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Does it really cost $295,560 to raise a child?

cost to raise a child by income level

The better off you are, the more you’ll spend on a kid.

Last month, the USDA released the 2011 estimates of expenditures on children from birth through age 17. Since baby RB40 was born in 2011, this report will help us estimate how much money the little guy will cost us. This report also confirmed a few key points for us.

– Annual expenditures on children generally increase as they age. This is what I heard from many parents and as much as I don’t like it, it’s true.

– A single child costs 25% more to raise than a two-child family. We are only having one kid so it’s interesting to see the comparison.

– Higher income people spend more money on their kid. It’s only natural.

cost to raise a child pie chart categories

Categories (Urban West, 0-2 years old, middle class income)

Housing – $4,670/year

Housing is the largest expense for a child because many families move to a larger home to accommodate an additional little person. Moving to a bigger house can be a huge expense and the urban West’s estimate is an additional $4,670 per year. I think this is a reasonable estimate because when families expand, they also look for better school district, an additional bedroom and bath, bigger yards, nicer kitchen, and more. For our family, we are planning to stay in our 2 bedroom condo, so I don’t think we’ll see much additional cost. If we move due to Mrs. RB40’s job change or some other circumstance, then we probably will shoot for a 3 bedroom home. So for now no additional cost, but perhaps in the future.

Food – $1,440

Food cost is cheapest when the kid is young and will increase as they need more nutrition. The first year can be expensive if your kid needs formula. We joined Costco just to have access to Kirkland brand formula and probably spent around $50/month. Now that he is 16 months old, he is drinking Organic whole milk from Safeway ($25/month) and sharing most of our food. Baby RB40 is an amazing eater. Just over this last week, he tried Philly cheesesteak from Cheesesteak Nirvanaย (best cheesesteak ever!), Thai yellow curry, Korean mandoo, tamales, mapo tofu, pupusas and more. He also eats a lot of fresh fruit. I think $120/month extra is pretty accurate.

Transportation – $1,780

The USDA only took the transportation expenses related to family activities into account here. I think this figure is way too high. If you weren’t doing family activities, you would be doing something else, right? I guess many families upgrade to a larger vehicle and that’s what makes the number look inflated. Our 1998ย BMW Z3 broke down right before baby RB40 joined us and we replaced the car with a Mazda 5. It is bigger, but it is cheaper to own and maintain. The car is paid off so the only running expenses we have are gas, maintenance, and insurance. We also take public transportation quite a lot, so most days we don’t drive. This figure seems high to me and for us, it probably costs $200/year extra at most.

Child care & education – $2,750

OK, this is ridiculously low. We paid $1,250/month for daycare and spent nearly $15,000 over the last 12 months. Fortunately, this expense will go away soon when I leave my day job to become a stay at home dad. One of my friend sends his 2 kids to private school that costs $10,000 per year, each! For us, the next expense will be preschool in 2 years. After that, public school should take care of his education until college. Sports and extracurricular activities will cost a lot of money too, but I think we’ll concentrate on a few things at once to keep the cost reasonable.

Total expense – $13,250

I think this is actually pretty close for us. The daycare cost eclipsed everything else so we’ll see if this estimate holds true as baby RB40 ages. $13,250 seems like a lot of money and I think once the daycare cost is eliminated, our child expense should plummet for at least 5 years. I’ll keep this report around and check again in a few years to see how we do.

cost to raise a child by region

So does raising a kid really cost a quarter of a million dollars (urban West)? For us, the first year is eerily accurate, but I think our cost will be much lower than estimate over the next 5 years. It’s too late to return him so I guess we’ll have to deal with it. ๐Ÿ™‚

Raising a kid is expensive, but baby RB40 brings so much joy and excitement into our lives, it is worth it for me. What I’m really afraid of is the college expense in 16 years. We are saving for his education in the 529 plan, but if the college tuition keeps rising, it will be very difficult to cover. I guess he can always work part time and get some loans. Oh well, we’ll worry about that in 15 years or so.

Have you taken a look at the report? How does your family compare to the estimates?

