The Amateur Financier

A common comment about children and the expense it takes to raise them is that such costs are ‘an investment in the future’.  As analogies go, this isn’t bad; we put money, time and effort into raising children, and expect them to grow, mature, and become productive when they get older.  But it’s not perfect, either; unlike stocks or mutual funds, children can’t be counted on to provide a direct return on our investment, either paying out money or increasing in their value when sold (particularly since selling children is frowned on in most places nowadays).  Instead, the payout is seeing our children grow, learn, and become useful members of society, with some possibility that they will help care and provide for us in our old age.  But, what are the costs and benefits of having and raising children?

The Costs of Raising a Child

It’s hard to say with absolute certainty just how much it will cost to raise the little bundle of joy you bring home from the hospital into a mature, productive, outstanding member of society.  A lot depends on the choices you make over the course of his or her lifetime and the costs associated with each one.  Do you spoil them with every toy and activity a child could want, do you teach them to live an austere and simple life, or do you try to stay somewhere in the middle?  Do you have to pay for expensive child-care services, or will you (or your spouse) be able to stay home to care for your children?  (Both options can have the effect of increasing the child-rearing costs, either from added expenses or decreased income.)  Don’t forget college; how much you contribute to Junior’s 529 plan (if anything) will have a drastic effect on how much you spend during his formative years.

With such a diversity of options that exist for your child-rearing options, estimates for the expense of raising a child are going to vary widely.  An series of tables from MSN, for example, shows total expenses from birth to age eighteen that range from a low of $125,000 to a high of $250,000.  That’s not including college, which they pegged at $25,000 each year (an additional $100,000 for a four-year program).  But that’s far from the only estimate that exists; the United States Department of Agriculture puts the cost at just shy of three hundred thousand, for example (and also makes me wonder why the USDA is responsible for reporting this data).  On the other end of the scale, a mother named Mary reports that her per child costs total only about fifty thousand each year, in part due to her frugal methods of raising them and the advantage of having many children, spreading out some of the larger costs associated with the other figures.

(Quarter) Million Dollar Baby

For me, when thinking about when I will start having kids, I’m going to assume a fairly high cost for each child, in the $250,000-300,000 range.  There are two big reasons for this: first, if I estimate too high and turn out to be wrong, the extra money can be diverted to other goals easily enough (such as saving for their college education, something not included in any of the figures mentioned), whereas assuming too little will put me into a scramble for more money at some point in the future.  Second, unlike Mary, my fiancee and I are planning to have a relatively small family with one, perhaps two children total.  The economies of scale that she has been able to harness with a fairly large brood simply won’t be available to us.

Financial Benefits of Children

Before you rush out to have various tubes tied or snipped to avoid ever becoming a parent, let’s not overlook the fact that children do have some financial benefits associated with them, as well.  Some of the most well known include the various tax credits and deductions available to parents.  While probably not enough for you to make a profit from your children, such tax advantages do make having dependents less costly than otherwise, decreasing the financial burden of having children.

Attempting to get a return on your ‘investment’ more directly, by getting your children to help take care of you in your old age for example, is much trickier.  In most cases, it will come down to your child’s personal feelings as to whether he or she will be willing (and financially able)  to provide for some or all of your expenses when you are ready to retire.  Unless you structure the monetary support you provide as a loan (complete with interest and other terms, backed up with the full force of law) or have a financial incentive like the possibility of a large inheritance to use as a motivator (in which case, why do you need your child’s help?), there are few ways to ensure that you will get cooperation from your children in providing for your retirement or any other financial support.

Non-Financial Benefits of Children

Before you go thinking that I’m saying you shouldn’t have children, that they are ungrateful whelps who will drain you of money while you’re raising them and you will never see a dime in return, stop.  That’s not the case.  Yes, I wouldn’t have children expecting that they will provide for my retirement; there’s simply so many unknowns to consider between when they are born and when they are grown that even if you raise caring, nurturing children who want to help and support you (as I hope all of you would), there’s no guarantee that they will be able to do so.  As many people in the Baby Boom generation are discovering, trying to balance caring for your children, your parents, and yourselves makes for a very tough balancing act (leading some to call the Boomers the ‘sandwich generation’, being stuck between two groups of relatives who want financial support).  By the time your children are financially sound enough to help you, they might have children and families of their own, and need to provide support to them.  Depending on your children to support you should not be your primary retirement plan.

Instead, focus on the many intangible benefits provided by raising children.  Assuming you like kids (and if not, why are you even thinking about adding more to this world?), having children of your own is instead a chance for you to pass on your values, knowledge, and genes.  Talk to any parent (or better yet, a grandparent; they get a lot of benefits from grandchildren with much less of the work) about their (grand)children, and the responses you get will generally focus on the emotions the kids invoke and the memories they generate, not the costs incurred or the loss of returns from investments.  I am firmly of the belief that children add to the joy and wonder of the world, and if they are raised in a caring, loving family, will make the next generation an even better time to be alive on the planet.  THAT is the real return on investment that children offer.