When you have kids it’s impossible to retire early, right? I found out that may not be true in all cases. Like my own. We have three kids and still managed to retire early. But how is it possible when kids are soooooo expensive?
The US Department of Agriculture publishes the “Expenditures on Children By Families Annual Report” which examines the cost to raise children in America. The headline number that gets a lot of press is the total cost to raise a child from age 0 to 17: $233,610. And that doesn’t include the cost of college!
Almost a quarter of a million dollars seems really high to me, so I’m diving into our kid-spending to see what it actually costs to raise our three kids.
First up, let’s take a look at the spending breakdown as reported by the USDA.
Cost of raising a kid for the average family:
|Age 0-17 Total (per kid)||Per Year Average (per kid)|
The total cost of $233,610 from age 0 to 17 averages out to $12,978 per year to raise a kid. In the footnotes of the USDA’s study, they note that this level of spending is for an average family earning between $59,200 to $107,400 with two kids. Wealth is correlated to how much a family spends on kid expenses with lower income folks spending about $9,700 per year per kid and higher income folks spending about $20,700 per year per kid.
Per the USDA study, families with just one kid tend to spend about 27% more per kid than the average two kid household. However, families with three children spend 24% less per kid compared to the average two kid household. More kids leads to economies of scale (and being slightly more broke so you are forced to spend less).
Doing the math on our three kids at the average spend of $12,978 per year per kid, minus the 24% spending reduction for three kid households, we get: $12,978 x 3 x 0.76 = $29,590. That’s right – average people like us spend almost $30,000 per year raising three kids!
Where does all that money go? It’s primarily the big three – housing, food, and transportation. Let’s take a detailed look at the Root of Good spending in the categories used in the USDA study.
The USDA study says the average housing cost is $3,680 per kid per year. Our figure is much lower.
Some background: we bought an 1,800 square foot, 4 bedroom, 2.5 bathroom starter home before we even had kids. Lots of our neighbors are childless and own similar homes on our street.
The smallest homes in our neighborhood are 1,200 square feet with 3 bedrooms and 1.5 bathrooms. According to real estate sales data, our extra bedroom and larger living space adds a mere $18,000 to the price of our home.
We couldn’t have saved more than $18,000 even if we bought the smallest house in the neighborhood assuming we didn’t need the space for our kids. There’s always the argument that we could have moved to a cheaper neighborhood or could have rented a cheaper apartment, but that’s something we could always do even with kids! And we certainly didn’t pay a kid-related premium for a good school district since our neighborhood elementary school was among the worst schools in the entire district when we bought the house (that’s no longer true, fortunately).
Our additional 600 square feet of living space versus the smallest house in the neighborhood requires additional periodic maintenance, higher utility bills, and leads to higher taxes and insurance bills. All together, these extra costs add to approximately $1,500 per year.
To summarize: purchasing a house with an extra 600 square feet of space costs an additional $18,000 up front, plus $1,500 per year in ongoing costs (or $500 per kid per year). The mortgage payments on the extra $18,000 purchase price would be just under $400 per kid per year.
Our housing costs total $900 per kid per year (assuming we still had a mortgage).
Although after listening to my daughter run the hot water in the shower on full blast for ten minutes to “warm it up” (in spite of it already being hot from previous showers), I might have to revisit the allocation of utility expenses and award the kids a higher than average share of that line item. But, silver lining: at least they bathe semi-regularly, right?
Food expenditures total $2,300 per kid per the USDA, or roughly $200 per kid per month.
In contrast, we spend around $450 per month on groceries for our family of five plus about $50 per month on dining out a time or three. That works out to about $100 per person per month in the food category.
We are fortunate to live in a highly competitive grocery market with three discount grocery stores on the same street corner a mile and a half from our house. Aldi, Lidl, and Superwalmart all compete for our grocery dollars so we save quite a bit on groceries every month.
We cook at home for almost all meals, which is something we enjoy. And not just simple stuff. Delicious foods from all over the world are commonplace on our dinner table. Dishes such as pad thai, tacos, sushi, and spring rolls. We don’t spend a lot on convenience foods, but instead spend more on sauces, spices, and other seasonings to make basic ingredients really awesome. All that on a $100 per kid per month food budget.
However, it would be incredibly easy to go out to eat more often and nudge our total food spending up to the USDA average of $200 per kid per month.
The USDA study says the average kid costs $1,972 to transport during the year. We definitely don’t spend that much.
