It costs an average of $233,610 to raise a child from birth to age 17, according to a USDA study 1. What all does that cost include? Is there a way to do it for less without sacrificing the important stuff?
This is the average. The average person is in debt. The average person doesn’t control his spending. The average person doesn’t plan for major purchases. You aren’t average. You’re better than that.
79% of parents are still serving as the “family bank” and helping their adult children financially, according to a recent Merrill Lynch study 2. More children than ever are living at home until they’re in their mid-20s and early-30s.
Let’s look through the different types of expenses, how to reduce the costs, and how to live differently. And especially how to keep our adult children from needing the National Bank of Mom & Dad after they move out.
The Cost of a Child
According to the USDA study, “Families with lower incomes are expected to spend $174,690 and families with higher incomes are expected to spend $372,210.” So that means the costs could be even higher. But it could also be way lower than $174,690, and I’m going to show you how.
In the study, data used to estimate expenditures on children are taken from the 2011-2015 Consumer Expenditure Survey – Interview.
As for the cost of a child at each age, here’s s snapshot of what that looks like (broken down by income level):
Now, you’re still curious what all goes into these numbers, right?
Here’s the breakdown of the costs:
If you’re a skeptic like I am, your first question is probably, “how did they determine these costs?” That’s a great question. We’ll look at that, and see how you can determine the cost for your children.
Determining Housing Expenses
Since any home is going to have a living room, kitchen, and bathroom, those costs weren’t factored in. The study focused more on the additional bedroom(s) needed for additional children. Of course, some families would want a larger kitchen or living room for their children than they may want for themselves, but that’s hard to estimate.
For the sake of the USDA study, they were conservative and didn’t account for things like play rooms, larger yards for children to play, or child-specific furnishings.
Determining the Other Expenses
For food, transportation, health care, clothing, child care, education, and miscellaneous expenses, they used a formula.
Stick with me. It’s not as complicated as it appears.
I know the formula seems difficult to understand, but it’s basically just a ratio to determine the cost of children specifically, broken out of the overall family expenses.
Here’s a more specific break down:
- Clothing – Consisted of the children’s clothing that was bought.
- Child Care and Education – More than half of the households reported no expenditure here. For the homes that reported an expenditure, it was consistently a large one. Families were also asked about specific expenses related to child care and education, other than the actual cost of the services.
- Food – The percentage of the family diet for the children was realistic based on the child’s size and portion, compared to the adults.
- Health Care – MEPS (Medical Expenditure Panel Survey) is the only Federal survey that collects detailed individual household member data on heath care expenses, and was therefore used in this part of the study. The added cost of having children on a health care plan was the only portion considered in the study.
- Transportation – Only transportation of family-related activities was taken into account, which accounted for 75% of all transportation in the homes, according to a separate US Department of Transportation study 3.
- Miscellaneous – A per-capita method was used to calculate random expenses, such as personal care products, entertainment, sports equipment, etc..
This all may seem like a lot. If you don’t have kids yet, this can be intimidating. But no matter which stage in life you’re at, know that it doesn’t have to cost over $200,000 to raise a child.
How to Prepare Financially for a Child
When a child is coming into your home, whether through birth or adoption, there are many ways you can prepare. If you already have children in your home, there are still many ways you can set yourself up for success. Here are a few…
While emergency funds are necessary for everyone, they’re even more important for a family with children. If you already have an emergency fund, and you find out you’re having children, consider increasing it.
Three to six months of living expenses is ideal. I suggest shooting for six months of bare-bones living funds. Whatever the minimum you could live off of each month (without eating out, buying extra things, etc.), plan for six months of that and save the money.
You never know when medical emergencies, unexpected medical costs (braces, glasses, etc.), or unexpected child-induced accidents (broken windows, flooded basements, etc.) will occur. Be prepared for the worst, and hope for the best.
While a child doesn’t have to cost a fortune, they will cost more than not having a child. You shouldn’t be blindsided by the fact that you have to pay for things like health care and child care. Plan for these costs ahead of time.
