"Goals are dreams with deadlines" -- Diana Scharf

Wednesday, May 22, 2013

Why Is Raising Children So Expensive? What Did My Parents Do Differently?

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Occasionally, Mr. W. and I discuss starting a family.  There is no question that we both want to be parents, eventually.  We recognize that there is no “perfect” time to start a family, and now may be as good a time as any.  We’re in our late twenties, and several of our acquaintances have started to have children.  It seems that each time I check my Facebook feed, I see another picture of a newborn or an ultrasound.  I feel excited and delighted for my friends who are expanding their families.  I look forward to buying or making baby gifts for the parents-to-be.  But...I just don’t find myself wishing that we were in a similar position.  At least, not in the immediate future.      

In truth, we don’t yet feel ready to be parents.  As newlyweds, we’d like to enjoy a few more years with “just the two of us.”  We’d like to feel a bit more established in our careers.  We’d like to increase our salaries so that we’ll be better able to save towards our child(ren)’s college education.   We’d like to grow our nest egg.  And, when the time is right, we’d like to buy a nice little home in a good school district where we can live with our 1.3 children and a Golden Retriever (actually, that’s a lie.  I’d prefer a rescued bulldog).

Even though we aren’t planning to have children soon, Mr. W. and I discuss the prospect at length. We wonder how children would impact our household budget.  We wonder if there is a set amount that we would need to earn before we’ll feel financially ready to have children.   

In one of our recent discussions, I tried to calculate how our monthly expenses would change if we were to start a family.  I have no doubt that every single penny we spend on our children will be worthwhile.  I wouldn't consider this to be a cost-benefit analysis on the value of having children.  I would never attempt to assign a dollar amount to human life.  Nonetheless, children are expensive, and I think it would be shortsighted for us to start a family without first considering the financial implications. 

As I envision parenthood, these are the big-ticket expenses that would increase:

·     Health Insurance: Right now, Mr. W. and I both elect the single-coverage option from our respective employers.  This is less expensive than either one of us enrolling in the “employee plus spouse” option.  Once we have children, we will probably choose to enroll in one of the family plans offered by our employers.  Our medical insurance costs would increase by about $350/month.   

·    Child Care: From what I’ve heard and read, average child care costs in New Jersey are at least $1,000/month for infants and $900/month for toddlers.  We live in a county with a higher cost of living than the NJ average, so our costs could be much higher.  We would like to have at least two children, so I’ve assumed that we will need to arrange child care for an infant and a toddler.  Cost: $1,900/month for two children. 
·     College Savings: Mr. W. and I are both very grateful that our parents paid for our undergraduate college educations (I’ll explain this in more detail in a future post).  We know that this required a substantial financial commitment on the part of our parents and we would like to do the same for our children.  It’s difficult to anticipate what college will cost in the future, but I think it would be wise to save $750 per month, per child.  Saving for our children's education isn't necessary in the same way that health insurance and child care would be, but it would still be a crucial priority to us.  Cost: $1,500/month for two children.

Based solely on the anticipated cost of healthcare, child care, and college savings, our expenses would increase by approximately $45,000 per year.   

Yikes.  $45,000.

