How much does it cost to raise a child?
As a money coach, I had the opportunity to work with many parents on their financial plans before I had my son. I saw the laundry list of possible expenses, the myriad of trade-offs parents have to make, and that - just like with our personal spending plans - there is no “right” way to allocate our money as parents.
First and foremost, it’s really important to acknowledge what a privilege it is to be able to decide how to spend our money as parents. There is a tremendous cost of raising a child in the United States due in large part to the dearth of parental leave, the absence of affordable childcare, high medical costs, and unsupportive work environments. Most American parents are just trying to get by.
The average cost of raising a child in America is $233,610 (excluding the cost of college). Raising a child 0-2 carries an average annual cost of $12,680, while raising a teenager costs parents about $13,900 each year. Given that in 2017 the median household income in the U.S. climbed to $61,372 (before taxes), it’s no surprise that raising a child is a huge financial strain - and the average household has 1.9 children.
For those of us who have the privilege and opportunity to choose where we spend our money, it’s very much a personal choice that feels best when we align our spending with our values. This means that we prioritize spending on what’s most important to us.
However, until we know what might come up or what our options are, it’s very hard to plan. With my semi-type-A personality and something as unpredictable as a baby, any amount of planning I could do felt really great.
I’ve included many of the expenses I see new parents take on. This list is not exhaustive and many of these expenses are not required or necessary. I included them so you have them front and center for your decision making and planning.
As much as we love to plan, we should expect our plans to evolve over time. We might think we’ll be one way as parents and once the baby comes along, our entire philosophy goes out the window.
So how much does it cost to raise a child?
Take time to think about what is most important to you about raising a child. If you are raising your child with a partner, be sure to include them in the conversation, too. This is really helpful for perspective.
Next, read through the list below to formulate your ideal plan. If the numbers don’t work (and in most cases they won’t), that’s okay! See if there are ways to make your expenses more fabulously frugal.
We can do this with big, ongoing expenses like switching from a nanny to a nanny share, as well as for one-time expenses, like purchasing gear second hand from a friend or parent group instead of buying it brand new.
If possible, leave a buffer for things to come up so that there is some wiggle room for changes in the moment. We can have very optimistic and lofty goals as new parents but given the tax of a new (usually non-sleeping) human, we may want to make some adjustments and that slack is a nice gift if we can create it.
The cost of raising a child: ONE-TIME EXPENSES
I like to break the cost of raising a child into two major categories: one-time and ongoing expenses. For the larger, one-time expenses I encourage clients to use sinking funds as a preparation strategy so that the money (or at least some of the money) is available when we want to use it.
The medical cost
There is a medical cost associated with having a baby. This includes the prenatal visits you’ll have as well as the medical cost associated with giving birth. It would be a lot simpler if we could call our insurance companies and get an estimate for how much it will cost, but unfortunately that’s not the case.
To plan, I’d assume you hit your deductible in the year you have your baby. If you are planning far in advance, it can be worth it to switch insurance plans to have better coverage in the year you have a baby.
It’s also becoming increasingly popular to hire a doula, see a nutritionist, do acupuncture, and get massages. Include these in your plan if you’re hoping to incorporate them into your life.
Other prenatal expenses
This one is harder to predict - especially the first time around, but you might want or need to take on some extra expenses. This could be anything from a budget for maternity clothes to taking taxis to and from work in your last trimester.
Depending on your budget and your work clothing requirements, you might try to find someone in a parents’ group passing down clothes or get a Rent the Runway subscription to be able to rent clothes of different sizes as your body changes.
Getting your estate in order
There are some legal documents we want to get in place as new parents. This includes a will (who will get what you own) and choosing a guardian for your child should something happen to you. There is typically a one-time cost associated with getting this set up.
Parental leave
Depending on your employment status and benefits, you may or may not have paid parental leave. And if you do, it may not be for as long as you want to take off. I have seen many parents cobble together their leave through a combination of paid leave, vacation days, and sick days but if your employer doesn’t offer it or you’re self-employed, leave is an expense you’ll want to plan for.