Additionally, you’ll have more random expenses like the initial birth certificate, school registration fees, extracurricular activities, and the like, so plan for that too.
Update the Important Stuff
Don’t forget to add your child to anything you want him to be part of. If you want him to be a life insurance beneficiary, you need to add that to your plan.
Write or adjust your will to include your new child as well.
Decide on College
Are you responsible for paying your kid’s way through college? Absolutely not, but you might want to, or at least want to help.
See my guide on this for more, but in the beginning, you at least need to determine if and how you want to help. This way you can start immediately. I opened my youngest son’s 529 plan within the first 30 days of his life.
How to Not Spend $233k on Your Child
The figure above ($233,610) shows what the average American spends on a child through age 17, but we’re not going to be average.
There are plenty of ways to reduce the cost of a child, and we’re going to cover those ways, but first let’s talk expenses vs. earning.
Limiting Expenses Vs. Earning More
If you want to live a more financially stable life, you either have to limit your expenses, earn more money, or preferably, both.
Limiting expenses is always a better way to increase financial stability, because expenses shrink almost exponentially, meaning that the more you decrease your expenses, the more other expenses decrease.
If you get a smaller home, you spend less on utilities, and have less room to buy more things. Regular maintenance on a 5-year-old Honda Civic costs much less than it does on a brand new Mercedes. And so on…
All of this applies directly to parenting and the cost of a child.
Once your expenses are cut down, you can focus on making more money. But there’s no reason to keep increasing your income, and decreasing your family time, when the answer may be to decrease your expenses.
No we’re going to tackle each area individually, and figure out how to save some money. Starting with your home…
Save Money on Housing
You’ll always need a house. When you have a child, you may need a bigger house (or maybe not), but you shouldn’t be spending all your days working to pay off a house.
Buying Vs. Renting
Buying is not always the right answer. This whole idea of your house being your largest asset is kind of silly. It’s getting to be common knowledge that a house is more of a liability than an asset. Sure, it will hopefully appreciate in value, but it doesn’t always, and it will cost you money along the way.
Think of a home more like a classic car. It’s a liability, but it’s also a kind of savings account. Given the interest you’ll pay over the life of your loan, you are not likely to come out ahead in the end (yes, even with a 15-year loan). But that doesn’t mean you shouldn’t buy a home. It just means you shouldn’t see it as an asset.
The New York Times has a great calculator to help you determine whether you should buy or rent, based on your area. Use it! It’s quite helpful.
Some people are passionate about never buying, and some about never renting. I don’t think this is an absolute issue. The decision varies widely from situation to situation, and there are benefits to both. The only absolute here is that you must do what’s best for you and your family.
Choosing an Affordable Home
Now let’s talk about the home you choose. Most people buy much more house than they need. Just because you qualify for a $500,000 loan or can afford a $3,000/month rent payment doesn’t mean you should be spending that much.
When it comes to the size of your home, and how you use the rooms, get creative. Younger kids can definitely share bedrooms, and older kids (especially same-sex), aren’t entitled to their own rooms necessarily. This depends on how many kids you have and your income, but don’t think you’re a bad parent because your kids share a room.
Four of our five kids share a bedroom (the baby has a nursery so my other kids can sleep – you’re welcome, other kids). All they do in their bedroom is sleep. They also have a play room. They prefer it this way. You may think you’re walking into a hostel when you see their room, but their play room is pretty impressive, and they enjoy having it.
Save Money on Kid’s Clothing
I still remember how important it was to some children that they wear the latest brands, or at least specific brands, of clothing.
As a child, I had my favorite store, which happened to be quite an expensive store, and I preferred to only wear clothes from there. While my wish wasn’t always granted, it often was, and I know my mom spent way too much on my clothes growing up.
This is something we tackled early in our children’s lives. We explained this entire game to our children of being judged for what you wear or by who made what you wear.
