NEWS AND RESOURCES

Financial Planning for January 2005

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The Worth of a Child
One of the prime goals of many young couples is to eventually have children. After all, itís one of the reasons for marriage and, letís face it, most of us want someone to carry on the family name. Unfortunately, starry-eyed couples, and some not-so-starry-eyed, couples fail to fully consider the cost of that bundle of joy until the stork has left its nest with their "special" delivery.

This article is intended to give those who plan on having children what the United States Department of Agriculture says is the cost of raising a child to age 18. Hopefully, this will help you in making an informed decision on how many children to have, if any; however, we first wish to make a disclaimer.

Those readers with children know that the cost of having those children cannot be measured only in dollar outlays. The endless nights of little or no sleep from the time you brought your new-born home to the endless nights of little or no sleep in your childís teenage years took a heavy toll on you and contributed to most of your gray hairs. Coupled with the sicknesses along the way and the major family battles over dress, hairstyle, bed times and the like were very wearing on your physical and mental health. But you also know that those costs were more than covered when your four-year-old came running up to you with joy and jumped into your arms or when you saw the big grin on your childís face on graduation day. So our disclaimer is this:
We will be talking shortly of children from a financial point of view, but we know for sure that the financial cost of a child pales when one considers the pure joy, love and pride one feels as their child grows to maturity. Please keep that in mind.


Every year, the USDA compiles statistics on the cost of raising children. Typically, the costs are broken into seven categories: housing, food, transportation, clothing, healthcare, childcare and education, and miscellaneous (reading materials, entertainment, toys, CDs, etc.). The data in the report is also broken into single parent and two-parent households, which is further broken down into three income categories for two-parent households and two categories for single-parent households.

Instead of loading you up with statistics, letís take a look only at the costs as they pertain to lower-income two-parent households and lower-income single parent households. This represents households of incomes with less than $40,700.

As you might expect, there are certain stages in a childís life where one type of expenditure may be particularly high. For example, childcare and education costs are higher during the first five years of a childís life and then decrease as they go through about age 14, but then sharply increase from age 15-17. This holds true across all income categories for two-parent families, but there is a spike in the 12-14 category for single-parent families. This is the only category where the numbers donít generally increase as a child gets older.

So what does the average family spend on a child during the first 17 years of life? The following table breaks down the numbers:

Age of ChildSingle ParentTwo-Parent
0-2$5,700$6,820
3-56,4406,970
6-87,2307,040
9-116,7106,990
12-147,2107,840
15-177,9607,770
Total for age 0-17123,570130,290


By most accounts, these costs represent a significant piece of anyoneís household budget, but the numbers are all the more sobering for families with two or more children who earn less than $40,700 each year.

Middle-income families represent those with income between $40,700 and $68,400. For these families, depending on the childís age, expenditures were anywhere from $9,510 to $10,560. Upper-income families earned more than $68,400. Their average cost for a child was anywhere between $14,140 and $15,350. For the record, these numerical definitions of low, middle and upper income families pertain only to the ranges of income for families involved in the USDA survey upon which the estimates of cost per child are based.

Hereís some really bad news for those of you who hope to support the kids through college. Unfortunately, the amounts shown above carry the child only through high-school graduation. Because we donít want to ruin your 2005 too early in the year, we wonít discuss those costs now.

There are any number of lessons we can take from the USDA estimated costs of raising children, but there is one undeniable fact; raising a child is a significant endeavor from a financial and emotional standpoint. Not only does it take emotional strength, but it also takes planning and financial strength. If you have any concerns about your financial future, give us a call so we can discuss your alternatives to help your children best benefit from the resources you are able to provide.

Have a great 2005.

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