Update:ย Iย left my jobย in July 2012 and I’m being a full time stay at home dad for the time being.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

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{ 48 comments… add one }
  • Forum 63 November 22, 2012, 12:12 pm

    These numbers don’t pass the smell test for me. First of all, the USDA figures assume that if you have two kids you’re going to spend an extra $160,000 on house (i.e., their housing cost for two kids works out to an extra $780 per month on your mortgage for a couple in the northeast.) Since most houses have 3 -4 bedrooms already, anyone, childless or not, will end up paying the “average” price for a home in their area. The figures also appear to assume (again based on payment), that you’ll end up shelling out $10,000 more for a car and you’ll have to replace it every five years. Since almost most all cars seat four, this also doesn’t pan out. Nor does the argument that kids require more driving. Childless people, I would imagine, drive the same miles on average, but obviously the purpose of the driving would be different. Food, in my experience, is a highly discretionary items, as are clothing. I did two kids age two and four. Over $700 per year for each child for health care; health insurance rates are set for either single or two or more (family). You don’t pay more in premiums for even one child. Even assuming you spent half that amount on $20 co-pays, you mean you’re bringing your kid to the doctor 18 times a year? Year in-year out.

  • Snowthine October 3, 2012, 10:08 am

    “Pupusas” how… where… how…?? I haven’t had a real pupusa since I lived in Honduras (93-01). Did you make them at home or find someone that can make authentic ones?? The details… I must know them!

    I know it’s a seemingly odd thing to comment on! I am really enjoying your blog so far, it is giving me great ideas and guidelines! Thank you for sharing/posting so many details!

    • retirebyforty October 3, 2012, 11:15 am

      Do you live in Portland? The foodcart pod at PSU (4th and college) has a cart that specialize in pupusa.
      Good luck! They are really good and it’s one of our favorite at the moment.

  • jim July 16, 2012, 3:31 pm

    Some of their figuring seems way off base to me. It certainly does not cost an incremental $1780 to drive your baby around. They get that figure by arbitrarily assuming that 15% of household driving is for the sake of the child only. For the most part the baby is just along for the ride. Your baby goes where you go and you aren’t adding many extra trips for the baby.

    I believe the figures for childcare/education are the average spent across all families including the families that don’t spend anything on those categories. So in other words its not like 100 families spend $2750 each but instead like 50 families spend $5500 and 50 families spend $0. Or if you look at the high school age kids I assume the cost there is from the 10% or so who go to private school averaged across the whole population.

    • retirebyforty July 17, 2012, 12:08 am

      They only figure the childcare portion for people who had that expense. So they don’t average in the families that spend $0. If you don’t have daycare, then you can ignore that column. I think you’re right about private school. It cost over $10,000 per year and I’m sure that skew the numbers.

  • Buck Inspire July 8, 2012, 11:33 am

    Baby Buck is three months and yes we are getting hit with new expenses (diapers, formula, wipes, and baby sitter). What is the logic behind two children is cheaper to raise than one? Going to be taking on a bigger home, but don’t see the transportation expense. I agree with your other reader, because of the extra mouth to feed, I pushed myself to get another job and look for alternative forms of income. Will be interesting to look back at this post. Thanks!

    • retirebyforty July 8, 2012, 10:33 pm

      Two children is cheaper to raise per child. It will still cost more to raise two kids, but not 2x. Hope baby Buck is doing well. Are you getting any sleep? That whole first year was a big blur to me. ๐Ÿ™‚

      • Steve July 10, 2012, 1:04 pm

        Two children probably means two extra bedrooms instead of one. You can stick with the same four-seat car. The various components have different economies of scale, and adding it all up, the second child only costs apparently 50% as much as the first.

  • JP @ My Family Finances July 8, 2012, 10:45 am

    So having a second child was the frugal option?

    We have spent far below the average for now. However, it’s the teen years that are really going to matter. I don’t see how you can have to teenagers and not find your wallet empty. It’s definitely going to be challenge.

    • retirebyforty July 8, 2012, 10:31 pm

      I don’t even want to think about the teen years. Let me enjoy our baby for now. ๐Ÿ™‚

  • [email protected] July 7, 2012, 9:55 am

    I am incredibly frugal but I have never regretted a single cent I have spent on my two daughters. They have been worth everything I’ve paid any more!

    The expensive stuff for us is daycare. We only have two kids so we kept our Prius and it works fine. We didn’t upgrade to a larger home because we already had 4 bedrooms. I rarely buy my kids anything new at all so that doesn’t add much of an expense.