Now our kids think it’s sad how other children get so caught up in name brands and fashion trends. They understand that the fashion industry literally goes through 52 seasons a year (what happened to spring, summer, autumn, and winter?), and that the fashion industry is designed to make you feel “out of style” every week so you keep consuming.
Our kid still have their own style. They wear clothes they choose, but they also love finding great deals and shopping at thrift stores.
We give and get clothes from friends and family to fill our children’s needs. We also buy clothes when they’re on sale – I’m talking really good deals only.
We keep tubs in our garage with the next sizes our kids will be wearing. These tubs of clothes are not forced on our kids, they’re more like a mini thrift store at our home that our kids can take or leave.
Our kids pass their clothes down to their siblings, and our older children have many clothes passed down to them by friends and family. This way the older kids aren’t always wearing the new stuff, while the younger kids get screwed.
When we do go clothes shopping, we prefer the clearance racks at outlet malls. Our kids now head straight for the clearance racks too! They understand how stores are designed to sell you the newest trends, all the way back to the clearance section, which is why those sections are at the back of the store (like the milk being at the back of Walmart so you walk past all their sales).
We live differently when it comes to buying clothes. It’s second nature to our kids now, and these frugal habits will carry over into their adulthood. We spend next to nothing on clothing for our family of seven. It’s achievable for anyone.
Save Money on Day Care
This can be a sensitive subject, because there are two sides and I see both.
On one hand, you’re paying someone else to take care of your child while you earn money that may largely be going to fund whoever is taking care of your child. On the other hand, I understand that stay-at-home spouses need to get out of the house, and a job or career is a good way to do that.
Dual income homes are growing faster than ever, both because more women are choosing careers over home life, and because we need more money to fund our expensive lifestyles. Phrases like DINKs (Dual Income, No Kids) and SINKs (Single Income, No Kids) are growing in popularity. I’m not sure how to pronounce SIFKs (Single Income, Five Kids).
Ideally, mom and dad could both stay home with the children, but of course, money is necessary to do things like… eat.
You have to do the cost comparison to see if day care makes sense though. Add up the average amount spent monthly on things like fuel, food, the need for a second car, work clothes, and other work-related expenses. Then subtract the monthly amount of day care. Many people find that they aren’t actually earning any money when day care is factored in.
If you earn $2,000/month, and day care is $1,000/month, then you at least have to admit your wages are cut in half. In reality, with day care factored in, you may not even be earning minimum wage.
This is the problem with the “earn more” mindset. It often leads to reckless earning with no concern of current expenses. That’s a problem and a waste of time.
If day care does make sense for you, see if there is a way to reduce the cost. Reach out to other families (especially those with teens looking to earn some extra cash). Explore all options. There may be a much better option than simply paying such a high premium. Make sure the cost makes sense!
Save Money on Health Insurance
Any time we’re talking about cutting expenses, it’s good to forget what you think you know. We all tend to fall into the “norm” and live life like everyone else.
Everyone else is broke. There are better ways to do things.
Health insurance for children is important, and can’t be skipped, but can it be less expensive? Of course!
If you’re currently paying for health insurance, look into your state’s insurance program to see if you qualify. You may be able to get free or greatly reduced prices through your state.
There are also plenty of alternatives to traditional health insurance that still comply with the legal requirement to have insurance. By the way, the mandate that requires you to have health insurance is going away this year.
Here are a couple insurance alternatives:
- Health Care Sharing – Many companies offer a health care sharing plan. Basically, you pay it like regular insurance, and share the costs of others’ health care. I’ve only heard good things from the people I know who use Medi-Share, a Christian health care sharing ministry. Christian Health Care Ministries and Samaritan Ministries are other options.
- Health Savings Accounts – An HSA is a tax-advantaged medical savings account for US citizens. The money isn’t taxed as long as it’s used for medical expenses. Think of it like an emergency fund for medical expenses. Of course, you’re using your own money, so it’s not insurance. And it takes time to build up a sizable fund, but this can be a great option.
