Opportunity Cost Of Kids

[Tommy_Dolitte]

I'm at it again...

Spending time with my kids will be key once I have them.  I've approximated the "costs" of a child to translate into ~5 additional years of work (i.e. reduced savings capacity due to single income, approx child costs to be 2x's living expenses--including mortgage).

Thoughts on the level of accuracy of this approach....alternatives?

Thanks,
TD    

 

[Bob_Smith]

Tommy, my great-grandmother used to say, "kids don't cost much - you just toss another cup of water into the soup." I think what she meant was that sometimes it's possible to over-analyze. Just live your life and roll with the punches. You can't reduce everything to dollars and cents.

 

[John Galt]

Hey Bob! Now there is a sensible post. Kudos!

John Galt

 

[azanon]

That's probably about right Tommy, give or take.  MSN did an article on a per child cost.  Was like 150K-250K per child spent during all phases to raise them assuming you were "middle-class".

I'm married though and got to thinking about all of life's enjoyable phases.  I figured i couldnt live with myself when i hit my 60s if i had to live with the fact that i denied my wife a child, and denied us the opportunity to experience everything that goes with raising a young one.

I now have a 15 month old boy.  I think i'll keep em ;-)

 

[bongo2]

$250k could be very low, if, for example, your wife gives up a $50k/yr job to stay home, and you send them through four years of Harvard for $35k/yr. On the other hand, each additional kid probably costs less than the one before it. I just read a book "The Prize Winner of Defiance Ohio." This family had 10 kids and lived on something like $100/week (in 1950's).

We have four kids, and rough numbers I'd say we spend $25k more because of them (housing is the biggest), and make $25k less after taxes. But, there are a lot of things we used to do but now don't have time for, so that maybe saves $5-10k. I expect maybe 10-12 extra years of work because of my kids.

Is it worth it? I don't know. . .is breathing worth it?

Don't forget, kids aren't just costs, they are also insurance. When the financial system collapses in 20 years, you might not have to go back to work if you have 3-4 kids to leech from.

 

[Bob_Smith]

Hey Bob!  Now there is a sensible post.  Kudos!

John Galt

Thanks John. Just my "curmudgeondom" coming through.

 

[JonnyM]

I'm at it again...

Spending time with my kids will be key once I have them. I've approximated the "costs" of a child to translate into ~5 additional years of work (i.e. reduced savings capacity due to single income, approx child costs to be 2x's living expenses--including mortgage).

Thoughts on the level of accuracy of this approach....alternatives?

Thanks,
TD

How could it ever be relevant? You can't possibly choose to create children based on whether they are a sound business decision, let alone on how many years "extra" you'll be in the work force over choosing to never be a parent. They don't make good investments. When I presented my son (age 21 ) with the "bill" for his existence, he seemed discinclined to entertain the possibility of beginning an immediate repayment program...

Surely he "owes" me...

 

[yakers]

Although there is a place to responsibly analyze the costs of raising children I sometimes hear the question in a way that actually tries to tie the value as equal to some cost.
So what bumps up in my mind is the Mastercard ads that say that the card is for purchasing things but the experiences are "priceless". Thats how I look at my boys--priceless (although quite expensive).

 

[farmerEd]

Although there is a place to responsibly analyze the costs of raising children I sometimes hear the question in a way that actually tries to tie the value as equal to some cost.
So what bumps up in my mind is the Mastercard ads that say that the card is for purchasing things but the experiences are "priceless". Thats how I look at my boys--priceless (although quite expensive).

Anyone trying to justify the cost/benefit of having children just don't get it....and should immediately go and have a vasectomy....

 

[malakito]

1. You don't want to look at kids the way you are, otherwise you'll resent them.

2. If you're going to make the calculation, don't forget the tax implications, including the additional personal deduction, the child tax credit, and the increased Schedule A deductions for the larger mortgage. Personally for me taxes are my biggest budget item, as I expect they are for most, so ignoring them, while convenient as they complicate the analysis a great deal, will not give you a very good picture.

3. It really all depends on what you want to spend. My wife and I have committed to private education for our kids through high school, and then four years of college beyond that. Our day-to-day expenses are probably 20-30% higher because of the kids. Those decisions probably represent a $500k commitment. But people can make different choices -- public schools and "pay yer own way, kid" college would reduce that commitment to $0. Bottom line, you can probably go anywhere from making money off your kid to spending $1M per.

4. You could try sort of the opposite approach and say "I'm going to have X kids and am willing to work until age Y, so that means I can afford to spend $Z on my kids per year." Then spend those $Z as best you know how.

malakito

 

[Nords]

It doesn't work that way, Tommy.

