kids! The thing I love with kids, is that everything is a short season. Be it good or bad, it just lasts a short while, then you are on to something new. We lived abroad for 4 years after our first was born, and traveled constantly through 27 countries. It was amazing. Now with almost 5, I love this season back stateside in a home we own and a community we feel planted in. But soon this too shall pass and we will be on to something new. There really is no way to plan how a child will effect your budget. Just like a few years ago you couldn’t imagine how much love you would feel for that never-sleep, poop machine that has completely captured your heart. Kids are awesome like that!
Our never-sleep poop machine is also a bit bipolar and belligerent, but he has indeed captured our hearts
Neither of us feels compelled to rush out and buy an SUV or a 4-bedroom house in a nice neighborhood though. I’m confident this will persist, but many other things are certainly flexible
My love of naps is definitely strong just after 1 kid :)
We have a one year old girl and found that costs are reasonable as long as you don’t listen to marketing. They don’t need much but I must admit I bought some “cute” stuff for fun :-). Most things can be “free” between hand me downs, buying used, gifts, and just going without. We did have to supplement with formula (expensive) later on but most moms should not need this. We dine out less but we also order a lot of take out. This is something we are working on. We work different work schedules to be able to raise her ourselves instead of sending her to daycare. Next year we will have a mini-retirement for about 2-3 years. It will delay our “real” retirement date but we value time spent with her before she starts school. I’m curious to hear about your experiences traveling with a baby.
what about Taiwan? It’s that high as raising a Child in USA?
I don’t really know
Hi GCC, I couldn’t find this anywhere so was hoping to get an answer directly.
What is your education model for GCCJr, will you be home schooling?
With your FI model, will GCCJr not have to hold a desk job ever in his life (as long as he follows your principles and is fiscally disciplined?
Hi Rick
Probably world school / road school.
Jr can pursue FI if he chooses. We’ll try to give him a head start, but overall it is up to him.