That’s an astonishing and sobering figure.  Although Mr. W. and I currently save a considerable portion of our take-home income, we do not save $45,000 per year.  If I were to add $45,000 to our current salaries, the result is a rather high number.  A number that feels unattainable in our current employment positions.  Granted, there would be tax benefits partially offsetting increased expenses.  However, there are many expenses that I haven’t considered in my calculations, such as diapers, medical/hospital visits, toys, and baby clothes.  I also haven’t accounted for increased housing costs.  Right now, Mr. W. and I live in a 600-650 square foot apartment.  It’s enough room for the two of us, but raising kids in this apartment would not be ideal.  At some point, we would want to purchase a different car, because my two-door 2002 Volvo is just not a kid-friendly vehicle. 
This analysis caused me to question our current household spending.  I convinced myself that we were squandering our money.  I berated myself and felt enormously guilty.  Demographically, the numbers say that we're in one of the top income brackets.  Yet, despite having two strong salaries, Mr. W. and I still don't consider ourselves financially ready to have children.  I started to wonder if our perspective was totally out of touch with reality.  Would we ever feel ready to have children?  Were we just stereotypical American consumers living beyond our means? 
After all, my parents were able to raise three children in an area with a high cost of living.  They bought a home and sent three children to college.  They helped to pay for my wedding last fall, and they are also contributing to my brother’s wedding this summer.  My parents accomplished these goals while being, primarily, a single-income family (as I wrote in this post, my mother was a stay-at-home mom for twelve years.  She eventually returned to work on a part-time basis, but at a much-reduced salary).  Although I don’t know precisely how much my father earned in the 1990s, I think his salary was approximately the same, in 2012 inflation-adjusted dollars, as the amount that Mr. W. and I currently earn as a household.   Yet, somehow, we don’t feel that we’re financially prepared to have children.   
So, what did my parents do differently?  How were they able to stretch their dollar further?  Are there things that my husband and I spend money on that my parents would consider an extravagance? 

I concluded that there were obvious areas where Mr. W. and I could reduce our spending if we needed to support little ones.  This didn't come as much of a surprise; I already knew that we have a lot of "fluff" in our budget.  We spend money on quite a few things that we don't need.  Additionally, I realized that my parents did an excellent job of using financial perks that were offered to them.  They're some savvy folks and I admire the ways they were able to live a comfortable, fulfilling life without spending beyond their means and without having a sky-high income.    

Things We Spend Money On That My Parents Didn’t:

·     Fitness: Mr. W. and I budget about $400/month for fitness ($170/month for his CrossFit membership and $225/month for my barre fitness classes).  Health is an important priority to us, so we think it is money well spent.  In fact, Mr. W. has lost – and kept off – almost 100 pounds through exercise and healthier eating.  It’s difficult to put a price tag on this type of health improvement.  Participating in these scheduled classes helps us to stay on track.  When we don’t have scheduled classes to attend, we both find ourselves more likely to put exercise on the back burner.  For now, we’re keeping fitness in our budget .  Yes, it’s certainly possible that we could find less expensive ways to stay fit.  We could join a local gym, take up long distance running, or ride bikes.  If push comes to shove, we could eliminate these fitness memberships and save nearly $4,800/year.   Plus, if/when we have children, I doubt we would have the time to continue attending CrossFit and barre workouts. 

·     Groceries: We try to eat local, seasonal, sustainable, and humanely-raised food whenever possible.  It is an important priority to us.  However, it wouldn’t be as important as making sure our kids had enough food to eat.  And, it wouldn’t be as crucial as ensuring that we could provide for our children’s other needs.  I think we could trim our grocery budget by $200/month, or $2,400/year, while feeding more people, if we were to focus exclusively on buying for value.  

·    Travel: Mr. W. and I have budgeted about $4,000/year for travel.  This will cover 2-3 trips to California to visit my family.  Eventually, we would like to take an extended vacation to Europe or Asia, but we haven’t yet included any foreign travel in our budget. 

By comparison, my parents spent very little on travel when I was growing up.  I don’t mean to imply that we never went on vacation, because that wouldn’t be true.  My dad traveled extensively for business and accumulated quite a few frequent-flyer miles and free hotel stays.  He was encouraged to use these perks for personal use.  This made it possible for our family to travel without much out-of-pocket expense.  My parents also took us on several road trips, allowing us to see different parts of the United States and visit an assortment of national parks.  When I attended college on the East Coast, I was able to fly back to California several times each year.  My dad booked the flights using his frequent-flyer miles, so my parents never paid a dime for these trips.   

