Kids are expensive. How expensive? Forget retiring any time soon—or maybe ever—if you’re considering raising multiple children. According to Investopedia:
Parents tend to underestimate the cost, even of that first year, as a recent survey by personal finance website NerdWallet points out. The actual cost of raising a baby in its first year is around $21,000 (for a household earning $40,000) and $52,000 (for one bringing home $200,000). According to the poll, 18% of parents thought it would cost $1,000 or less and another 36% put the price tag at between $1,001 and $5,000.
You’re going to pay a lot of money for that cute little bundle – somewhere around $233,610 by the time the baby turns 18, according to a 2017 Department of Agriculture (USDA) study.
Imagine putting $10,000 into the Amazon IPO instead of having kids. I can’t, but if you did, you’d be rich enough to raise a small village if you were still fertile twenty years later.
Child care has been an absolute nightmare for us and that’s being generous. We’ve been through two nannies, two in-home daycares, and two centers—all before the age of two years old. Our problems started when our nanny-to-be backed out on us with a health emergency with only weeks remaining in our parental leave. From that time it’s been a struggle to find something/someone that we trusted in short notice. The reasons we’ve jumped around so frequently has been a combination of not receiving the care we were paying for, timing problems, trust issues, and forces outside of our control. We also don’t have any family nearby to help out and we are both working parents.
The biggest dilemma a dual-earner household faces is the choice between having a stay-at-home parent or paying someone else to watch your child. You’re either forfeiting potential income or missing out on the daily development of your child. But what is the magic income delta that will help you make this tough decision?
Would you forfeit $10,000 more per year to spend more quality time raising your child(ren)? What about $100,000? I believe most parents would say the more money you make, the more likely you would be to use daycare options versus staying at home. Every family is different and no one should be shamed for whichever decision they choose.
Not only is there a financial aspect to being a stay-at-home parent, but an emotional strain can be put on the family when one of the parents is forced to give up their career aspirations. In the past, the mother has typically been the sacrificial lamb—mostly due to societal pressures and the wage gap between men and women. However, data from Zillow and the U.S. Census Bureau show the trend has been declining for women and rising for men since the 1970s. Regardless, stay-at-home moms still outnumber stay-at-home dads by four-to-one. Don’t get me wrong, I would love to be a stay-at-home dad. Wouldn’t that be the life? Sit on Twitter all day and trade stocks—I mean help educate and develop my child.
Ben Carlson’s recent piece about child daycare being the next student loan crisis has some additional talking points about how expensive it is for new parents. My favorite quote from Ben was “No one starts saving for childcare at age 12 to be ready by age 30 for kids.” It’s so true. We really don’t think about saving for our kids until they are born. And once they are born, there are a million other emotions running through our heads and things to worry about.
Derek Thompson also had some great input on investing in our children in a recent piece:
Despite these challenges, the case for an expanded role in federal child care is strong. Spending on young children is more like infrastructure than Social Security. It’s not just a check or a transfer motivated by mere decency, but rather a savvy investment that returns its cost in the form of taxes and social benefits. The deep irony of the high cost of U.S. child care is that the very thing that is bankrupting parents today should represent, to the federal government, a grand-slam investment in the country’s future. Can U.S. families afford to adequately care for their own children? is a great question. But there’s an even better one: Can the U.S. afford not to?
One of the things I did to help ease the burden of paying for childcare was setting up a Dependent Care Flexible Spending Account (FSA). This is offered by many employers and money will be set aside pre-tax. The current IRS limit for contributing to a Dependent Care FSA is $5,000. Which means at a 28% tax rate you’d save $1,400 per year for eligible childcare expenses. While this may not seem like a lot, it’s not much additional work to achieve some tax savings. Just make sure before you apply that you fully understand the eligibility requirements and expenses of the FSA.
Kids are expensive but they are worth the investment.
This is post #45. You can follow me on Twitter or Instagram or sign up for my free newsletter here. Also please check out my Amazon page for a full reading list.