Children Have Major Effect on Finances

August 19, 2014 (PLANSPONSOR.com) – A baby born in 2013 will cost more than a quarter-million dollars to raise, and that’s not including college costs.

The U.S. Department of Agriculture’s (USDA) annual report, “Expenditures on Children by Families, 2013,” shows that a middle-income family with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, childcare, education, and other child-rearing expenses up to age 18. This does not include costs associated with the pregnancy with that child.

While this represents an overall 1.8% increase from 2012, the percentages spent on each expenditure category remain the same. The report is based on data from the federal government’s Consumer Expenditure Survey, one of the most comprehensive source of information available on household expenditures. For the year 2013, annual child-rearing expenses per child for a middle-income, two-parent family ranged from $12,800 to $14,970, depending on the age of the child.

A recent survey found that, in addition to concerns about being able to retire, more than three in five respondents with children younger than 18 (63%) are worried they will not have enough money for one or more of their children to go to college. More than one-third of parents of children of all ages (36%) are worried their children will have to move back in with them because they will not be able to afford housing. The USDA report does not include expenses occurred after age 18, including for higher education.

“In today’s economy, it’s important to be prepared with as much information as possible when planning for the future,” says USDA Food, Nutrition and Consumer Services Under Secretary Kevin Concannon. 

As in the past, the USDA found costs by location are lower in the urban South ($230,610) and rural ($193,590) regions of the country. Families in the urban Northeast incurred the highest costs to raise a child ($282,480). Family income also affects child-rearing costs. A family earning less than $61,530 per year can expect to spend a total of $176,550 (in 2013 dollars) on a child from birth up to age 18. Middle-income parents with an income between $61,530 and $106,540 can expect to spend $245,340; and a family earning more than $106,540 can expect to spend $407,820.

For middle-income families, housing costs are the single largest expenditure on a child, averaging 30% of the total cost. Child care and education were the second largest expenses at 18% each, followed by food (16% of the total cost).

“Variations by geographic region are marked when we look at housing, for example,” notes study author and CNPP economist Mark Lino. “The average cost of housing for a child up to age 18 is $87,840 for a middle-income family in the urban West, compared to $66,240 in the urban South, and $70,200 in the urban Midwest.”

In 1960, the first year the report was issued, a typical middle-income family could expect to spend $25,230 ($198,560 in 2013 dollars) to raise a child until the age of 18. Housing was the largest child-rearing expense both then and now. Health care expenses for a child have doubled as a percentage of total child-rearing costs during that time. In addition, some common current-day costs, such as child care, were negligible in 1960.

Expenses per child decrease as a family has more children. Families with three or more children spend 22% less per child than families with two children. As families have more children, the children can share bedrooms, clothing and toys can be handed down to younger children, food can be purchased in larger and more economical quantities, and private schools or child care centers may offer sibling discounts.

The full report is available at www.cnpp.usda.gov. Families can enter the number and ages of their children to obtain an estimate of costs with a calculator via the interactive web version of the report.

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