The US Department of Agriculture (USDA) estimates the cost of raising a child in today’s environment averages around $250,00. Yes, that’s the cost per one child. Depending on the region of the country you live in, the average can range from over $280,000 to under $200,000. If we look at the cost categories where do the expenses exist and where can you find savings?
- Housing – 30%
- Food – 16%
- Transportation – 14%
- Clothing – 6%
- Healthcare – 8%
- Childcare & education – 18%
- Miscellaneous – 8%
The interesting part of the breakdown starts with housing costs. What the USDA is doing in their analysis is attempting to compartmentalize the idea of housing. By compartmentalizing per person, then a dollar value based on average mortgage costs can be associated per child. This is a reasonable way to estimate housing costs, but is it actually applicable to your living situation?
The assumption the USDA is making for housing is that your need for housing expands as you having more kids. This a logical assumption. What might cause you to consider the logic flawed for your situation is the fact that you may not have a mortgage to pay at the time of having a child or the fact that your given housing size would not increase or decrease with or without kids. Therefore, in many situations you could consider the housing cost a sunk cost that would have been incurred at the same level with or without kids.
The housing category does deserve special attention in you personal analysis of the USDA’s estimates. At 30% it comprises nearly 1/3rd of the estimated cost. Based on the $250,000 average, elimination of 30% of the cost means a reduction of $75,000.
The childcare area is another category that could have some significant variances. If you have a relative available to watch your child/children or have one parent able to stay at home, the childcare cost is going to be greatly reduced. In terms of education, private school versus public school for K-12 education will create a huge variance, as well.
It should be noted that the analysis the USDA did excluded college expenses, since the age range is from age 0 – 18 years.
In terms of personal finance, it’s important to understand when very general studies and statistics are provided, you must find where you fit into the mix. Often times news stories are written to capture your attention, which large figures are thrown around, such as $250,000. It’s not until you deconstruct the information that you’re able to see how you might not be “average” or the assumptions made in the model doesn’t fit into how you’ve structured your finances.