By: Jeffrey Buonforte, CERTIFIED FINANCIAL PLANNERTM
According to a recent report by the U.S. Department of Agriculture (USDA)1
, the typical two-parent, middle-income family with a child born in 2011 can expect to spend $234,900 to raise a child to age 17. Factoring in projected inflation that number would actually be $295,560.
While this number may seem overwhelming, you can prepare yourself for what is ahead. The joys of growing your family far outweigh the financial implications, but it’s still something you need to plan for.
First, understand what budgetary components the $234,900 captures.
It represents costs for these major categories: housing, food, transportation, clothing, health care, childcare and education, and miscellaneous goods and services. Miscellaneous expenses consist of personal care items, entertainment, and reading materials.
Housing accounted for the largest share across income groups (under $59,410; between $59,410 and $102,870; and over $102,870). For families in the middle-income group, childcare/education and food were the next largest average expenditures on a child. Child-rearing expenses vary considerably by household income level with the overall annual child-rearing expenses highest for husband-wife families in the urban Northeast.
How has spending changed?
It increased by 3.5% from 2010 and a 23% increase from 1960 when the USDA first began providing these estimates. Adjusted for 2011 dollars, the cost of raising a child to age 17 in 1960 was equivalent to $191,723. Housing was the largest expense in both these time periods. Perhaps the most striking change in child-rearing expenses over time relates to childcare and education expenses. These expenses grew from 2% in 1960 to 18% in 2011. Much of this growth is likely related to childcare. Since 1960, the labor force participation of women has greatly increased, leading to the need for more childcare.
What accounts for the 3.5% increase from 2010? The report says the cost of transportation, childcare/education, and food saw the largest percentage increases related to child rearing from 2010. Health care, clothing and housing costs also increased, but to a lesser extent.
Families that make more, spend more.
Not surprisingly, families with more income spend more per child. These expenses do not, however, increase by the same percentage across the board. For instance, expenses on food and health care do not vary as much among income groups, but expenses on more discretionary items, such as entertainment and travel do.
What isn’t included?
These expenditures exclude costs related to prenatal health care and the cost of a college education, the largest expense for children after age 17. The College Board (2012) estimated that in 2011-2012, annual average tuition and fees were $8,244 at 4-year public colleges and $28,000 at 4-year private colleges; annual room and board was $8,887 at 4-year public colleges and $10,089 at 4-year private colleges. Planning for a child’s college education can start as early as birth. Check out this “Tips on Planning for College
” blog post for a detailed description of each of these options. Lakeland Bank also offers a calculator
to help determine how much you will need to save for a college education.
Create a plan.
For even the most organized parents, there is no way to know what your child’s future will bring so careful planning is key. Diapers and car seats will give way to dance lessons, sports equipment, and much more. This First-Year Baby Costs Calculator
from BabyCenter can be a helpful way to figure out how much you will spend during your child’s first year of life. Creating a family budget and sticking to it is very important. A strategy of controlling spending and saving is key to financial growth.
Studies show that households that get professional advice before a major financial decision like starting a family, fare significantly better than those that do not seek advice2
. At Lakeland Bank our financial advisors help families plan for all stages of life
, developing both long term and short term financial goals. For more information or to answer any questions you may have, feel free to contact me at (973) 208-6214
1 Lino, Mark. 2012. Expenditures on Children by Families, 2011. U.S. Department of Agriculture, Center for Nutrition Policy and Promotion. Miscellaneous Publication No. 1528-2011
2 Financial Advisors and Boomers: Regular Use May Be Beneficial to your Wealth. Retirement Income Industry Association
*Securities are offered through Essex National Securities, LLC, member FINRA & SIPC. Insurance products are offered through Essex National Insurance Agency, Inc. Neither are affiliated with Lakeland Bank.
Products are not guaranteed by the bank, not FDIC insured, not a deposit, not insured by any federal government agency, and may lose value including loss of principal.