The Cost of Raising Children Part 5: The Early Years

Now that you actually have a baby, lets have a look at some of the individual costs of raising a child and see what we can come up with. This post will focus on the early years, from newborn to age 5.

The early years of your child’s life can be very expensive, as there’s a fair amount of stuff that you do need. And because of how fast children grow, they can outgrow clothes and other equipment like booster seats and prams frustratingly quickly. Some of the major expenses in this age group includes equipment like prams, bottles and car-seats, as well as nappies, formula and, of course, child care (daycare).

dad newborn

This post is part of a series about the cost of raising children. Check out the other parts:

Part 1 – The cost of raising children
Part 2 – The cost of raising children: dating
Part 3 – The cost of raising children: pregnancy
Part 4 – The cost of raising children: birth

Opening thoughts on lifestyle costs

In our adult lives, we can pretty much spend almost as much as we want to on our cost of living. It’s called lifestyle inflation and usually as we earn more, we spend more. This is the vicious ‘paycheck to paycheck’ cycle that keeps the majority of the population poor and forces them to be wage slaves.

Take a ridiculously ‘high’ standard of living and indulgence in fancy restaurants, food, holidays and add to that personal debt like unpaid credit cards, a car loan, student loans, a mortgage and you begin to see what I am talking about.

In a similar manner, parents can pretty much choose just how much they want to spend on their children. If you must have brand new luxury or designer equipment, clothing and accessories for you and your children, then of course child rearing is going to be ridiculously expensive.

The cost of raising children

Some detailed estimates put the average ‘essential’ cost of raising children in Australia as high $350,000 each, with a further $300,000 in opportunity costs due to lost income, productivity and earning potential.

However, just like when it comes to personal finance and your ‘pre-baby’ life, if you consciously make use of the second-hand economy and bring your essentials back to the bare necessities, you are likely to come out much further ahead financially than the average parents. You will also live better than 99% of parents around the world due to your Aussie privilege providing things like Medicare, clean tap water and reliable electricity.

By the way, here comes my first estimate: $7 extra in household electricity consumption per week, per child, or $364 per annum.

Sleeping arrangements

Some parents like to have a designated nursery in an extra spare room for their child, but some parents simply opt to have the cot in their bedroom, especially for the first few months.

This can be hands-down one of the most expensive things about having children. It’s pretty reasonable, I think, to afford each child their own room, but in my family we shared rooms as young kids and it was fine. When we became teenagers we got the luxury of our own rooms when we moved to a bigger house. Individualised posters on the walls was epic!

Depending on where you live, a bigger house can be very costly. In Sydney, for example, an extra bedroom usually makes an apartment cost another $50-100K, and for a house this can be $100K+, translating to approximately an extra $50-100 per week in rent. In the country or outer suburbs though, it doesn’t seem to make as significant of a difference than it does in the city – maybe around half to two thirds of the cost.

Total: Average $60 per week per room – two kids to a room was fine for our family (under 12) – $3000 per year.

Equipment

One-off and replacement equipment costs add up. Because I don’t really ever buy anything new, I have scouted the costs for these on second-hand forums like Gumtree and Facebook Marketplace.

  • Pram: $400
  • Cot and (new) bedding: $300
  • Baby bag: $50+$200 contents
  • Cradle / baby car pod: $300
  • Change table: $50
  • Bottles, express pumps and steriliser: $300
  • Baby food jars or pouches and blender: $200
  • Toys: $200

Total: $2000+ once off, thence $200 per year maintenance/replacement

Vehicles

Depending on your working situation and where you live, it’s either going to be essential or probably just a sensible and practical idea to have a vehicle. This means in an emergency you have a way to get to the hospital or urgent medical care. It is also going to make everyday life a lot easier, although is not a necessity and there are many billions of parents worldwide who raise their children without a car.

For all you hardcore FIRE people, you might have to give up your ‘low income single dad’ style cars! Driving a beat-up or small car is fine, as long as it is mechanically serviceable and safe to drive. However, odds are that your sub-$2000 price point Barina or Yaris isn’t going to win you any awards with your significant other if they are struggling to fit baby equipment like prams in and out of them.

Going out and buying a brand new Kia Carnival 8-seater is going to set you back somewhere between $40,000 to $70,000 depending on the level of add-ons you choose. Even a decent second-hand one is still around $5,000 to $10,000. Whilst it is a bit of overkill for the first child, this might be a realistic option for larger families.