Explore all your options! Eat healthful food and take your vitamins so that you don’t have a strong need to use the insurance (or whichever route you choose).
Save Money on Family Food
Food will always be a major expense. The more kids you have and the older they get (especially boys), the greater the expense.
We manage to feed our family of seven well for under $400/month.
Here’s how we do it:
- Drink tap water – Your tap water may not be drinkable, or it could taste bad, but it works for us (find reports of tap water quality here). Instead of buying thousands of bottles of water each year (by the way, 64% of bottled water is tap water 4), consider getting a water filter, like this simple Brita Filtered Pitcher. If you have really bad water, and that filter isn’t enough, try a water filtration system like this (or this one). It’s a higher cost up front, but it will pay for itself over time.
- Plan meals around sales – We go into the grocery store with a meal plan. You likely already know that meal planning is a great way to save money and only buy what you need. But don’t be too specific. We plan some sides, and leave the meat portion blank so we can fill it with whichever meat is on sale. If beef is on sale, beef chili it is! If turkey is on sale, bring on the turkey chili.
- Eat less meat – We skip the meat a few times per week. Believe it or not, you can go a meal without meat and not die. It’s a much more cost-effective alternative to eating a lot of meat regularly, and there’s typically an added health benefit, as long as your meal is still nutritious.
- Find a food co-op – These are popping up all over the states. Here is a directory to find one near you. Here’s how they typically work: you show up to the location, pay a set price, and get a few boxes full of local, fresh produce. Sometimes there are other stands with local food if you want to buy more (like a farmer’s market), and they often have add-ons with things like homemade bread or jams.
- Buy frozen fruits & vegetables – I know what you’re thinking… “fresh is so much better.” Well, it’s not “so much” better, but sure, fresh is always the best option. That being said, when you buy frozen, you’re getting the second healthiest option (better than store-canned), and it’s not going to go bad. This is a great compromise to cook nutritious food, practically and cheaper. Frozen is just easier, which means you’re likely to eat more fruits and veggies over the year.
- Quit the junk – Not only is it terrible for you, but it’s expensive. And some states are starting to apply a specific tax to junk food 5, making it even more expensive! We only buy things like sodas and snack cakes when we go on vacations. The kids each get to pick their own, and they look forward to it. They wouldn’t enjoy it so much if they had access to junk every day. Skip it!
Save Money on Family Transportation
I’ve met too many car-poor families, who pay a larger car payment than house payment. There’s no one you’re trying to keep up with or impress.
Transportation can be a huge expense. Some people will go great lengths to keep up their appearance. And it keeps them broke.
We have a minivan that holds eight, which leaves one extra spot. I’ve had plenty of dads say things like “A minivan? Why didn’t you get an SUV?,” alluding to SUVs being cooler or more stylish. My response is always, “because I like money.” This is just one example of how all these other dads are buying vehicles to impress other people, when they should be focusing on a vehicle they can actually afford.
If your family’s vehicle(s) are holding you back in any financially related way, you’re doing it wrong. Plus, according to experts, driving less makes you happier and healthier 6, so stop worrying about the type of car you drive.
We buy vehicles that are a few years old, yet still extremely reliable, and we aren’t picky about getting exactly what we want, which leaves room for finding deals.
I wrote a complete guide to kids and cars that explains how to look for a used vehicle, and how to get the best price. I won’t repeat all of that again, but you can read it here.
Save Money on Toys
Ideally, you could save money on toys by simply buying less of them. While that’s a simple concept, t’s not always easy. You feel like you want your children to have everything you are capable of providing them. But too many toys may actually be hindering them.
There were a few key findings in a 2018 study that really highlight what we all already know if we think about it 7:
- An abundance of toys present reduced quality of toddlers’ play.
- Fewer toys at once may help toddlers to focus better and play more creatively.
- This can done in many settings to support development and promote healthy play.
Playing is important. Toys are not.