You have the kid(s) first and then you figure out how to support them.

You'll know when your family is the right size, whether it's 1, 2, or 10 kids. Heck, you may even turn out to be the kind of parent who's willing to adopt.

But with questions like yours, your family may already be at its optimal size.

 

[haha]

Don't forget, kids aren't just costs, they are also insurance.  When the financial system collapses in 20 years, you might not have to go back to work if you have 3-4 kids to leech from.

Amen Brother Bongo!

I would think of this sometimes when I was prepared to be a giant a$$hole with my sons.

Hold on Mikey, you aren't talking to a difficult teenageer, you are talking to the guy who may someday be in charge of your life Helped me over some rough spots. And, since one of my kids has more money than I could get in 10 lifetimes of LBMMing, I'll be OK if I ever have to put in a request. Happily, I don't think I will. In fact, wanting to avoid this is one reason why I am a very conservative spender.

Mikey

 

[wabmester]

TD, I've run the numbers and kids reach breakeven after about 15 years. That's assuming you can offload tasks like mowing the lawn, taking out the trash, etc.

After that, you can sell them into slavery, or eat them.

 

[Cut-Throat]

That's assuming you can offload tasks like mowing the lawn, taking out the trash, etc.

Well, my kid is over 30 now, but getting her to mow the lawn was more difficult than to do it myself.

Happily I retired from lawn mowing about 15 years ago.

 

[Tommy_Dolitte]

How did my comment that I want to SPEND more time with my kids go unnoticed? :

I will have children...I just don't wanted to get a pulse for what that would translate to in terms of my capacity to spend the time loving and teaching them about this world... :-/

I want my children to be set when they graduate from high school and go through this world with a lot less worry than their dad...

I didn't do a good job describing what my intentions were and as a result left my intent exposed...water always takes the least resistant path...oh well.

Struck a pain place with some folks though---could analyze that....but I'm heading to the mall...

 

[shanna]

1. You don't want to look at kids the way you are, otherwise you'll resent them.


I don't know if this is necessarily true, Makalito. I think the OP just brought up the issue to hash this issue out in his head. In some ways, if you have a solid idea what it costs, you may feel a little more control over the issue, instead of just having a sinking feeling that kids are really expensive...

We decided not to have kids, but finances had nothing to do with it! We have a gaggle of nieces and nephews and enjoy spending time with them.

 

[sgeeeee]

TD, I've run the numbers and kids reach breakeven after about 15 years.   That's assuming you can offload tasks like mowing the lawn, taking out the trash, etc.

After that, you can sell them into slavery, or eat them.

Do you have recipes?

 

[SDY888]

Is that the origin of the McDonald's "Kiddie Meal"??

or.......

(Off)-Spring Rolls....

No Cost Value Analysis required for my daughter - the smile, laugh and hug I will get in about an hour when I arrive home is Priceless.

By the way, thanks for the couple of messages guys after my absence from the board through family illness....much appreciated.

 

[retire@40]

I don't look at it as the cost of a child. I look at it as the cost of my family as a whole. Whether we are a family of 2, 3, 4, or 5 is irrelevent.

When I look at my family expenses, actual and budgeted, I figure out how I can make it all work out so there is some savings in there. I am not going to deprive my family of all the normal necessities including some travel and entertainment, but if we get to the point that we are living paycheck to paycheck, I will work more to bring in the needed funds and/or cut down some of the non-essentials.

Money and kids are like oil and water. If you start thinking in terms of "how much is my kid costing me," you are not understanding the true value of having kids. If you start thinking that kids are going to prevent you from FIRE, then either don't think FIRE or don't have kids.

 

[windedhare]

I think I get what you are trying to get at... its the OC term that was a little alarming. Poor family planning can add tremendous financial stress to families, so I think its a responsible thing to have a plan for providing the necessary finances to raise a happy, healthy, well adjusted child(ren).

I intend to be ER before having kids. Hopefully, FIRE. I also want my kids to know they should not have to plan for my old age. Therefore, I too am planning on working x years to save y dollars to ensure that I'll have enough money to live off in my golden years before I leave the workforce to start a family.

Right now I dont feel brave enough to start a family, without being FI. It may be fine for others, but I am too much a worry-wart. I am not going to be able to do the daycare/nanny thing. What I am exposed to is age or fertility issues of not starting until 35, later than most other women.

To each his/her own though.

