When we first decided to have a baby, the first financial thought that came to me was how much would it cost to raise a child? Looking online, I found a lot of simple answers like “It will cost your $300,000 to raise a child”, but that didn’t seem detailed enough to truly see how it will fit your personal situation. For example, does that include child care and post secondary education? Is the mother breastfeeding? Are you using disposable or reusable diapers?
I came across some data compiled by Manitoba Agriculture (chart no longer online) that seemed to be detailed enough to give a true picture of what you can expect to spend on certain categories, by year. However there were two problems, the data was broken out by boys and girls and more importantly, was from 2004.
The difference in gender was only about $500 more in food for boys over their childhood, So I averaged the numbers to represent any child. While it’s likely that certain categories have had more inflation than others, I simply used the Bank of Canada’s Inflation Calculator to increase all the expenses to a 2009 level, based off of the annual inflation rates of the past 5 years.
The numbers I came up with should provide you with a reasonable expectation of what it will cost to raise a child. While the total is $182,190, you could remove the first year of food expense if the mother will be breastfeeding or zero out the child care costs if one parent plans on staying home.
This covers all the expenses, not including if you choose to help pay for their further education. If you plan to do that, you might consider adding $2,500 a year into an RESP to get the maximum Canada Education Savings Grant. You should also consider the cost of maternity leave (which we’ll discuss in tomorrow’s post) as well as looking beyond that if a parent plans to stay at home for more than one year to raise the child.
After thinking about all these expenses and reduced salary, there is something you get to look forward to… tax breaks from the government. This includes the Canada Child Tax Benefit and Universal Child Care Benefit, as well as the spousal amount if a parent’s income is under $9,600. Other tax savings include claiming up to $7,000 in daycare expenses and up to $500 for the Children’s Fitness Tax Credit.
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Just wondering which category diapers fall under and how much they are estimated to cost?
I have never seen it broken down quite like that. Thanks for the info!
Wow! I knew it was a lot, but never have seen the cost breakdown like this.
My wife and I were just saying we can’t wait til we get both of our little ones out of diapers – that will save us a good $100/mo. easily!
Being a daddy is worth any price though!
I have 2 kids and I use to say that I have 2 BMW’s in my driveway (while looking at them playing around).
I budget $400/month for them and I manage to cover all expenses (but I don’t have to pay for school yet). It will surely increase once my older one start school next year!
Every item looks like a median type number. WE had a nanny come 40hrs a week, while we both worked. That was $30K/yr for 5 years.
When my daughter was 3, she was ordering off the adult menu at restaurants, the food number above isn’t a fraction of her food bill.
There’s also no number for college savings.
Interesting numbers, though.
Joe
Keeping this for future reference for sure. Thanks!
Great chart. I present often at baby shower showcases, talking to expecting parents about coping with the financial impact of a new child. I like your figures much better than those I’ve been using, and will bookmark this post.
if you have a parent at home, it does not always mean you will save money.
Add more expenses for hydro, water, heat, food etc… and then take a salary away from the parent at home. The actual cost of being at home would be more than a paid working job.
Example:
daycare costs cover food, shelter, heat, hydro & water for an average of 8 hours a day.
If a parent is at home those costs come back to the house hold.
Lets say dad stays home and he made $40,000 a year, take away that $40,000 and add the household bills from the 8 hours the child was in daycare and then show the actual cost of being at home.
Sometimes economics is not as simple as you think, unless you live in it.
Sara Landriault,
That’s a good point about items like food and utilities. While you can remove expenses in the Child Care column, there would have to be an increase in the Food and Household Oeprations columns.
Uh, your ‘costs of childcare’ column is a bit tilted towards male paradigm traditional economics. In that section you seem to define childcare as only 3rd party care, and costs as only paid receipted costs. That is the only error I can see of your very excellent otherwise charts, but it does significantly tilt the conclusion.