While some toys are great, and I even recommend some finance toys on my resources page, too many toys is a distraction from life.
Limiting toys to a specific number may not always be the best option, because there are so many exceptions. If your son wants G.I. Joes, it’s not going to be fair to let him have 100 of them, while your daughter only has 10 toys.
The most important thing is to invite toys into your home. Each toy purchase should be a conscious decision, not an impulse buy. As Americans, with the traditional consumer mindset, it’s easy to buy things out of habit and without even thinking about it.
We should be mindful of each and every item that comes through out front door, and invite those items in because they provide value to our life.
We must stop the mindless purchases.
Phones are a great example of that. A teen (and often younger children) gets a phone because that’s simply “what we do.” But why is it what we do as a society?
Phones as Toys
When I say toys, I’m including things like smartphones and tablets.
For kids, a device that makes phone calls and possibly texts is a phone. An iPhone is a toy. You could make an argument that children need a phone, but there are plenty of arguments against letting your children own an expensive smartphone.
If your child isn’t taking care of their toys, or if they weren’t great about taking care of them growing up, they won’t take care of their smartphone.
There is no good reason for a child under 16 to have a smartphone, according to Michael Cheng, a child and family psychiatrist at Ottawa’s Children’s Hospital of Eastern Ontario 8. There’s not a hard argument for 16-18-year-olds having smartphones either.
If you’re spending hundreds of dollars on phones for your kids, step back and ask yourself if you should reconsider. I know my 12.5-year-old daughter often complains that she gets left out of things because she doesn’t have a phone. We had a long conversation about how it’s worth getting left out of a few group chats to avoid what she could potentially be exposed to on an unmonitored smartphone. Now she understands.
We’ve got to stop subjecting our kids to the “keeping up with the Jones” mindset, and the idea that we need something just because someone else has it.
A Money-Saving Mindset
It’s not hard to live within your means. It just takes some time and dedication to keep track of everything you spend. And to keep it under control.
Use a tool like EveryDollar to keep track of your expenses. Budgeting is simpler than ever. With EveryDollar, you can budget in 3 easy steps:
- Create your budget categories
- Link all of your accounts (requires Premium)
- Drag & drop each expense into a category
The fourth step is to stop spending money in a category once it’s full.
It may take you a few months to get all of the categories set and realistic, but once you do, you’ll be able to do so much more with your money.
Your kids are watching your financial habits. Get your finances in order now so you can teach your kids all of this stuff when they’re ready to do their own budget.
If you pass these financial habits down, you won’t have to worry about continued funding through their adult years.
Further Book Reading
- The Total Money Makeover by Dave Ramsey
- Your Money or Your Life by Vicki Robin & Joe Dominguez
- How to Save Money by Bob Lotich
Over to You!
- How much do you spend on your child in a year?
- Do you think it will cost you more or less than $233k?
- If you spend less than that, how do you live differently?
- Lino, Kuczynski, Rodriguez, Schap. (2015). Expenditures on Children by Families, 2015. United States Department of Agriculture.
- Merrill Lynch Staff. (2017). The Financial Journey of Modern Parenting. Merrill Lynch.
- Liss, McGuckin, Nakamoto, Santos. (2011). Summary of Travel Trends. U.S. Department of Transportation.
- Food & Water Watch Team. (2018). Take Back the Tap. Food & Water Watch.
- Pomeranz, Wilde, Huang, Micha, Mozaffarian. (2018, February 1). Legal and Administrative Feasibility of a Federal Junk Food and Sugar-Sweetened Beverage Tax to Improve Diet. American Journal of Public Health.
- Reid, C. (2019, January 11). Money Guru’s #1 Tip For Health, Wealth & Happiness: Drive Less. Forbes.
- Dauch, C., Imwalle, M., Ocasio, B., and Metz, A. (2018). The influence of the number of toys in the environment on toddlers’ play. Infant Behavior and Development.
- Stein, S. (2018, March 21). An age-by-age guide to kids and smartphones. Today’s Parent.