On the top of concerns for most parents is always the number of seats, size / space for a pram, and safety rating. Personally I am going for a second-hand Kia Carnival (but might settle for a Toyota Tarago) because I want a lot of kids and modularity to move seats in and out, but your standard 5-seater station wagon makes a great choice and has plenty of room. If you’re not already driving one, $5,000 is more than enough for a modern wagon with oodles of room.

Total: Should be no more than $5000, and I don’t think you can even call this an isolated baby expense…

Clothing and shoes

Babies and young children grow pretty quick, so these expenses can add up.

If you want to buy new clothes, baby and toddler clothes can be bought new as cheap as $10 ‘per set’ in places like target and K-mart, but you can spend $100s per outfit on designer stuff. It’s likely you’ll need new clothes every few months or so, a cost which can add up to around $500 per year.

If you’re not fussy, you can pick up bags of free hand-me-downs from family or friends, as well as buy cost effective second hand bundles from other mothers or op shops. I’ve seen bundles of 20+ ‘sets’ of clothing for under $10 on Gumtree and Marketplace. Most parents can’t seem to give them away, and end up donating them to goodwill.

Shoes are another annoying cost, which I constantly hear about from the dozens of friends of mine with children. On average they are paying about $30 for a new pair every 3 months, depending on how quickly the kids trash them. These get progressively more expensive as the kids get bigger, and if you opt for higher quality shoes that last longer, they’re commensurately more expensive. On average, it’s about $120 a year.

P.S. I would get smacked with the wooden spoon if I wrecked my new sneakers, and instead often wore a pair of leather Blundstone boots as they were much harder wearing and lasted longer (they’re now also super fashionable and expensive!).

Total: Between $120 and $620 a year.

Baby food and formula

There is a lot of stigma and shame around breastfeeding mums, which is just ridiculous. Breastfeeding is a natural and beautiful thing, and should be encouraged freely without shame or staring. There is also a societal shame for mothers who can’t breastfeed, which is just as bullshit! Not every mum is going to be able to breastfeed, and this isn’t a reflection on how good of a mum they are.

For mums who can’t breastfeed or express milk, formula is really the only option. The cost of formula really depends on your baby’s appetite and how much you use it to supplement breastfeeding, but parents can spend up to $2,000 per year when feeding exclusively on formula.

Ideally you would breastfeed as long as possible, but this just isn’t an option for many people. Breastfeeding is basically free, and provides a number of health benefits for both mother and child – weight loss and lower risk of breast cancer for mum, weight gain for bub and bonding between the two are just a few!

Pediatricians recommend solely breastfeeding for the first 6 months, and then slowly introducing small amounts of other food into a baby’s diet, including formula supplements and some ‘solid’ foods after then.

Baby food is expensive if store bought in small jars or pouches. I’ve seen these on the shelves for around $1.50-$2.00 each! These can be made at home with all-natural ingredients using equipment you likely already have in your kitchen (pots, pans and blenders). Keep it simple and smooth, with a variety of pureed fruits and vegetables. I have many friends who fill up their own jars or pouches to take on outings, since kids seem to need to be fed small amounts frequently. My niece chomps her way through about 5 a day!

As they grow, most babies become capable of increasingly solid foods as they teeth between 6-12 months of age. Providing teething aids like hard biscuits help your babe through this time, as well as just basically giving them small amounts of what you yourself are eating. There are certain foods that should be avoided however, like unpasteurised milk or honey.

The World Health Organization recommends breastfeeding for at least two years, but it is very common in parts of the world for mums to breastfeed up to age 4 or 5, for health and bonding reasons. Ultimately, mothers should do what their instincts tell them to do, and not worry about other people’s opinions or expectations.

Total: Breastfeeding is nearly free, but even a frugal parent would expect to spend at least $500 to $1000 per year on additional baby specific food such as supplemental formula and ingredients specifically bought for making baby food. For purely formula and store bought baby food, this could be as high as $2000 to $4000 per year.

Total: $500-$4000 per year.

Feeding a toddler and growing child

Once your child has transitioned to a solid diet and gets bigger, their calorific needs increase. Estimates for 2 year olds are up to 1500 calories per day, and a five year old is up to 2000 calories. For reference, a grown man usually needs 3000 and I consume around 4000 because of my active lifestyle.

Based off the calorific assumption alone, I would generalise that a child would then eat much less than half as much as I do. I budget for around $50 for groceries per week, which usually works out to around 35,000 calories of whole-food, plant-based foods (and luckily I am able to grow $20 worth of these so I only spend around $30). Ignoring the benefits of scale, and assuming the child’s diet is identical to mine, this would cost $25 per week if I bought it all.