    I am sincerely concerned about college though. We are also saving for both of our kid’s college in their 529 plan but I am worried that as costs increase that it won’t be enough.

    • retirebyforty July 7, 2012, 10:00 pm

      Thanks for your perspective. I don’t like paying for daycare at all, but that’s probably the only thing I can complain about. ๐Ÿ™‚ We are also very concern about college cost.

      • I tend to use an inflation rate of 7.5% annually for college costs in the course of my financial planning work with clients. As the parent of one college grad and two current college students you really need to shop around in terms of financial aid. We have found that if your child is a top student with good test scores there are a number of colleges who offer very generous merit based packages. We saw this with our oldest. She ended up with a full tuition ride to one top-ranked private school. The interesting part of this was that the school that was originally her top choice and very similar in terms of quality of her major and their overall rankings (and price tag) offered her about 1/2 as much. In our experience private schools can be a much better deal that state schools. It pays to look beyond the “sticker price.”

        • retirebyforty July 8, 2012, 10:30 pm

          Wow, it’s great to hear about a success story. I have been reading so much doom and gloom lately. Best wishes to your children!

  • Linda July 7, 2012, 5:50 am

    Maybe the transportation cost is so high because it factors in the cost of fuel. It seems I’m always hearing about how parents have to drive their kids around all the time to sports, parties, etc. In the Urban West (which includes California, I imagine) gas prices can get pretty high.

    • retirebyforty July 7, 2012, 7:32 am

      I guess in California, the cost of fuel can get pretty high. When we went to visit, we were always driving every where. Here in Portland, we only drive once or twice a week.

      • Steve July 10, 2012, 12:59 pm

        Baby RB40 is not old enough to have after-school activities yet. Another way in which kids cost more as they get older.

        My sister just moved to a larger house in the district of a better high school. Her oldest offspring (twins) are 13. Another way in which kids cost more as they get older.

        College is obviously a big bugaboo in all this, but is not included in the USDA numbers.

        • retirebyforty July 10, 2012, 11:16 pm

          We are in one of the best school district in the city and we’re not planning to move for a long time.
          Yeap, I’m not looking forward the the college tuition at all. Being a single child also limits many financial aid options too as I understand.

  • Roshawn @ Watson Inc July 6, 2012, 10:43 pm

    “So does raising a kid really cost a quarter of a million dollars (urban West)? For us, the first year is eerily accurate, but I think our cost will be much lower than estimate over the next 5 years. Itโ€™s too late to return him so I guess weโ€™ll have to deal with it.”

    I found the childcare figure low too. I constantly hear how much people are paying for this. Perhaps it is just my circle, but I know I am not alone in this feeling.

    The fact that the numbers are so accurate in your case is a bit scary to be honest.

  • Jen @ Master the Art of Saving July 6, 2012, 4:27 pm

    We don’t spend anything near what the USDA estimates. Of course there are some things that we’re not paying for that we should. ๐Ÿ™

  • Kim July 6, 2012, 12:32 pm

    Living in a rural area, daycare is pretty cheap. We had our daughter with a private sitter up until age 3, five days a week for $500 a month. Preschool four days a week includes lunch and is $384 per month. My husband is a teacher, so we only need daycare 9 mos out of the year, and we are still over the average on that one, but way under on the rest. I’d say around $8000 per year. We used to waste so much money years ago that even with a kid, we do tons better now.

    • retirebyforty July 6, 2012, 11:34 pm

      Wow, $500/month is not bad at all.
      I think we also spend less money overall than when we didn’t have a kid. These days, we are just too tired to go out and spend money. ๐Ÿ™‚

  • [email protected]&More July 6, 2012, 9:51 am

    Glad you decided neither to return the baby. I wonder if anyone actually considers this information prior to having a kid. I bet most have no idea how much havoc a kid could wreak on an already tight budget.

    • retirebyforty July 6, 2012, 11:32 pm

      Young people shouldn’t have kids. ๐Ÿ™‚ We definitely weren’t ready when we were younger. Even now, it can be tough at time.

  • Crystal @ Prairie Ecothrifter July 6, 2012, 9:32 am

    Yes, I think the numbers could be right in a specific situation, but not all. Like you said, some people spend more on child care and education. Some people spend way less on housing.