The real ‘cost’ of caring for a child is the cost of either paying some stranger in direct costs – eg. daycare – or and this is what you seem to miss, the loss of income if you forego income to provide the care yourself. A parent who could earn $40,000 a year and is home has a childcare cost of $40,000. A parent who is earning when the child is in school so does not use daycare, nevertheless may be earning only part-time in order to be there when the child is. The income loss may be $20,000 a year. Those losses are very dramatic to the household budget. Salary loss also means loss of medical dental benefits, loss of vacation pay, loss of pension benefits so the hit is even higher than the salary loss itself. And the state, rather than being kind and ignoring how you earn money and just taking how much you earn, also prejudices how you earn. If you are in a household of two earners each making $30,000 you will pay little tax. If however you and your partner earn $40,000 and $20,000, you pay more tax than the first couple and if you heaven forbid earn $50,000 and $10,000 with one of you home a lot with the baby, your taxes are even higher. So there are signficant tax costs to add to the ‘childcare’ cost decision.
The result ends up that the costliest way to raise a child for any household is at home, where the state pays very little and you have to take out of savings to stay afloat. The costliest way to raise a child from government point of view though is to use 3rd party daycare since then the state gives $10,000 per child just to set up a space each year and then lets parents also get a deduction for their out of pocket expenses on top of that.
The ‘costs’ of childcare therefore are a real issue of contention for parents because the definitions are so muddied.
The federal government in 1999 when I made a UN human rights complaint, said that if you are a parent at home you must be idle and rich and a wealthy banker’s wife. They assumed since you endured all those tax penalties you must be rolling in money. They ignored studies by the CCSD that found that the parent at home is often living below the poverty level, precisely because it costs so much to be home with the baby.
So the state actually is funding most generously the ones who are least poor- the dual income families that pay low tax, the mat benefits that give more the more you used to earn.
In a fair world we would fund all kids equally and then the decision to be home with the baby or use sitter, nanny, dayhome, tag-team parents or daycare, whatever, would be your personal choice only. The state would not prejudice the decision.
Agreed with Sara.
Having a parent at home only means you save on ONE aspect of the costs, but you have to do the cost-benefit analysis with the parent going back to work and paying for daycare, to really see if you’re getting a deal.
The cost presented is only a partial cost. It does not contain the cost of income lost (at least one parent usually stays at home at least one year) and the cost of education (even if the parents don’t directly pay the tuition they are probably paying or contributing to other expenses for their over 18 years old children).
Also not included is the cost of having to live in a larger house.
Probably the minimal total cost is somewhere around $300k.
However, that’s just one aspect of the issue. Usually children are had when people are young in their 20s and 30s. From a money management perspective that is a very bad decision. If the money spent to raise a child would be invested at 8-10%, then the future value 20, 30 or 40 years later would be much higher. For example the future value of 18 15k payments at 10% is almost 700k. That is the real cost for one children: 700k in 18 years. So basically a couple could presumably retire after 18 years without any additional savings if they would not have a child.
From a financial point of view, the best thing to do (if one still wants children despite all the negatives) is to delay that until after financial freedom is gained (probably till around 40). in this way, the couple could actually enjoy having and raising the children instead of having the government doing that for them.
It is useful, thanks!
sco, you sound like you don’t have kids.
Kids are not a financial vehicle, they are a life choice, at least for me and my wife. We make choices around them that are not always the best financially, because we feel they are the best for our family’s quality of life. For example, my wife is a stay at home mom, by choice. Sure, we’d have more money and more flexibility if we were both working, but we can’t stand the idea of a daycare effectively raising our children for us. Not the best financial decision, but easily the best decision for us.
Mike, I do have a kid (fortunately not a plural for me). That does not stop me from thinking rationally about the costs and the fact that it was not a wise decision from a financial point of view. As you’ve mentioned, there are other kind of benefits to having children. However, there are benefits in driving a Ferrari or having larger houses or spending 20k/week on vacations, but those benefits don’t make those decisions smart ones from a financial (or environmental) point of view.
For me it’s strange that people who otherwise count pennies, when it comes to children they forget any financial planning or any rational thinking.
And I think we should also talk about the heavy cost on environment of bringing yet more humans into this overcrowded world. I think it’s not very smart from the point of view of our survivability as a species. This is a cost that almost no one is talking about.
sco & Mike,
While it’s true that having children is not a great choice from a purely financial view, of course that’s not the reason we chose to have kids. Once that decision is made, the best we can do is to find a balance between being the best parents we can be and looking to save money and earn income.