Raising a child: A million dollar decision

For anyone who has raised a child, it might be the hardest ‘job’ you have in your lifetime. In fact, going to a job that actually pays you might even be easier (at least on some days). Despite all the work involved, it’s hard to imagine anything more rewarding in life than seeing your “creation” grow up, leave the nest, and become a productive member of society. Who knows, they may even help out around the house, have their own children, and wind up taking care of you in your old age. 

There is no question that (in most cases) having and raising a child has positive emotional value, and you may even get some financial value out of it (but don’t count on it). While having a child can be exciting, raising a child is an expensive proposition that many young adults are not adequately prepared for. Even parents in good financial condition often underestimate the cost of raising another child, especially when you add in the cost of paying for higher education.

How much does it cost to raise a child? According to the USDA, the cost for a middle-income, married-couple to raise a child in the US through age 17 is $284,570, covering basic necessities (with inflation). However, this number represents a national average and costs can vary depending on where you raise the child. Using the Family Budget Calculator from the Economic Policy Institute (EPI), you can find the basic costs at the state county level (exhibit 1). Basic costs include rent, food, transportation, child care, health care, taxes, and other items of necessity. It does not include savings/costs for higher education. Using the EPI tool you can also calculate the costs for families of different sizes, up to four children, and extrapolate the incremental costs associated with adding children.

As an illustration, I used the EPI tool to find the incremental costs for a family of two adults with up to three children raised in three sample counties in my home state of NJ. In exhibit 2 below you can see the average annual incremental cost of adding from one to three children to a family. For example, the added budgetary cost for raising a first child would be $25,164 per year on average for a couple living in Bergen County NJ. Adding a second child would cost you $18,600 annually on average and a third $22,911. Also worth noting in the chart is that the EPI data shows lower costs for each incremental child, but cost benefits are greatest with second child, and go back up when a third child is added. This is driven primarily by an assumption regarding the increased housing requirements for going from two to three children.

Another way to evaluate the cost of having additional children is by considering the financial opportunity cost. For example, if a family living in Bergen County NJ decided to have three children instead of two, they would incur an additional $22,911 per year (in 2017 dollars) in expenses to raise the third child. Assuming they stopped at two children and did not incur those added expenses, they could invest those annual cost “savings”. If those savings were invested annually over 18 years, then nearly one million dollars in savings could reasonably be generated*. The number is even larger if you include savings associated with paying for higher education costs.

Considering the financial implications, choosing how many children to raise may likely be the most important decision you and your partner make together. Millions of dollars could be at stake.


*Total over 18 years equals $970, 595 assuming annual inflation of 2.2% and compounded annual growth rate of 7% for investment.

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