On Friday, I participated in a discussion on the Huffington Post on the high costs associated with having a baby. At the heart of the conversation was an article from LearnVest claiming that the first-year costs of raising a child are $12,000. We were brought on to discuss whether that number was accurate, and if so what it meant for low- and middle-income earners who wanted to start a family but were scared off by the cost.
I think we hit some good points in our discussion, but today I wanted to explore in a little more depth some of my thoughts on this subject and how we as parents should consider this concept of the $12,000 baby.
Average numbers don’t describe you
First, let’s be clear about what that $12,000 number represents. It is an average. It represents the richest families, the poorest families, financially responsible parents and parents who spend like they’re allergic to cash. It’s very similar to looking at something like the median home price in the US. It’s interesting information, but it doesn’t determine the home you buy. Depending on where you live, the size of your family, what you’re looking for in a home, etc., you may spend more or less than that median price. In both cases, a single number representing an average across an entire country cannot possibly reflect the realities of your personal situation.
Let’s look at some of the ways that $12,000 number might not apply to you. I’m going to refer to my preferred source for this kind of information: Babycenter’s Cost of Raising a Child Calculator. When I enter my information, it tells me that my first-year costs for a baby will be $14,150. That’s even more than the $12,000 quoted in the article above, but is it really accurate for me? Let’s break it down.
$4,680 of the cost is categorized as “housing”. A big part of this assumes that you’ll spend more because you’ll have to move to a bigger place. Well, my wife and I did move to a bigger place, but our rent actually decreased in the process. This category also includes things like increased utilities and new furniture, which was part of our experience. Still, with the rent decrease we probably came out about even here. That’s a big chunk of the cost that can be crossed off.
Childcare & Education
$3,850 of the cost is categorized as “childcare & education”. For a newborn, the biggest costs here are daycare and I believe saving for college. It also includes babysitting. Daycare is indeed crazy expensive here in Massachusetts, but my wife stays home with our son and works part-time on the weekends, so we don’t pay a dime in daycare. We also don’t pay for babysitting because my parents are the best and make themselves readily available. We are saving for college and that is a cost, but it’s not close to the $3,850 per year. Again, every situation is different, but for us this category much less than what they report.
This kind of a big catch-all category that includes the cost of a new vehicle (presumably a bigger one), extra gas and maintenance costs and public transportation. The total cost they estimate here is $1,630 for that first year. This one’s a little trickier for us, as we will be buying a new car soon and it will be a minivan. But we’re only buying a new car because my current car is falling apart, which has nothing to do with having a baby. And we’re buying a minivan because we’re pregnant with our second and plan on having two more after that as well. We certainly didn’t feel any need to buy a bigger car for our first-born. Unless you have a 2-seater, what you have now is probably fine. If that’s the case, you can ignore a big chunk of this cost as well.
Insurance and estate planning
Aside from health insurance, this is actually a category that I don’t see covered by any of the categories making up this $14,150 number. But it’s such an important part of ensuring your family’s financial security and it’s something I’m happy to spend a good amount of money on. At the top of the list here are life insurance, long-term disability insurance and wills. Each of these are things I would consider necessary for new parents and can range from as low as $50-150 to $1000+ per year, depending on age, gender, health and amount of coverage. This category definitely added a significant amount to our first-year spending.
You don’t have to follow the crowd
So for us, in some of the biggest categories, the reported costs are largely irrelevant. But we also had some spending that wasn’t accounted for in that average number. Your situation may or may not have similarities with ours that automatically make it more or less expensive for you, but regardless it’s important to remember that the $12,000 number is again, just an average and not something you have to abide by.
Let’s compare this to another big financial issue: credit card debt. Depending on your source of information, the average person in the U.S. carries between $2,720 and $5,047 of debt on their credit cards. Does that mean that as an adult in the United States you should simply expect to have that much credit card debt? Of course not! You are an individual, allowed to make whatever choices you please. There are many people walking around without any credit card debt, and even some who are making the credit card companies pay them to go on vacation.
In the exact same way, there’s no requirement for you to spend $12,000 on your baby simply because it’s what the average person spends. The list of a baby’s true needs is relatively short: a car seat, a crib, clothes, diapers, wipes, and lots and lots of love. No matter what society tells you, the rest is optional. You don’t have to strive for average. You can strive to be different and better.
Be proactive about finding your own way
With all of that said, it’s not easy to know how to be better than average. Our culture is dominated by advertisements from Babies R’ Us and Target, not by messages of frugality or living with less. You have to be a little proactive if you want to find information that will help you care for your child on less. Lucky for you, there’s a ton of it out there.
I’ve found online communities, such as Babycenter’s Family Finances group, to be great sources of information and support. There are a lot of regular parents trying to figure out the best ways to do things. A lot of incredibly helpful information comes out of all of that discussion.
And there are plenty of other parents out there writing about their personal experiences doing more with less. There’s information on how to feed a family of 6 good, wholesome food for $300 per month, how to clothe your kids for less, how to get a cell phone plan for $20 per month, and how to start investing for your future with simple, effective steps. The wealth of knowledge that the internet brings to our fingertips is almost endless.
The point is that you’re not alone, but you might need to work a little harder to find people who have moved past the consumption-driven habits of our society at large and found ways to do things different from the norm And actually adopting some of these different habits may require a change in mentality and that may take some time. But it is possible, and a little effort can save you a lot of money.
There are two possibilities that scare me most about the spread of this $12,000 number:
- People will hear that number and simply decide to give up on the idea of having kids. They would be missing out on one of the most joyful and rewarding experiences you can have.
- Parents will assume that they’re not good parents if they don’t spend that much, and will end up getting themselves into financial trouble.
I hope that this article helps people avoid both of those outcomes. We are all individuals with control over the choices we make. We don’t have to be average. We can strive to be better.