·    Transportation: I cringe every time I think about how much Mr. W. and I spend on transportation.  On an annual basis, it’s about $15,000 -- nearly as much as our rent.  We tried to share a car for a few weeks, but it more than doubled Mr. W’s commute time.  Furthermore, it didn’t even save much money since my public transportation costs increased as a result.  Given that our workplaces are 50 miles apart, there is only so much we can do to decrease our commuting expenses. 

My parents were able to keep a much tighter rein on commuting costs.  Once my mom returned to work, she took a position at my brothers’ elementary school.  She had been driving my brothers to and from school on a daily basis, anyway, so her commuting costs didn’t increase as a result of returning to work.  My dad worked, and still works, in sales.  Many days, he worked from home so his commuting costs were nonexistent.  In addition, he has always had a company car or a car allowance provided by his employer.  When he had a company car, it could be used for personal use at a reasonable cost (something like $.08/mile).  For years and years, my parents only owned one car other than the company car.  In my dad’s current position, he receives a monthly car allowance.  Many of his colleagues use their car allowances to lease flashy luxury cars.  My dad bought a Toyota Camry.  It’s a sensible, modest car, but still “presentable” for those occasions when he needs to transport a client. 

·   Child Care: The biggest anticipated expense, once we have children, is child care.  I imagine this is true for many dual-income families.  By comparison, since my mom stayed home with us, there was no cost for child care.  I’m not sure how she juggled three kids under the age of 6, but she did.  God bless her!
·   Dry Cleaning: We spend about $1,200 per year on dry cleaning for our suits and other items that we truly can't wash ourselves.  This is another area where my dad had an awesome perk: one of his previous employers reimbursed employees for all dry cleaning expenses (that was before the recession, as I'm sure you can imagine!).  In my dad's industry, dress standards have relaxed in recent years so that he no longer needs to wear a suit on a regular basis. 

  • Discretionary Items:  Each year, Mr. W. and I budget about $4,000 for discretionary spending.  On a monthly basis, that breaks down to $100 for each of us and $150 for us to spend as a couple.  I spend my discretionary funds primarily on clothing, cosmetics, and craft supplies.   Mr. W. spends his on clothing, video games, and fitness-related stuff (protein powder).  The $150 in joint discretionary funds is used towards activities, such as our 20-Dollar Dates, that we do together.  These amounts don’t “feel” like a lot to me, but they add up over the course of the year.  And our discretionary spending certainly feels high in comparison to that of my parents.  My mom buys herself just a handful of new clothing items each year.  She doesn’t wear makeup and she pays only $15 to have her hair cut.  If pressed, Mr. W. and I could decrease our discretionary spending considerably. 

All in all, I finally realized that I should avoid comparing myself to my parents.  Yes, I should take lessons from their frugality.  I should always appreciate how much they sacrificed and planned ahead to ensure that they could provide for our family.  But, I also realized that my parents had access to some wonderful perks that Mr. W. and I simply don't have...and there's nothing either of us can change about that!

For those of you who are parents, how did children impact your finances?  For those who might have children someday, do you currently feel financially prepared for children?


  1. I feel perfectly ready to have kids financially. I think we put a lot of expectations on ourselves and on our kids to spend and have certain things, when in fact they're absolutely unnecessary.

    It's one thing to give your kid an iPad because you want to as a gift, it's wholly another to call it a "necessary expense for the wellbeing of them as they're growing up in a tech-oriented world". *cue rolling of eyes*

    I am definitely telling all my kids that I am NOT paying for their education, so that they don't expect any money from me and will have to figure out if it's worth it for them financially.

    No one paid for me, so I guess I don't have that feeling of obligation to pay for my kids, but I'm also seeing that they will value their education more if they have to shell out for it themselves.

    1. Mochiandmacarons, I think you make an excellent point that we often impose unnecessary expectations on ourselves when it comes to providing for our kids. I'm hoping that we can resist the temptation to feel that we need to "keep up with the Joneses" when it comes to raising our kids -- especially regarding things like iPads! (I'm a bit of a Luddite, to be honest. We finally upgraded our old computer after SEVEN years).