    If Mr. BFS and I have a kid, we would probably need to spend way less than those estimates EXCEPT for schooling since we already have the big house. Mr. BFS was a public school teacher for 6-7 years…sadly that means that we would be paying for private school…

    • retirebyforty July 6, 2012, 11:31 pm

      Is public school that bad in your area? I think our public school is not bad at all. We live in a pretty good district and the high school is particularly good.

  • krantcents July 6, 2012, 9:03 am

    Since we raised our children some time ago, these current numbers are not that meaningful. We spent more than most because we elected to send our children to private school. We never had child care expenses because my wife worked part time before our children started school. Are children expensive? I do not think so because you have choices. I think to bring up children right, you need to spend time with them. This generally means you give up income.

    • retirebyforty July 6, 2012, 11:28 pm

      I think spending time with the kids is one of the most important factor too. It’s too bad that most parents have so hard just to get by.

  • DaveL July 6, 2012, 8:37 am

    I think your break down of the cost of raising a child seems much more accurate. Thats awesome that Baby RB40 is open to trying so many different foods at such a young age!

    I dont understand where college is headed, I was fortunate to graduate with what little loans I had with the help of my parents and community college (which I would suggest to anyone, at least for 1 year)…but if they keep raising the tuition rate…its just getting ridiculous.

    • retirebyforty July 6, 2012, 11:26 pm

      I guess each family spends differently. Some family spend more on housing and less on daycare. I love it that baby RB40 is eating so many different foods. Many kids his age are still eating mostly baby food.
      I hope college tuition will stabilize at some point. We can’t have all young people owing so much money right out of school.

  • Daisy @ Add Vodka July 6, 2012, 7:31 am

    These are some scary numbers. But I’m sure kids are worth it. I’ve always wanted to have kids and it’s never been about the money, and should never be about money when deciding to bring a little one into the world. I was also surprised at that childcare number!!!

    • retirebyforty July 6, 2012, 11:23 pm

      The childcare must be part time or something like that. Maybe daycare is cheaper in other parts of the country? It seems very expensive on the west coast.

  • Manette @ Barbara Friedberg Personal Finance July 6, 2012, 7:28 am

    What about clothing? Remember that we should also buy them clothes and shoes as they grow. It is a good thing that my children are not choosy on their clothes. They accept hand-me downs from their cousins. My brother-in-law sends them shoes when school starts. My children are also attending public schools and I am personally assisting them with their lessons to ensure that they maintain their good grades and scholastic standing so that they will get scholarships in college. Though we have the money to send them to college, it will be money saving for us, and appealing in their resumes, if they will be able to go to college with scholarships.

    • retirebyforty July 6, 2012, 11:22 pm

      I skipped the clothing category. We didn’t spend much on clothing so far. We got a lot of gifts and hand me downs. We also went to consignment sales and buy 2nd hand clothing. I’m hoping for scholarship too. ๐Ÿ™‚

      • Keri August 3, 2012, 2:31 pm

        We have two kids, now 4 and almost 8. I’ve found that clothing is pretty easy to find for nothing (hand-me-downs, etc.) when they are young, but the older they get, the more you have to buy. I do my homework, shop sales (love the clearance rack) and buy for seasons ahead, but I definitely spend more for them than I do myself or my husband! Oh, and both our kids are boys, so that helps. Actually, the handmedown factor in a family is probably the biggest reason a second child is less money.

        I also know that I won’t be able to just accept clothes from my friends who have kids that are just a bit older. I remember being very embarrassed as a kid when my friends recognized their old clothes on me. I don’t mind taking it, though, if it comes from people my kids don’t spend any time with.

  • As the father of three (our youngest is 19) I would find it tough to argue with the $295,560 figure one way or the other. Clearly it depends upon the family’s lifestyle, whether you send your child to public or private schools (we did both at various points with each of the kids), their activities (tip stay away from anything that involves skates and ice), etc. The cost of daycare was mentioned, in our case my wife stayed home until our youngest was 10, but there was the opportunity cost of her lost income. At the end of the day we love our kids, they remain a great source of joy in our lives as they move into young adulthood. Whatever we spent it was worth it.

    • retirebyforty July 6, 2012, 11:20 pm

      Thanks for you input. I’ll make sure to avoid skates and/or ice. ๐Ÿ˜‰
      Daycare is very expensive. It’s too bad we don’t have extended families in town.
      I think that can help quite a bit.