 

[Tommy_Dolitte]

Well put... :

 

[Jay_Gatsby]

Poor family planning can add tremendous financial stress to families, so I think its a responsible thing to have a plan for providing the necessary finances to raise a happy, healthy, well adjusted child(ren).

Exactly, however I would take it a step further. Family planning is good, but having the financial ability to avoid any interruption in lifestyle pre-child is important. There should also be concern about avoiding the repercussions of a layoff or getting fired. Having kids to feed, clothe, etc...after getting a pink slip isn't pretty. Thus, the family finances should provide for: (1) uninterrupted lifestyle, and (2) transition money to weather job-related disasters.

If that means people start having kids when they're in their mid-30s, as opposed to mid-20s, so be it. There are certain benefits to waiting, not the least of which is controlling how many kids you have through simple biological constraints (although modern medicine is extending shelf-life considerably these days).

 

[FlowGirl]

Exactly, however I would take it a step further.  Family planning is good, but having the financial ability to avoid any interruption in lifestyle pre-child is important.  

I'm not sure what you mean by this.  Having a child at all is inherently an interruption in pre-child lifestyle.

It seems to be the prevailing opinion of the younger crowd on this board that one needs to be not just financially secure, but also finally "set" before even thinking about having kids.  I've never agreed with that mentality and have always listened to my elders when they said - "If we had waited until we could afford them, we would have never had them."

Maybe also because I grew up relatively poor, I just don't see an interruption in lifestyle as that big a deal.  Most middle class people can afford a kid or two, and if that means cutting the cable and having to trade the BMW for a Ford when Dad loses his job then big whoop.  Unless you're truly poor (which I think excludes almost anyone considering FIRE), the decision about when and whether to have kids should have little to do with money.

If that means people start having kids when they're in their mid-30s, as opposed to mid-20s, so be it.

I agree that having an emergency fund is a good idea.  It's a good idea for anyone, not just those planning for kids.  However, I don't see why it should take a decade or more to save up a bit of cushion.  Despite all of the Hollywood actresses having children in their 40's, fertility can be a real issue, especially those who want more than one child.

 

[GoulashBrother]

Just to put my two cents in...I'm 54 years old, have a 31 year old wife and our son was born on the 25th of October.

This child has added so much to our lives in such a short time, and it cannot be measured in dollars and cents.

As I prepare to retire early, I will be able to spend quality time with my son and not have to go to work and worry about the job or the money.

The importance here is family and a reason for existing. A real purpose in life to raise this child properly, not money.

 

[Jay_Gatsby]

I'm not sure what you mean by this. Having a child at all is inherently an interruption in pre-child lifestyle.

Allow me to explain. Assume you and your spouse are DINKs (Dual Income, No Kids). Assume once again that you have a nice house in the suburbs (or a large condo in the city, just not downtown). Finally, assume that you're living on both incomes, yet still putting away 401(k) and IRA money. Now, if you have a child, you have two options -- someone stays home with the child to rear it, or you get a nanny after maternity leave is over. In either case, you're looking at an interruption in pre-child lifestyle, since you face the loss/reduction of one spouse's income, or the additional financial burden of a nanny.

If, on the other hand, you've been following the FIRE principles, you've lived on one spouse's income (or less), and banked remaining money earned. When you have a child, and one spouse quits working or you hire a nanny to help out, there is likely to be minimal impact on lifestyle (although there will most certainly be a substantial impact on FIRE).

Unless you're truly poor (which I think excludes almost anyone considering FIRE), the decision about when and whether to have kids should have little to do with money.

I disagree. Financial affordability should be a top priority in deciding whether to have kids. The last thing we need is another middle-class family struggling between paying for their 3-4 kids, and keeping a roof over their heads, food on the table, clothes on their backs, etc.... when only one spouse works and then loses his/her job. Having witnessed this first hand, and the financial fallout resulting therefrom, I'll never allow myself to get into such a situation. If that means I don't get to have 3-4 kids, but rather only 1-2, and then only in my mid-to-late 30s, so be it.

However, I don't see why it should take a decade or more to save up a bit of cushion. Despite all of the Hollywood actresses having children in their 40's, fertility can be a real issue, especially those who want more than one child.

It shouldn't take that long per se, but in today's competitive economy, you have people coming out of graduate school in their mid-20s with $40k+ in debt (sometimes $100k+), who don't get into a financial position to even consider having kids for 5-10 years, even if they get married right out of school. As for the fertility issue, if the wife is at least 5 years younger than the husband, then such a circumstance would be more or less ideal for having kids and the financial ability to afford them without an interruption in lifestyle.