As an entrepreneur, it was important to me to invest in my maternity leave. In order to take three months of leave, I had to grow my team to delegate certain responsibilities, and I had to make sure my business and personal expenses were covered during that time where I’d earn less income.
Postnatal expenses
There may or may not be additional expenses after you have the baby. For example, you might end up ordering in food more often or signing up for a meal service because you don’t have time or don’t want to prepare meals. Some parents decide to invest in a baby nurse to help with newborn care which can be a significant expense.
If you plan to breastfeed, some expenses may include renting or buying a breast pump (if that’s not covered by your insurance) as well as support for breastfeeding by way of a lactation consultant.
Getting the gear
The cost of getting set up with gear can vary widely. Some parents want to get all new furniture for their nursery, while others are happy to coordinate with other families and use hand-me-downs. The same is true for clothes. Whether or not you register or have a baby shower will also be a factor in how much of the gear you’ll be buying for yourself.
Bigger life events
Depending on your culture and religion, there might be other life events you may want to save for. Weddings might eventually be on your radar but even sooner are events like a Bris or Baby Naming, Baptism, Christening, Quinceañera, Sweet Sixteen, or Bar and Bat-mitzvah. The earlier we put money aside for these events, the easier it will be for our wallets. That being said, there are many, many other expenses to balance so these will probably get pushed lower on the priority list.
What to do about it
Once you total up an estimate of your one-time costs to have a baby, you can start setting money aside. Often times because this number is so unknown, it can feel really daunting to plan for and then we just don’t start. But I promise, even if you are way off, you’ll be much happier having money set aside than not. You can set up a sinking fund called “baby” (or whatever makes the most sense for you) in an online savings account. Then, set up automatic transfers to the baby fund each paycheck or every month.
Having time to save up is one of the positive sides to the nine month pregnancy. The earlier we start, the less pain we’ll feel saving up and the more room we’ll have in our monthly budget for ongoing baby expenses once the baby arrives.
The cost of raising a child: ONGOING EXPENSES
The ongoing costs of raising a child are different than the one-time expenses in that we’d ideally have them fit in our monthly budget. We can use a spreadsheet for budgeting to lay our new expenses out and make sure they work with our overall financial plan.
However, many parents I work with are in transition. They might be between jobs or switching careers, and the monthly numbers don’t make sense with their income.
Some can choose to invest in this time and spend more than they’re earning (which means money will come from savings) while others decide (or financially have to) to minimize expenses.
Medical costs
Yes, medical expenses are a one-time and ongoing cost. Whether you pay for your health insurance out of pocket or from each paycheck, your costs will go up when you add your child, both in the form of additional premium (insurance costs) and visits to the doctor. You can do some research and get an idea of this number in advance so you can include it in your new post-baby spending plan.
Big life changes - do you want more space?
Some parents choose to increase the size of their living space when they have a child. There are so many tradeoffs to balance when choosing a new home. Some increase space and cost while others increase space but move to a less expensive location (or trade off other things) to keep the cost the same.
If you plan to relocate, it’s important to factor in moving costs, new furniture, changes in commute, and even changes in things like laundry costs.
Insurance
When we have a child, we also want to make sure we’re properly insured. This means setting up life insurance so that your partner, new guardian, and child are set up financially should something happen to you.
Not only is life insurance important, but it’s important to insure our income as well. One in four twenty year olds will become disabled and not able to work at some point before they retire. Long-term disability insures a percentage of your income, meaning you’d still get paid a percentage of your salary if you were unable to work.
Life insurance and long-term disability may be available through your employer or you may set it up on your own. Even if your employer offers it, you will want to make sure you have enough coverage.
Childcare
This one is a biggie. Like I mentioned, in the U.S., we don’t have government childcare programs that are offered by many other countries. Our choices are to have a parent stay home, have a family member or friend help out (if that option is available to you), to send our child to daycare, to hire a nanny, or to use some combination of those options.
For parents who decide to stay home in order to save money, it’s important to look at the cost not only for that year but also for their entire earning trajectory. In order to make it all work and more affordable, I’ve seen parents come up with a number of creative solutions.
