Wading through the sea of advice on the costs of having children
If you are expecting a baby, there is a good chance that you have either intentionally Googled or unintentionally stumbled upon one of the dozens of articles that claim to tell you “how much it costs” to raise a child from birth to age 18. You see numbers like $233,610, and lines like “Expecting a baby? Congratulations! Better put plenty of money in your savings account” and get a pit in the bottom of your stomach.
I can’t lie: it gets me really fired up when I see personal finance articles in major news sources that are so, so far from helpful and use low level tricks like fear based marketing to get people to click and read. Shame on them. These articles (that all site the same one study, by the way) present such big, impossible numbers, they usually just scare people right away from making a plan for their finances with baby, instead of encouraging them to do so.
These articles should not be called “this is how much a kid costs”, but rather: “these are all the possible extra ways people spend money that we can attribute to having kids, in a very useless average form”.
Trust me, you are not doomed to be broke because of your baby. Let me address some of the flaws in using that “spending report” as a basis for judging how much kids actually cost people.
They include the cost of the extra space needed for the kids. So, are you telling me that if you didn’t ever have children you would live in a one bedroom apartment your entire life and never buy a larger and nicer home, ever? Ever? Even childless couples decide to stretch out over the course of their careers. They want gyms and guest rooms and movie rooms, too! Plus, the concept of needing that much extra space is a lifestyle and cultural choice, not a necessity. I know many families with toddlers who still live in one bedroom apartments, and even families with four kids in two bedroom apartments. (I myself was one of those children, and I had a very happy childhood.) LOTS of families make do with a very moderate amount of space, especially in very expensive housing market. How much of a house you decide to pay for after your kids start coming is a choice, not a necessity.
For sure, full time childcare is very expensive, especially on the coasts of the US where housing is also high. Full time child care is necessary when both partners are working full-time. At the risk of pointing out the obvious, this too is a choice. And I know, you are going to stop me now and say “but we live in such an expensive area, we both have to work to afford even living here”. Where you live, also, is a choice. Whether you work full time, part time, from home, or not at all, and what you do for work, is a choice. If you truly wanted or needed to, could one of you work full time and the other stay home full time (or each of you work part time)? Maybe you would have to move a little further away, or even get a different job, but: yes. You could if you wanted to.
Unfortunately, I have had pro bono clients that make the very least amount of money pay the highest amounts of medical bills for their child. One couple paid $14k, another paid $400 for every monthly visit and another $5k for the birth, another $10k for the delivery. By contrast, a couple I work with paid $0 for every single pregnancy and baby well check appointment and a flat $250 for the delivery. No lie. What is the difference between them, you ask? Who paid for the total cost. The first couple worked for an employer that did provide insurance, but not a generous plan, so they had to foot the bulk of the bill themselves. The second couple worked for a company with a generous plan that quite literally had $0 in monthly premiums and almost 100% coverage. The harsh truth is that the better job you have, the better chance you have of your employer footing the bulk of your medical bills.The cost for delivery is the same, the question is: who is paying for the bulk of that? If it isn’t your employer, it’s you. Employers that cover the bulk of medical costs by providing generous health insurance plans are just that: very generous. I’ve worked on the company side setting up these plans: they are very, very expensive to setup and provide.
That said, if you have options to choose from when selecting your plan, read the details! You can find out ahead of time what your annual deductible will be, what each visit will cost, your out of pocket maximum, and estimates for the delivery. If you have multiple options through your employer (HMO, PPO, High deductible plan, etc.) you can pick to stay or switch between plans every single year, so pick the one that serves you best for this season of life!
It’s true, a summer full of camps is going to rack up quite a tab. Again, that is a choice. Public school is free, and playing in the backyard or the neighborhood park in the summers is also free.
They are not you. I am going to sound like your mother here: If a flock of sheep walked off the edge of a cliff, would you follow them? Along that same line of logic: just because other people spend that much money on their kids, do you have to? Of course not! Here are some more things that a lot of “other people” also do: Buy things they can’t afford… Rack up debt… Live paycheck to paycheck… Neglect retirement savings… Live outside of their means….
Never just follow the crowd blindly! Think ahead and decide what you want to do. You are in control of your life, your finances, and your spending: you get to decide.
Okay, so what are some realistic extra costs for the first handful of years with a child?
First of all, the start up costs. Things like a crib, car seat, stroller, etc. You can spend as much or as little as you want on your child. I have at least 25 personal, real life examples of (fantastic, smart, well educated) families that spent next to nothing on start up baby gear. It was gifted, or borrowed, or handed down, or donated, or thrifted, or found! Your stroller could be free from a friend or local group, $100, or $2,500. The same can be said for nearly anything else. What I would suggest doing is this: make two lists, one of the absolute essentials, and one for the “nice to haves” and make three columns: $0, $, and $$$. Then write down each item and do some research: what are the lowest cost (or free) options that you can find? Mid range? High end. Next, go through each item and decide what is worth it to you. Some parents decide to splurge in some areas and save in others. Do what works for you and your finances, do not go in consumer debt (read: credit card debt) to outfit or gear-up for this baby. You will be harming your child by doing so, not helping them. A couple other tips: you don’t need to buy everything ahead of time, no matter how strong those nesting instincts are (I’ve felt it too! But you won’t be sure what you want quite yet and may end up wishing you waited!) and always save the receipts. If you are having a baby shower, don’t feel shy about making a registry and letting your friends and family know what you would love! Essentials? A big group gift? Cute things for the nursery? For you? Books? Toys? College savings contributions?
There are some regular increases in monthly costs that can be attributed to things like diapers and wipes (+~$150), clothing as they grow (this is a highly variable category that can be as expensive or as inexpensive as you like) and formula (+~$150/month) if you aren’t nursing. Food can be marginal (they don’t eat that much when they are little) to significant (if you buy a lot of premade or pre-packaged items). Your monthly insurances costs will generally go up as well. The amount will vary significantly based on your plans, as we talked about earlier.
What to do
Now that we have debunked the idea that having a child will cost you a fortune (it only will if you want it to!), we can talk about what you can proactively do to get a good financial plan together for life with baby.
- Make the desired startup costs and medical cost list as described above so you know what totals you are looking at, versus what cash you have on hand for these items.
- Look into how your income might change (is Mom quitting? Do you get maternity pay? How long?) and how this affects your monthly budget/spending. Does anything need to change? Make sure you are able to live within your means (read: not putting life on a credit card) when baby is here. If this isn’t the case, look into what big changes you need to make to bring your numbers back in line.
- Take account of how much savings you have for emergencies. I always recommend that a couple have 3-6 months of basic living expenses tucked away. Surprise expenses and emergencies pop up more often than you would think!
- Think through what kinds of extra experiences or fun things you would like to do or have as a family and get some goals on paper for how to save up and make them happen!
In sum, remember it is your lifestyle choices that make things expensive, not your child’s existence. You can choose to spend as little or as much on baby as you like and can manage. Most of all, remember that the one thing that this baby will want more than anything else in the world is your love and attention. No amount of money can give that to them, and no lack of money can take that away. They will love you for the way you love them, not how much their stroller costs.
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