Having said that, I realise that there are a number of extra things people tend to only buy for their fussy children. When I have children I also plan to have access to a large garden (i.e. moving out of my current apartment), so my ability to grow food will increase. I am betting that this increased food production will offset the increase in expenditure, and keep the food costs at around $25 per child, per week.

Total: $1300 per year.

Nappies

Nappies are a big expense, especially disposable nappies. On average, these are 30c each and in the first year alone a newborn can get through 5 or 6 per day! This slowly tapers down as the child gets older, so overall you can expect pay around $40 per month in disposable nappies for a total of nearly $500 per year.

It isn’t for everyone, but if you choose to use reusable diapers (and have a good washing machine) then FuzziBunz cloth diapers brand new are about $20 each. I’d hazard a guess you’d probably need at least ten (or more), and then a variety of increasing sizes for as your child grows. If you budgeted $600 for 30 brand new FuzziBunz cloth diapers, it would probably get you out of trouble for ages 0-3.

I have also seen second-hand ‘sets’ (which can be washed and sterilised!) for under $200. Obviously reusable is better for the environment and generally better for sensitive baby bums and legs, but its not possible for every parent and this article is not about virtue signalling – parenting is hard enough as it is!

However its not just the one-off cost of buying the reusable diapers, you’re still going to need to clean and wash them on a very hot cycle, probably every day (along with a bunch of other stuff). A load of washing sets you back 50c according to the Australian Tax Office, so expect to budget about another $200 per year for this increased water, electricity and soap usage.

Around 2 to 3 years old is when most parents begin toilet training their kids, but it’s normal for this to be a long process over many months with plenty of accidents along the way. Most children are generally potty trained by the age of 3 to 4, but it can take months or even years to properly night train your child. This might mean investing in ‘pull-ups’ or other big boy and girl nappies until the ages of 5-6. Pull-ups aren’t as expensive as nappies, and can be reused after a dry night, with an estimated cost of $20 per month.

Total: somewhere between $1300 to $2000 per child from ages 0-6, depending if you choose disposable or reusable nappies.

Education and socialising

child education

During your child’s formative years, especially under 4, education and socialising are super important. These are the years when your baby’s brain is in overdrive, and it is establishing its core neural pathways and learning behaviors.

Whilst you won’t exactly be forking out for a private school education just yet, you will still want to focus on educational toys and activities for your child.

As your child progresses from a toddler onward, their needs for social stimulation out side of the family unit increase. Before then, its very difficult as they haven’t really developed enough yet. Socialising is important as it gives kids a chance to:

  • Practice their own speech – start, continue and finish a conversation
  • Make sense of other people’s body language and other non-verbal communication
  • Negotiate and solve problems when they don’t get what they want
  • Understand hidden social rules and cultural norms
  • Manage group dynamics and fit in with other kids
  • Recognise the effect of their actions on others
  • Develop empathy and see things from another person’s point of view
  • Begin to understand and regulate their own emotions
  • Be flexible and use lateral thinking to solve problems
  • Work together in a team

Social groups and junior sport

Early education and childcare centres are a great way for this to occur in a community or social type situation, so many parents opt to send their child in at least one day per week (this also gives mum and dad a break!). We will explore the specific costs of childcare and preschool later.

Great ways to help your kids develop their social skills are play groups with other local parents, where they learn to play and work together with other children. Sometimes these are community run, or sometimes they could just be family, friends or local parenting groups you find online such as on Facebook groups.

Many of these are free, but might set you back a nice cup of coffee or so. These are also valuable support and social networks for parents, too, where you get to have a chat and unload, and of course discuss your kids to figure out all the weird stuff that is going on is actually pretty ‘normal’.

Some parents enroll their kids in ‘Pee-Wee’ junior sport as young as 4 which I think is a great opportunity for risky play, socialising and teamwork. But having said that I’m not quite sold on pushing activities on children too hard while they are too young. Registration can start at $200 per year to join teams or clubs, however ‘elite’ programs can cost as much as thousands per year!

I had a few friends that were ‘forced’ (encouraged) to play things like tennis, music, gymnastics and dance classes very young and they weren’t allowed to quit. Sometimes I went along with them, because my mum was awesome and she let me float about and sometimes join in on things. Allegedly one time I cried until I was allowed to do ballet with my sisters, but after a while lost interest.