To add more context, we live between downtown and suburbia where there is some transit, the area is somewhat walkable and bikeable, but we couldn’t easily get by without a car (especially with kids).
When we both retired, we dropped from two cars to one since we no longer had to commute to work. We did get a larger size car, a used minivan purchased for $8,000. We expect it to last around ten years, so the added cost for the larger car, about $3,000, works out to roughly $300 per year.
Throw in the extra maintenance costs and taxes for a larger car and we might be up to $600 per year. Add $300 for gas each year for kid-related trips, and the total comes to $900 per year. Broken down per kid, we’re spending $300 per kid per year on routine transportation.
Our oldest kid is 13 years old, and we tentatively plan to buy a second car when she is old enough to drive at age 16. It will most likely be $5,000 or so. The main added expense will be auto insurance, which is approximately $2,000 for the year for an inexperienced driver in North Carolina. At that point, kid-related transportation costs will certainly climb!
With the new car comes new possibilities for our kids to earn money through part time jobs. Who knows, the car might even become a net moneymaker for our overall household finances!
I must note that early retirement led to a drastic reduction in our routine driving. We only put 300 miles on our car each month since we have the time and energy to walk our youngest the half mile to his elementary school. We also walk or bike to grocery stores, restaurants, the library, and the park.
The USDA says kids will spend $737 per year on clothing. That’s a little bit more than our total clothing expenditure for the whole family so it’s obviously not accurate on a per-kid basis in our household.
Let’s face it, clothes are cheap thanks to competitive pressures of globalization. We spend a few hundred dollars each summer on the new back to school clothes and shoes plus smaller amounts a couple of times per year as necessary.
Total clothing costs are under $200 per kid. That covers one or two pairs of name brand shoes (purchased at a discount of course!) plus five or six complete outfits. Throw in some thrift store shopping, hand me downs, and gifts from a favorite aunt who has no daughters of her own and you have a closet full of clothes for not a lot of money out of pocket.
Per the USDA, healthcare runs $1,207 per kid. That’s certainly doable if you don’t include employer provided health insurance or the cost of the full price for a private plan.
In our case, we get heavy subsidies through the Affordable Care Act (aka “Obamacare”). In fact, with the Affordable Care Act, insurance actually costs LESS as you have MORE kids.
As an example, a couple with no kids would pay $3,200 per year for health insurance at an adjusted gross income of $40,000 per year. The same couple with three kids would see their health insurance costs drop to $1,400 per year – a savings of $1,800 per year!
In addition, the Affordable Care Act provides low copays and deductibles for health insurance policies for that hypothetical family of four through “cost sharing subsidies”. We are fortunate to qualify for those cost sharing subsidies in the form of a $125 annual deductible and $5 to $20 copays for visits to the doctor.
I budget approximately $3,000 per year for health insurance and dental expenses. But as I pointed out, the kids actually save us money on health insurance which more than offsets any increased out of pocket expenses for their copays and deductibles. So we “make money” in the healthcare category by having kids. Net healthcare cost is zero.
I’ll also add that our kids are relatively healthy and don’t need much more than an annual physical, routine vaccinations, and a flu shot. I sympathize with those who have children needing significant ongoing medical treatment as that will drive up the costs to astronomical levels, especially if you have high deducibles and out of pocket maximums.
Child Care and Education
Since we are no longer working, we spend nothing on child care. If we aren’t traveling the globe as we do most summers, we’ll sometimes put the kids in summer camps. Rates range from free to $60 per week.
While working, we had an arrangement with Mrs. Root of Good’s mother to keep our kids. We paid her a decent amount although it was less than the cost of a traditional childcare arrangement.
Now that all of our kids are in school most of the year, if we did have to pay childcare costs they would be substantially lower than they were in the age zero to five range. Between after school care and city-run summer camps to keep them busy, we could spend $2,500 or less annually for childcare if we were working full time.
Education spending for us includes field trips (typically $30-60 per year), school supplies and the occasional new bookbag, calculator, or new computer. Education spending totals about $200 per kid per year.
As I mentioned, childcare spending is basically zero given our ambitiously busy international travel schedule during the summer (no time for paid camps).
I lump personal care items like toothbrushes, toothpaste, floss, and deodorant into the “groceries” category where we spend about $100 per month per person. Truly miscellaneous items probably amount to $200 per kid per year.
