Children are expensive! My estimates range from $42,650 to $916,600 depending on lifestyle. And that is just to get them to age 18. More importantly 40-60% of the cost comes in the first five years! Little children are way more expensive than older children due to the cost of child care.

This post isn’t about knocking kids at all… This post is an honest analysis of what to expect in terms of budgeting for a child. Personally, every penny I’ve put towards my kids has been money well spent. I can’t imagine missing out on the joy and personal growth the experience of being a dad has given me. However, all those pennies going out the door were pretty surprising when I was a young dad.

The biggest thing that jumped out at me when it comes to budgeting for kids is deciding whether to have one parent stay home or pay for childcare. Let me tell you, quality childcare blows a giant hole in your budget in the first 5-10 years of a child’s life. If you want both parents to have careers (and time with adults) childcare, though surprisingly expensive, can be well worth it. I guess in hindsight I should have started saving for daycare when I was twelve in anticipation of my first child sixteen years later, lol :)

Another big ticket item that gets a lot of attention is saving for college. Mercifully that cost can be spread out over 18 years making it more like a utility bill (vs daycare which is more like an extra mortgage payment).

Along the way, paying for all the expenses kids bring up can feel like “death by a thousand cuts”. Little things add up such as clothes, activity fees, allowance, gifts, health care, furnishing their room, surprise doctor visits, etc. But you do have a degree of control over it. Let’s dive into three simulations to illustrate.

Scenarios and Assumptions

In this post I’m using the Wealth Meta Income and Spending Simulator to answer the question, “how much does raising a kid cost?”

I looked at it from three angles: frugal, middle of the road, and extravagant.

1. Frugal – the absolute minimum out of pocket to raise a kid. This requires that one parent take on the job of a full time caregiver. Having a stay at home parent is a HUGE cost savings, especially in the first year of the child’s life. Some of the numbers may be unrealistic, but I tried to cut everything to the bone.
    
2. Extravagant – this was the highest levels of sustained spending I could force myself to input! It models a very wealthy family where no expense is spared including a full time nanny, private school, savings towards a private college, lavish gifts, a new car at age 16 plus car insurance, fancy summer camps, etc.
    
3. Middle of the road – here a nanny and daycare are paid for which allows both parents work (mostly). After school care is budgeted for up until age 11. A modest college savings is provided for, but this assumes the child will attend a public university and pay for part of it themselves. Another budget wallop in the first year is upgrading to a larger safer vehicle (yep wagons and minivans start to make sense).

You can follow the links above and modify the simulations to fit your budget (go to Tools -> Save As…).

Here are the main assumptions the simulations make:

• I estimated a hospital deductible of about $5,000 for the birth and another $200/month in health insurance and copays. 
• The first year includes furnishing the nursery, a car seat (or new SUV), diapers, clothing, and breast pump + parts or formula. 
• All expenses are after tax. If your employer offers a dependent care flexible spending account you can offset some of that. Keep in mind that flexible spending accounts eat into your future social security benefits.
• When a child is born uncle sam chips in a little. Government tax incentives such as the Child Tax Credit and additional deductions give the parent back about $3,000 / year for 18 years. 
• Income from other sources such as paid parental leave or other tax breaks is excluded. Employer paid maternity leave is a nice perk. In my opinion, mothers should get at least one year off paid while they breastfeed and care for the new born baby. As a male, I have only observed, but breastfeeding looks like really demanding work. Seems like it would best for mom and baby not to have to worry about a job or money during that time.
• Each simulation lasts 18 years. The assumption is the kid moves out at age 18 and becomes financially independent (big IF there huh…). That may not be realistic with kids staying at home longer and longer. If you are hedging for a boomerang child (who moves out temporarily only to return) or a child living at home into their 20’s or 30’s, you’ll have to extend the timeline of your simulation.

Frugal Child Raising Detailed

The frugal example assumes one parent is a full time caregiver until the child enters school. That parent continues to watch the child in the afternoons and during winter break, spring break and summer break. No aftercare programs or summer camps are in the frugal budget. Month to month the budget is mainly diapers, food, healthcare and reasonably priced clothing.

In the frugal simulation, expenses drop after the first year of life and land to between $4,000 - $6,000. Meanwhile the offset from the tax credit and deduction holds steady at ~$3,000 per year. So in later years the parent is faced with approximately $2,000 per year of uncovered expenses. 

Frugal Summary:

• Total: $42,650

• First Year: $10,450

• Nanny, Aftercare, Summer Camps: $0 (parent provides, see relative value in other simulations)

• Average Per Year: $2,369

• Average Per Month: $197

This example is optimistic in that it does not include incidentals such as surprise medical bills, additional food, clothes, equipment, or vacations. You can customize what the bare-bones financial option looks like for you by adding or subtracting expenses in the simulation What Do Kids Cost – Minimum.
 

Extravagant “Rich Kid” Simulation

On the flip side of the coin, let’s assume that cost is no factor in raising a child. The parents hire a full time nanny, save for an Ivy League education, and opt for private school starting in kindergarten. Along the way the family showers the child with gifts and keeps them flush with cash. No expense is spared. 

Extravagant Summary:

• Total: $916,600

• First Year: $102,400

• Nanny, Aftercare, Summer Camps: $273,600 (29.8%)

• Average Per Year: $50,922

• Average Per Month: $4,244

If you want to customize the numbers to suit your values, see the What Do Kids Cost – Extravagant simulation.

Middle of the Road Child Raising

The difference between the total cost of a child in the extravagant example and the one in the minimalist example is ~$874k, pretty wide range. 

Let’s take a look at a middle class kind of budget (upper middle class?) where both parents work, but keep a more even keel with household spending. This roughly models what my wife and I went with - but keep in mind we did it twice - two kids, a boy and a girl.

The middle of the road simulation is judicious about cost, but does not deprive the child of learning and growth experiences. We sent our child to a quality daycare / montessori preschool, saved a little bit for college each month, and made sure they had quality stuff but nothing over the top. We also set aside money to cover extras like piano lessons and braces.

Here 63% of the total cost comes in the first 5 years!

Middle of the Road Summary:

• Total: $301,700

• First Year: $68,600

• Nanny, Daycare, Aftercare, Summer Camps: $149,400 (49.5%)

• Average Per Year: $16,761

• Average Per Month: $1,397
   

The Bottom Line

Every parent chooses to raise their child differently and this is reflected in their budget. From child care to clothing to additional activities and incidentals, there is no way to know for sure how much raising a child will impact you financially. However, you can get a comprehensive idea based on the examples above.

Numbers aside, let me close by saying that children are absolutely priceless. Having a family and being a father is the most important and captivating thing I will ever do. Raising kids is a life changing journey of love, joy and personal growth. Yes it is expensive! Yes it is exhausting, frustrating, anxiety provoking and at times downright depressing. Even so I’d do over again in a heartbeat. I’m so lucky to have a wonderful wife who I can share the experience with.

Related links:

• The Wealth Meta Income Spending Simulator
• Simulation: What Do Kids Cost - Minimum
• Simulation: What Do Kids Cost - Middle of the Road
• Simulation: What Do Kids Cost - Extravagant
• Ramp Capital’s Take - Kids are Expensive