Here’s How Much a Kid Born in 2013 Will Cost You

How much are kids worth? How much would you pay to have an extra munchkin, rug rat, tricycle motor, ankle biter or whatever else you want to call them running around?

According to the government, the answer is: a lot!

I’ve never heard anyone say that kids are cheap. The U.S. Department of Agriculture estimates that parents will spend $245,340, or a cool quarter-million bucks, to raise a child born in 2013.

That includes food, clothing, shelter, and incidentals from birth to the age of majority, but importantly does not include the cost of college. For anyone contemplating having a child, this number is terrifying.

And what do you get for your troubles? Hours of agonizing when they’re infants, worrying over every cold and allergic reaction, followed by the blood that comes from the inevitable bumps and bruises when they start walking.

Then there are endless hours of homework, sports, dance, birthday parties and countless other commitments, and that’s all before they date and learn to drive! For anyone with a toddler thinking about a college savings account, do yourself a favor and start a young-driver’s-insurance account as well. I sure wish I had.

Obviously whatever compels us to procreate outweighs all of these factors since we still have youngsters running around, but the cost/benefit analysis appears to be getting close to even. Countries around the world are struggling with falling birth rates, and one of the primary reasons is cost.

Eventually this leads to declining populations. Japan is the posterchild for this situation. Its fertility rate is about 1.4 children per woman of child-bearing age. That’s way below the 2.1 required simply to keep the population level even. Meanwhile, the German rate is about 1.6, and South Korea’s has fallen to 1.3.

Among the rich nations that make up the Organization of Economic Cooperation and Development (OECD), birth rates have trended lower for decades. Only a couple of countries remain that have fertility rates above 2.0. As you’d expect, research by the OECD names the cost of raising children as the major reason for fewer births.

Governments have tried to increase the size of families by offering financial incentives, but most of them fall flat. Tax credits can persuade those who might have waited to start a family to instead begin one earlier. On the other hand, increased paid maternity and paternity leave seem to have little effect at all.

The one approach getting high marks is access to subsidized child care. Judging by the costs in the U.S., I can see why.

Daycare in the U.S. costs between $3,800 and $18,000 per year. The average is $11,600. That’s about $972 per month.

Assuming a couple with a young child earns the average household income of $52,000 and has a 15% effective tax rate, their take-home pay is $44,200. The average cost of daycare would eat up 26% of their income.

There’s some consolation. One is that the U.S. tax code provides a child care credit of up to $3,000 on one child. That brings the family’s cost of child care down to $8,600.

This is still 19.5% of their income.

Unlike college, which many parents save for over the life of their child, the cost of daycare smacks young parents right off the bat. Once junior comes home from the hospital and maternity leave is over, young moms and dads immediately start forking over $972 per month.

To put it mildly, this is quite a drain on their resources. There aren’t many good options, either. One of the parents could stay home, but this typically means a setback in that parent’s career. I’m not judging whether a parent should or should not stay home. This is just what typically occurs.

With this sort of financial blow waiting just around the corner for young families, it’s plain to see why many would put off having children. It also explains why assistance with daycare would help ease the pain more than a tax break or a few more days off after birth. While welcome, those things are comparatively small.

If we want to give young, would-be parents the economic confidence they need to have kids, apparently we’ll have to put our tax money where it helps the most – taking care of the little tykes while mom and dad get back to work.

More importantly, that might be what it takes to get the baby train, and our economy, back to moving at a steady pace for the generations to come.

Rodney Johnson

Rodney

Follow me on Twitter @RJHSDent

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.