Million dollar babies

How much do kids really cost?

Legal Disclosure: Tony Robbins is the Chief of Investor Psychology at Creative Planning, Inc., an SEC Registered Investment Advisor (RIA) with wealth managers serving all 50 states. Mr. Robbins receives compensation for serving in this capacity based on increased business derived by Creative Planning from his services. Accordingly, Mr. Robbins has a financial incentive to refer investors to Creative Planning.

Having a baby is a huge life change. Your priorities, your perspective, and your path shift in wonderful, and often unexpected ways. And while we do our best to prepare ourselves for the transition into parenthood, it is easy to underestimate the true costs of having children.

According to the U.S. Department of Agriculture, to raise a child born in 2013 to the age of 18, it will cost a middle-income couple just over $245,000. That’s up $4,260 or almost 2% from the year before.

The estimate, released in the USDA’s annual report, Expenditures on Children by Families, is based on expenses related to housing, food, transportation, clothing, health care, education, child care, personal care items and entertainment, yet does not include any birth-related costs, opportunity costs, or big-ticket items like the cost of college.

It is also important to note that the nearly quarter of a million price tag is an average. Estimates can vary substantially based on where you live and how much you earn. High-income families who live in the urban Northeast, for instance, are likely to spend around $455,000 to raise their child to the age of 18, while middle-income families who live in the urban west are projected to spend closer to $261,330, according to the report.

Yet regardless of a family’s income, the biggest expense of raising children in today’s world is housing, which makes up for roughly a third of the total cost. After housing, the next greatest expenditures vary slightly depending on what income level the family is in.

For middle-income and high-income families, the cost of child care and education came in as the second largest expenditure on a child, accounting for a respective 18% and 23% of child-rearing expenses for both groups. And for lower-income families, food was the second largest expense on a child, accounting for 18% of total expenses.

These statistics are particularly concerning when you consider that just as of 2014, the country’s median income was still 3.1% below its June 2009 level of $55,589, while child care and health care costs continue to grow faster than inflation.

The study also found that expenditures on a child generally increased as the child grew older, no matter what income group the family was in. We can likely attribute this to the fact that as children get older, they have to consume more food, require more transportation, and acquire mobile phones and computers. And the price of such factors have only been exacerbated by the rising cost of food, gasoline, and technological devices.

The birth of a child changes the equation completely. And while the financial consequences are not meant to deter you from having a child, they are intended to expound the importance of being prepared, especially when planning for the future.

Of course, these findings do not account for the variance of financial costs across households. Some families undoubtedly spend less than others, particularly when you factor in their choices made in each category of expenditure. But regardless of any discrepancy, in today’s economic climate, budgeting your income, targeting your spending and making necessary lifestyle adjustments can not only help prevent you from breaking the family bank, but ultimately help you become more financially secure in the long run.

Header image © LunaVandoorne/Shutterstock

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