Some balance parent work schedules to minimize childcare hours necessary. Others do nanny shares where you pay more per hour for two children but split the cost with another family (and your child has a built in best friend!). If it’s an option for you, utilize nearby family to lighten the load.
I cannot emphasize enough how privileged and grateful I feel each day when I go to work knowing that my child is in a safe and loving environment.
Once you have your childcare sorted, it’s important to think about backup care, which may or may not cost additional money. How will you handle your child being sick and not being able to go to daycare? What will you do if your nanny were to call out sick? Would you or your partner be able to stay home, or would you need to make other arrangements? Some employers offer backup care benefits which includes someone coming to your home or getting free days at a daycare.
Planning for education
Thinking about education is something that started earlier than I expected. Many areas don’t have public education until first grade which means you might want to send your child to a preschool or kindergarten program that comes with a tuition. Others prefer to plan for private school all throughout a child’s life. Some people move to certain areas in order to have the opportunity for their child to go to better public schools. This might mean a change in cost of living and often taxes.
Some parents have the goal of paying for their child’s college tuition. For many parents this is the last thing on their minds and that’s okay. Regardless, we definitely want to make sure our retirement is taken care of first (as there are no retirement loans!). With the rising cost of tuition, we have to put more and more aside in order to do this but the earlier we start, the more we give the money time to grow. 529 plans are a great tax-advantaged way to put money aside.
The everyday expenses
We should also consider the everyday expenses associated with having a child. This often includes just more of the things we’re already spending on like electricity and groceries, but it will also include new things like diapers, wipes, formula or food, and babysitting costs when you want to go out at night or need additional help during the day.
Kids grow really fast and plough through clothing, so having a strategy for clothes is helpful as well. Some parents proactively ask for holiday and birthday gifts of certain sizes, while others partner up with families with older kids (either friends or through parents’ groups) to get hand-me-downs. Others pay for most or all of the clothing expenses out of pocket.
Clothing includes the staples that you often think about as well as shoes (which tend to be more expensive and sizing is important) or clothes for the various seasons. Think winter gear and rain gear!
The cost of raising a child: The ones you don’t think about
There are a number of expenses that are often forgotten about that can send our parental budgets into disarray. Here are the biggest offenders I see:
Birthdays.
If you want to throw a celebration for your child (or celebrate with your friends for making it through the first year), it’s most likely going to cost money. Map out what you want to do, even if it’s just having some friends over for wine and food.
Halloween.
Depending on how important Halloween is to you, there are various costs that you might incur. Family costumes typically cost more than a costume for just the kid. Decorations and candy might also be part of the plan.
Gifts.
Your child will probably be invited to more and more birthday parties that often will require a gift. Depending on how much you spend and how often you go, you might want to include this in the budget. Some parents keep a variety of congrats and birthday cards at home with bags and tissue paper so it’s easy to grab a gift at the last minute (or regift) and go.
Travel.
Travel plans become more complicated and more expensive with another person in the mix. You don’t have to buy a separate seat for an infant flying under two and there are nice accommodations for free stroller and carseat checking, but you may end up checking more bags, taking a Lyft to the airport when you normally would have opted for public transport, or getting more drinks on the flight (LOL).
Activities.
There are so many fun activities you can do with your child, and some are free and others come with a price tag You might want to enroll them in a music class or decide to stick with the free story time at the library (or both). Attending children’s museums or classes might replace or even cost less than the concerts and museums you attended before your child was born, but it’s important to take these into account.
Random things.
Regardless of how meticulous you plan, there are going to be random things that come up. For example, we went through at least five different sippy cups before we found one that my son liked and could use, and that added up. And there’s medicine, snot suckers, bath stuff, etc. that might need replacing or get lost.
In conclusion
There are many new costs associated with welcoming a new baby into your life. The goal of this list is not to overwhelm you but to give you a framework to help you plan. I’ve included many of the options and possible trade-offs I’ve seen myself, with my clients, and in my community. Having a baby is an incredible yet challenging time, and if we can make any part of it (in this case, the financial part) even a bit less stressful, it can make all the difference.
If you are reading this and your newborn is already here (or you’re expecting #2), that’s okay. Better late than never to plan for the everyday and big future milestones!