Educational Toys

Educational and complex toys are great to help stimulate your child’s imagination and develop their creativity. These might include puzzles, building blogs, Duplo (large lego), train sets or doll houses. Parents and children are both aggressively (and unethically) marketed to for these toys, which can cost hundreds of dollars per unit, and end up costing you thousands per year if you indulge.

I had a number of people get in touch to let me know they use toy libraries or ‘toy banks’. There are a number of free toy libraries associated with your local council library, and commercial toy libraries can be subscribed to for under $150 per year. Both of these allow parents to sign out toys similar to books from a library, usually around 5 toys for up to for 2-4 weeks at a time.

These are awesome and not only save you the costs of buying new age appropriate and educational toys as your child develops, but you can also donate your old toys to them and it prevents them ending up in landfill (of course, dangerous, broken or crappy ones still end up in the trash). The variety of different toys and different stimulation is great, and if your child simply won’t part with a toy you can always buy it outright from them or replace it with something similar.

Risky play

I am a massive advocate of ‘real-life’ or ‘risky’ play, where kids get to explore and learn by climbing trees, playgrounds, playing in dirt, skin their knees and hammer nails into wooden blocks and get splinters. They learn real life risk management skills such as ‘maybe I shouldn’t climb this if I can’t get down’ and ‘gee that hurt when I landed on my face’. This education also happens to be nearly free! With five teachers in my family, including one early childhood development teacher with over 40 years’ experience teaching, this is something we all agree on.

This might also mean getting your young kids involved helping in digging, weeding, composting, mulching and planting your vegetable garden and not plonking them in front of a screen. Realistically, they won’t actually be much help, but it’s quality time you are spending together and setting a great example.

Teaching kids to grow plants is super important, and helps them connect with nature and understand their place in the world, as well as develop their motor skills (hand-eye coordination), empathy, attention to detail, self discipline and patience. All valuable skills to set them up financially later in life.

Animals and pets

I was super lucky to spend a good portion of my childhood in the country and the bush. Not only did I get a lot of ‘risky play’ but I also got a lot of great exposure to animals.

Psychologically, animals and pets can help children develop empathy, deal with anxiety, develop responsibility and understand the bigger picture. It used to melt my heart to see my 1 year old niece picking grass to hand through the fence to help feed the ‘tik tiks’ (chickens). She also had no qualms picking them up, and the chooks were well handled; she and they were both calm and gentle. She loves her daily job of checking the eggs for Nanny, and carries her precious egg bounty very proudly into the kitchen.

At the age of 2 she probably didn’t understand fully when the cat died, but she did place a tissue up to her aunty’s face and say “all better now, not sad”. Her language is incredible and I am amazed every time I visit at just how much she has grown and developed. Nonetheless, dealing with the circle of life and understanding death and grief is a valuable outcome of having animals.

Physically, having animals is also very beneficial. The exposure to dander, dirt, hair and other micro organisms like bacteria that they introduce to the house are actually really good for your kids immune system, and help to prevent allergies. This is another reason why I like ‘outdoor’ playing.

Animals and pets can be expensive though (read my post about the real cost of dog ownership). So this is more of a bonus if you grow up on a property or farm, but can be expensive in suburbia or in an apartment. Estimates of dog ownership are $3000 initially, and then $1500 per year thereafter – and ours were no exception (costing $10,000 on one occasion for surgery).

I also like cats, although they are jerks. Estimates are $500 initially, and then a further $500 per year – but please keep them indoors. Smaller animals like guinea pigs, rabbits, mice, frogs or hermit crabs can be more affordable and still provide benefit, but could still cost you hundreds per year in feed and other costs.

Screen time

Although screen time is super useful when you need a break, specialist advice is ZERO screen time under 2, and then a maximum of 1 hour a day until school age when they are using it for educational purposes (i.e. iPads and laptops at school).

I don’t purport to understand how hard this is as I am not a dad yet, and this isn’t about virtue signalling or shaming parents. My nieces and nephews LOVE the screen and beg me to play PlayStation, or watch Wiggles or shark videos on YouTube with them. Even when I visit my friends with younger children (below 2), they are incredibly curious about my iPhone and will often sneakily take it (even right out of my pocket!) and find somewhere quiet to hide as they try swiping or tapping to make it do something.

Summary

Its super hard to put a cost on these education and socialising costs, and childcare and school costs are explored further below. As a stab, I would guess it is at least $20 a week, or around a thousand dollars per year (excluding child care) split between planned and ad-hoc expenses. If you choose to introduce a family pet like a dog or a cat to help your child, this is a fantastic idea but has upfront costs and will cost thousands more per year.

Total: $1000 – $2500+ per year (if introducing pets).