Entertainment options include computers, tablets and phones they received for Christmas or birthdays, and a family Netflix account. We tend to give the kids around $300 per year in cash between all the holidays and their birthday, and much of that gets spent on “entertainment” for them, so I’ll categorize cash gifts as “entertainment” expenses.
Reading materials are free – we have a public library!
Totaling the personal care items plus entertainment expenses nets us $500 per year per kid in miscellaneous expenses.
Total Kid Costs
Here’s the USDA’s “Cost of Kids” table with the Root of Good kid costs included.
|Age 0-17 Total per kid (USDA)||Per Year Average per kid (USDA)||Per Year Average, each Root of Good kid|
How did we do?
Root of Good kids cost $3,300 per kid per year versus the USDA’s report of $12,978 per year. Stellar! We’re “saving” almost $10,000 per kid per year versus the average!
And it gets even cheaper when you factor in tax savings due to children. As of 2018, the federal child tax credit is $2,000 per kid. On our state taxes, we can take a $100 to $125 tax credit per kid. The combined federal and state tax credits bring our annual kid costs down to a net of $1,200 per year.
Vacations – Or, Why Our Kids Actually Cost More Than $1,200 Per Year
Throughout the tallying of kid expenses I’ve omitted our $10,000 per year family vacation budget. It’s completely discretionary but something we choose to spend highly on. In fact, it’s a full 25% of our annual $40,000 per year budget.
If we split the $10,000 per year between the five of us, that adds $2,000 in spending per kid per year for vacations. That might actually overstate the cost of kids since hotel rooms often cost the same whether it’s for two or four people (and sometimes five people cost the same as two).
Airbnbs offer similar economies of scale. A week in June in Amsterdam, for example, averages $202 per night for a couple, whereas the cost for apartments that accommodate five is only $323 per night, or just 60% more.
Transport costs vary, but the trains in Germany, for example, allow kids to ride free when traveling with fare-paying adults. During our nine week European trip, we often traveled many hours across one or two countries for USD$50 for the whole family when kids rode free.
Whether we split the $10,000 per year vacation budget equally between the two adults and three kids or give the kids some smaller share, it seems fair to say they don’t add more than $2,000 per kid per year to the vacation budget.
It’s worth mentioning that our kid-related travel budget was very small while working for two main reasons:
- We worked full time with very limited vacation time. That means very few vacations
- Traveling with young kids is challenging. At least when we traveled with our young kids. As a result we didn’t travel a ton when the kids were younger (which describes basically our entire 10 year working careers).
In terms of changes in spending patterns as the kids get older, it seems like childcare spending drops once they enter school around age five, and at the same time, vacationing gets easier and more fun and therefore more expensive.
Kids – Not Exactly Bankrupting Us
When we add the $2,000 per kid per year vacation budget into the $3,300 core spending, we end up with $5,300 per kid per year (not including $2,000+ in tax savings; I’m not clear on where that’s accounted for in the USDA report).
At $5,300 we’re still well under half of the kid-related spending reported in the USDA study. I give us a solid A+ on keeping kid costs low without sacrificing quality of life.
Eventually the kid costs will climb in their later teen years as they start driving and “needing” more things. However they may also find jobs or opportunities to make money themselves to partially offset higher expenses.
College costs are just around the corner, but beyond the scope of my comparison to the USDA child expenditure report which covers age 0 to 17 and explicitly excludes college costs. However, I don’t think college will be extremely expensive for us for several different reasons.
To summarize it all, it appears we spend about $9,600 per year in total on our three kids after factoring in tax savings. That’s just $3,200 per kid, which is significantly less than the five figure forecasts floating around in the media (and in the minds of angsty upper-middle class parents across the nation).
Intuitively, that makes sense considering we have spent a grand total of between $25,000 and $40,000 during each of our five years of early retirement. If we would have spent the USDA’s figure of $12,978 per child times three, then that would consume essentially all of our $40,000 per year annual budget every year, leaving a measly $1,000 for all non-kid related spending.
What I have found true is that the fixed costs of one or two people are already fairly high since you have to have a house and a car of some sort (at least where we live). Adding a bit more space to accommodate kids doesn’t lead to radically higher spending on housing or transportation.
In the end, kids can cost a little or a whole lot, with much of the cost differential explained by parental choices.
Am I way out of line here? Or are you spending under $12,978 raising your own kid(s)? I know there are a ton of factors at play causing kid costs to fall all over the map, but I would like to hear your experience for kid-related costs.
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