“It takes a village to raise a child”My Dad, June 28th 2020.
It is a widely held belief that the cost of raising children is incredibly high. I have heard people throw all manner of figures out there, with the most ridiculous being a cool Million dollars per child. This is just plain ridiculous, and I hope to dispel some of these common myths as I learn more about the real cost of raising children.
This article forms the start of a series which is basically written for myself; that is, a ‘straight’ single Aussie guy who is capable of having children, who is on the path to Financial Independence, and looking for a wife.
There are an incredible number of variations on these themes for all the different strokes of folks out there – including fostering, adoption, IVF, surrogacy and many other ways of starting a family.
This series is also pretty broad, starting from step one of actually meeting a partner and following right through to the logical conclusion of kicking your baby birds out of the nest. It is not designed to ‘tell you what to do’, shame parents or virtue signal, rather it is my way of researching and budgeting what I will spend on raising my kids, and roughly how I am planning to do it, for your information and peer review.
The Cost of raising children is not well defined
Having kids means your house-hold cost of living will go up. However just like other aspects of modern life, the amount you spend on raising children is a choice. In the same way people tend to life-style inflate when they get a raise at work, many parents with good intentions are duped into spending incessantly on their children.
This is partly due to very clever marketing that guilts parents into spending, and also the highly unethical marketing that is aimed directly at the children themselves. If you don’t believe me, check out any of the advertising seen during morning television ‘soft-news-o-tainment’ or children’s programming.
Budgeting to raise a child – government child cost index
“The new government budget standards found the estimated weekly costs for low-paid families to raise two children (a six-year-old girl and a 10-year-old boy) is $340 a week, or $170 per child. At the lower, unemployed standard, the costs of raising two children was $280 a week, or $140 per child“The Sydney Morning Herald, 2018.
Data from the University of New South Wales’ social policy unit suggested that the average Australian household spends somewhere between $100,000 and $300,000 for every child they raise to the age of 17. The approximate total costs were around $100,000 for families on welfare, $150,000 for “low-paid” families and the upper limit was for “average” families.
Ironically, ‘failure to launch’ is quite prevalent in modern society and its becoming increasingly normal for adult children to stay at home until well into their 20’s and even their 30’s, costing parents much more – perhaps a symptom of housing affordability?
Low income family costs example
Take even this metric from the Sydney Morning Heralds article on child rearing – they suggest that a childless couple need $833.24 per week to survive. That is over $43,000 a year, and if we assume they managed to save the Australian average of $5000 per year, and that it was earned with a single income, that equates to a (before tax) salary of $61,000 and a savings rate of 10% (plus whatever they contribute to their super).
This doesn’t account for the tax savings you can leverage as a couple (such as investing in the lower earning spouses name, or contributing to the lower earning spouses superannuation etc), or any unemployment or family benefits.
Whilst this couple would be earning well below the national average of around $84,000, they are still comfortably above the National defined ‘Poverty line’ of $42,000 income – this is defined as 50% of the national average income. By my understanding, this ‘low-income’ couple could live pretty well, even having one ‘future parent’ at home.
FIRE family budgeting versus conventional family budgeting
My FIRE number is less than half their ‘low income’ figure at $380 per week, and does not necessitate dumpster diving or welfare to live an amazing, luxurious life. A Good chunk of that is a saving of $142 per week on rent ($250 vs $392), $73.60 on food ($50 vs $123.6) and $237 in the ‘other’ expenses ($80 vs $317). What ‘other’ expenses could you possibly have that total up to well over half of your rent? I can think of one – Childcare!
Although probably not the best comparison, subtracting my FIRE number of $380 per week to the ‘low income couple – 2 children’ figure of $1173 per week, suggests that children in this case are somehow costing this family an additional $793 per week, or $350,000 each to raise to 17!
This is clearly at odds with the previous estimates, and I think it illustrates that the specific costs associated with raising children are not well defined. I suspect that the cost of raising children ultimately scales according to your income and level of lifestyle inflation, just like every other cost in modern society.
Summary of cost to raise a child
The point of this article is to peak your interest in the costs of raising a family, and to point out that available costing and budget estimates for the specific costs associated with raising children is not well defined. Rather than a numerical value, I suspect that the costs of raising children are on a sliding spectrum.
This could mean that the cost of raising children might be similar to our normal cost of living – meaning there is an ultimate ‘frugal’ baseline, but that due to lifestyle inflation most people are flagrantly living at many many multiples above and beyond this baseline.
Over the next few articles in the series I plan to unpack and explore this relationship, as I learn about and plan for my own future family. I hope you stick along for the ride and chime in with your own experience and knowledge to help me, and other readers, along the way!
Become Financially Independent!