Childcare

Childcare or daycare, is a large expense new parents might have. From conversations with friends I have found that between the ages of 1-5, people spend an average of $70,000 on ‘full time’ daycare per child, or approximately $300 per week for a standard school term, after government rebates.

If both parents are working, this is usually an unavoidable expense. Help from family and friends can only go so far, and even with one parent staying at home, sometimes they will just need a break. Costs for one day a week still average around $60, although there is a sliding scale of subsidy rates for the child care rebate depending on how much your family earns.

childcare subsidy rates
*Current Australian child care subsidy rates (Accurate 2019-2020 FY), however above $172,000 the childcare subsidy is capped at $10,000 per year.

This means high-income families will effectively pay more for their child’s daycare – at the national median family income of $172K you will be paying half, and above $351K you are expected to pay the full balance.

NB. This figure comes from the Australian Bureau of Statistics, which in 2019 determined the Australian median income to be $1,659 per week ($172.5K annual gross income), and the standard family household to consist of two working parents.

So what is the actual cost then? Around Australia, the full cost is estimated at around $120 per day, per child. This number is also rising faster than inflation, at a cost of around 10% per annum! This varies depending on the centre and location; in rural areas you might expect the ‘sticker’ price to be $100 per day, however in inner Sydney this could be in excess of $200 per day.

When I spoke to the director of an outer Sydney suburb childcare centre, I was quoted $128 per day for a 0-3 year old, and $114 per day for 3-5 year old (before government subsidies). However the fees in Sydney varied significantly, and when I rang a centre in the city, their fees were incredibly nearly double!

Another consideration is the level of service the centre provides. Most of the higher cost centres are considered ‘full-service’, that is, they will cover expenses like nappies, baby wipes and food for your child. Check your enrollment PDS, because some of the more affordable centres may require you to bring some of your own supplies for your child, indirectly raising the cost (which also is frustratingly then not included in the subsidy).

There are other alternatives to daycare such as paid nannies, however these costs are significantly higher (estimated $500 per day and above) as they do not benefit from the economy of scale experienced with a family or centre-based childcare. Child care centres have minimum staffing requirements but usually employ one worker for every ten children. For quite large families with closely spaced children though, in-home childcare and nannies might be a cost-effective alternative.

Finally, if you are financially independent and have specifically chosen not to work so you can raise your children, this is something that doesn’t need to stress you out. It’s likely your combined family income will be well below the $67K gross income meaning you would get the full 85% subsidy, and with the rebate, one day of childcare a week would likely cost under $40 per week. Just be aware some rebates are attached to minimum employment hours too, so a full FIRE lifestyle might not get the full rebate.

Summary: This expense is far too broad to generalise, but the average Australian can expect to pay somewhere north of $60 per day for childcare, after the subsidy rebate. High-income earners can expect to pay more like $100, and those in capital cities like inner Sydney might pay $200 per day.

Total: $2000 for one day a week on low income, with an average of $14,500 per year for 48 weeks of full time enrollment, up to a maximum of $48,000 for high-income earners in capital cities.

Medical costs and health insurance

Oh boy. First up, if you are wondering about the difference between public Medicare and private health insurance have a read of this article.

Family private healthcare plans can be expensive, and in Australia private healthcare isn’t strictly necessary since we have an amazing universal ‘free’ healthcare system called Medicare. However, for high-income earners or high-net worth individuals who are happy to pay for the convenience of speedier healthcare and increased privacy, it can be well worth the cost.

The average (single) Australian pays a total of $3000 per year for combined hospital, generals (extras) and ambulance cover. The average ‘nuclear’ family with 2.5 kids can expect to pay significantly more; an average ‘standard’ level of private healthcare insurance costs around $15,000 per year, with a ‘gold’ standard low-deductible policy at nearly double that.

Medical costs for the first five years of year child’s life are highly variable and depend heavily on the child and any potential health issues. Unfortunately some disabilities can be incredibly expensive and not all are supported fully by Medicare and the PBS. You really need to spend a good amount of time researching what is available, understanding the level of risk, the level of ‘customer service’ you are happy with, and what you could afford or are happy to pay. Remove fear and marketing from the equation, and focus on the facts.

Total: $0 – $30,000 per year.

Summary of the cost of the early years

The early years of childhood sure can be expensive. Especially if you want brand new stuff, and if both parents work and you need to use daycare or childcare. Furthermore, the skyrocketing increases in the cost of private health insurance for young families place new parents under more financial pressure.

CaptainFI

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