  • RichUncle EL July 6, 2012, 6:40 am

    I don’t think it costs 15K to raise a child the numbers are largely inflated. housing expenses should not be included because before a baby was born you needed housing, and if you move you should only include the difference between what the new payment is with the old house payment. Same goes for transpotation and food. Just subtract the difference to get a more realistic number.

    • Steve July 10, 2012, 12:53 pm

      The $4,670 is per year and *is* just the delta for adding a kid. That’s $390 a month. Maybe a little high just for adding one bedroom but of course like all the other numbers, “it depends.” My wife and I also live in the Urban West and we did move to a larger home when our first (of a planned two) kids was 18 months old, and it costs something like $400-800 more a month depending on how you figure it. So it’s not an outrageous number.

      I don’t think the Transportation number is too outrageous, either. Of course it also depends, but my wife and I did buy a new four-seated car which, even though we paid cash for, depreciates a lot faster than our old pickup truck.

      DW and I are pretty frugal but I have to admit that between house, car, day care, health insurance, and college savings, I would almost be surprised if we only spent $300k raising our child(ren).

      • retirebyforty July 10, 2012, 11:15 pm

        It’s really depressing to think of it in that term right? I think moving to a bigger house definitely add a lot more expenses. A bigger house brings all kind of extra expenses like utilities, yard expenses, and more.
        I guess a new car would jack up the transportation number.

        • Steve July 10, 2012, 11:28 pm

          It sounds like you were livin’ la vida loca before babyrb40. Driving a beemer around town to all the bars and restaurants and whatnot. My wife and I were driving our 1999 pickup truck to the library and board game nights. So yeah, our expenses went up. But it was expected and our income is high enough (knock on wood) to support the expenses and still save for college and retirement.

          • retirebyforty July 11, 2012, 9:50 am

            It was a pretty old BMW, but we loved that car. ๐Ÿ™‚ Convertible is the way to go. Once the little guy is out of the house, I’ll have to hunt for another convertible.

  • SavvyFinancialLatina July 6, 2012, 6:36 am

    The numbers amaze me! Sometimes I wonder how my parents managed to raise me when they had little money. I know they sacrificed a lot. But it also makes me not want to have kids. Is that selfish?

    • Linda July 7, 2012, 5:45 am

      No, it’s not selfish at all. There are many reasons by people have children and many reasons why they don’t. It’s OK to make a conscious choice to not have children now or ever.

      I wrote about my thoughts on this a few months ago http://awindycitygal.wordpress.com/2012/05/02/on-being-child-free/ I made the choice to not have children and I’m doing just fine with that decision.

      I’m glad there are people who do want to have children, though. If everyone decided not to do so, there would be no people left!

  • Matt July 6, 2012, 5:02 am

    We don’t have children yet for a lot of these reasons. We make a healthy living but want to be certain we are financially secure when we make the plunge. It amazes me how some of my peers have kids because they are under the assumption that is the very next step after marriage, yet they have a negative net worth and a single income.

    On a side note, the food category facinates me. I’m just picturing showing my future child all of my favorite foods and letting them experience it for the very first time! Of course this goes with everything in the world I suppose.

    • retirebyforty July 6, 2012, 6:54 am

      We waited 12 years to have a kid because there were too many things that we wanted to do first. Now we are much more financially secure and it’s much easier to raise a kid. It must be very difficult to raise a kid when you have to live paycheck to paycheck. The food is pretty amazing. Some kids his age are still mostly eating baby food. ๐Ÿ™‚

  • Early Financial Freedom July 6, 2012, 12:37 am

    I think people should focus on the full part of the glass as far as having kids are concerned. They are source of joy, cry, love, etc. In addition, there is no need to send your kids to the most expensive schools either. If they have intellect and capacity, they would do just fine. If they don’t, you would just waste your fortune on education. In our case, our son, who is 7, is one of the main driving force for our economical success. You could justify ANY decision by numbers & statistics. “Lies, damned lies, and statistics” anyone?

    • retirebyforty July 6, 2012, 6:52 am

      It sounds like your son is a driving force for your financial success. That’s great to hear.
      I don’t think we need to send kids to the most expensive school either, but if his major fits a private college then I would give it a consideration.

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