  2. I agree that you shouldn't feel like you need to compare yourselves to your parents. Families all face different challenges and perhaps your parents spent differently during the time they were married without kids. I don't know that we'll ever feel financially ready to have children. It's not that I fear having children will bankrupt us but that I just don't think there's a magic number that will make us say, okay, let's have kids. That being said, I am confident that when the time comes, we'll be able to adjust our budget and spending accordingly. We like to travel but when the kids come, the thought of flying/driving with them will probably make us want to stay home all the time, lol.

    I know it's easier said than done but out of curiosity, would you and Mr.W want to move closer to your jobs and find jobs closer to your work?

    1. "Families all face different challenges" This is so true! I have to remind myself that, two years ago, we were in a very different place than we are now. Mr. W. was still searching for a full time job, and I had just moved into my current position. Sometimes, I forget how fortunate we've been since then, focusing too much on things that we still haven't accomplished.

      We would be very willing to seek jobs that aren't 50 miles apart. We love the area where we live, but we're not ruling out moving someplace that makes more sense in terms of time and finances. We've both been watching the job boards to see if anything pops up. Mr. W usually puts out a few job applications every month.

  3. Kids can be much less expensive than statistics always seem to report. There are a ton of ways to save! Of course, I live in a low cost area so it's easier for me to save. Two kids in full-time daycare only costs me $700 per month.

    1. You're absolutely right that there are tons of ways to save. Once we have kids, I'm sure we'll seek out other options, especially when it comes to child care. Perhaps we'll try to find a church-based child care center, which I imagine would be cheaper. if we're close enough, my in-laws might be willing to help watch the kids one or two days a week (Mr W's mom has told us she'd love to do this...but I wouldn't want to take advantage). And, I could see if I might be able to adjust my work schedule...maybe squeeze 40 hours into a four-day work week so I can stay at home one day with the kids. All good options we could consider when the time comes!

  4. My wife and I will have a new addition to our family soon and we live in NYC (well Queens) and I've been thinking about this exact issue. I was born and raised here, so my parents were able to do it, so I should too! Housing is the biggest expense in a high cost of living area. We only have a 1 BR, but that should be okay for another year or two. My wife is planning on staying home with the baby which cuts out day care expenses...but that also cuts out one income. I don't know your income level but $750 per child per month seems like a lot...

    1. Hi Andrew! Thanks so much for your comment and congrats to you and your wife! What an exciting time for you both!

      I agree that $750 per child per month is a LOT to save. It would certainly require us to shift our current spending if we wanted to have much left over for "regular" savings.

      When calculating the $750/month figure, I assumed that my husband and I would cover our (hypothetical) kids' tuition costs for a public four-year institution. Our kids would probably be enrolling in college in 2035 or so. This article (http://money.usnews.com/money/blogs/my-money/2012/07/25/how-much-will-you-need-to-send-your-child-to-college-in-2030)estimated the cost of public school tuition in 2030 at $44,047, since college costs have been growing at 6.5%/year. I inflated $44,047 by 6.5%/year to project a cost in 2035. Assuming tuition continues to increase at 6.5%/year, four years at a public college would cost about $266,000 for a student enrolling in 2035. If my husband and I put away $750/month as soon as the child is born -- and if our money earns 5% interest per year -- we would be close to the $266k mark.

      One weakness of my calculation is that it assumes we will save the same amount for college, per month, through the first 18 years of a child's life. This approach would be silly, since $750/month is a lot more now than it will be 10 or 15 years from now. In real life, we would invest less than $750/month when the child was young, and increase the amount each year to keep pace with inflation.

      Thanks again for your comment!

  5. We are on the same page, thinking about starting a family soon and weighing all the costs. I feel like there will never be a good time!