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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

What to Expect Before You’re Expecting

by Laura Rowley

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Posted on Wednesday, June 10, 2009, 12:00AM

Patrick, 32, and Suzy, 29, have been married for two years. He works in production for a publishing firm; she’s in medical administration. They bought a three-bedroom rambler a year ago in a Seattle suburb, and they’re fixing it up room by room. They’re ready to start a family, but they are daunted by the potential costs.

The couple has made smart financial moves. “Right before the wedding we went to a financial planner who had us lay out goals and help us establish a realistic budget,” says Patrick. They paid off $5,000 in credit card debt and ramped up their retirement savings (Suzy’s employer offers a 5 percent match). They have built up a $6,000 emergency fund -- about one month’s take-home pay. They track their budget using Mint.com and live modestly; the only vacation planned this year is a trip to Chicago to attend a friend’s wedding.

But they are struggling to make progress. Student loans from graduate school eat up $550 a month. The house is more costly than they expected -- everything from utilities to paint supplies. “When something big comes up, we have to take it out of savings,” says Patrick. “Suzy’s car muffler fell off a year ago and we went a year without fixing it, but it got to the point where you couldn’t drive it down the street, it was so loud. It cost $400 to replace, which is not the end of world. But when you can’t squeeze any more out of what you’re making, how do you start a family?”

Parents in Patrick and Suzy’s income bracket ($74,500 and above) will spend an estimated $300,000 raising a child born in 2007 through age 17 – not including college expenses, according to government figures. Add in the academic, athletic, and artistic enrichment that is commonplace in child-rearing today, and those costs can easily triple, according to one estimate.

Yes, Kids Are Expensive

“It’s sort of cold to think about kids in this financial sense, but it is a reality of modern life: It’s expensive to raise kids,” says Charles Farrell, attorney and financial planner with Northstar Financial Advisors in Denver. “One of the leading causes of divorce is financial stress and disagreement. They need to really be up to the challenge, or they may find that a situation they thought would enhance their marriage might create some serious problems.”

While every family budget is different, middle-income parents should expect costs for food, clothing, and other basic living expenses to rise about 20 percent to support two children in a household, says Farrell. The best way to prepare is to earmark one income to cover necessities and the other for discretionary costs such as cable, dining out, and vacations. Budget-minded parents can save at least half on necessities such as cribs and strollers by searching craigslist or handmedowns.com, a classified ad site for parents.

“They have to consider how they will get through a financially challenging period if one of them loses their job,” says Farrell. “If the funds are that tight, a short period of unemployment for just one of them may threaten their basic financial stability.”

In addition, they must grapple with the biggest expense -- daycare. Neither Patrick nor Suzy have family in the state to help out; her employer offers a daycare center that costs $1,300 a month. That’s roughly in line with national averages: Fees in licensed centers averaged $14,647 a year for infants in 2007, according to a study by the National Association of Child Care Resources and Referral Agencies. Annual child care costs now surpass the cost of food in every region of the U.S.

The Costs of Health Care, College

Health care costs could also increase. While Suzy has excellent coverage through her employer, she should research how the cost of her policy, co-pays, and deductibles would change if they added a child, says Farrell.  
 
Then there’s planning for the future -- specifically college savings. “If they want to fund a college education for their kids, the numbers are sobering,” says Farrell. “If you consider a basic, in-state tuition of say $15,000 a year, with education inflation running at a conservative assumption of 5 percent, and your investments returning 7 percent over 18 years, you would need to save about $300 per month per child.” Parents can open a 529 college savings plan in one of their names before a child is born and then simply switch the beneficiary. Check out your state plan first, which may offer a tax deduction. 

All of those expenses worry Patrick: “As much as we spend what we earn, we’re not buying DVDs and big screen TVs that people our age blow all their money on.”

What they are likely blowing their money on is simply a higher cost of living. For example, the authors of the recent book Spend ‘Til the End note that Cedar Rapids, Iowa, which has the cultural offerings of a major university (University of Iowa), provides a 78.4 percent higher standard of living than Seattle. The median home price in Seattle is more than twice the national average.

They love the town; as Suzy says, “The city, the landscape -- we go hiking, we love to go out and explore areas -- it’s perfect.”

But getting attached to a major city can be a life-altering experience. I am raising my three children just outside New York, and my family is in Chicago. My kids are growing up spending just a week or two a year with their grandmother and cousins. The older I get, the more painful that reality becomes.

The truth is that, after you have kids, you spend a lot less time exploring city culture and nightlife and a lot more playing with blocks on the floor and kicking balls around the park. It’s worth thinking deeply about moving to a smaller city -- ideally close to family -- if the job opportunities are equal. Smaller towns also typically mean shorter commutes, something that becomes critical when you have kids.  Patrick, for example, travels an hour and a half each way to his position at a publishing company; Suzy walks to the bus and has a 45-minute trip to and from the office.

The couple has no plans to move for now, but they are exploring ways to boost their income before they take the plunge into parenthood. Says Patrick, “Suzy and I have always talked about how you can’t have it all -- you have to figure out where the compromise is going to come.”

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  • flickr - Monday, June 15, 2009, 3:56PM ET  Report Abuse

    • Overall: 3/5

    Suze Orman would consider the couple's $6000 emergency fund to be woefully inadequate, and I would agree. That is just ridiculous for a couple that makes what they are making. Something is fishy with the article - how do they have the money to fix up a home but not repair a muffler on the wife's car?? As someone noted, this couple is bleeding money somewhere. I have a mortgage, hefty student loans, etc. and I manage several months of emergency savings for myself - this couple is being irresponsible by not having more than $6,000 for the two of them to begin with! Let me guess - they are exorbitantly spending cash on home improvements (granite countertops etc). They are both young enough to wait several years, and save some funds, before planning a family.

  • Tesla - Sunday, June 14, 2009, 11:01PM ET  Report Abuse

    • Overall: 3/5

    When I found out my wife was pregnant with our first child I freaked out about finances. Fortunately I haven't found children to be all that expensive so I question some of the figures presented in this article. Through Social Security and Medicare I (involuntarily) spend a lot more money on elderly people that I don't even know than I do on my own kids. I like the suggestion to move to a lower cost of living area- that's a decision I'm struggling with right now. The added cost of living for "premium" cities just isn't worth it.

  • Yahoo! Finance User - Sunday, June 14, 2009, 8:03PM ET  Report Abuse

    • Overall: 3/5

    I cannot reiterate what so many people have already said in response to this article: before you have a child, make sure you can afford one (or two, or three). And make sure that person is YOU, not my tax dollar. I know I'm going off on a tangent here, but I firmly believe that some form of familiar budgeting course should be taught in grade school. Call it "modern home-ec" if you like. I see too many couples (and often just single mothers or fathers with a deadbeat partner) with no concept of how much another child will cost to rear. Often-times that same parent is just adding on to their family tree to add on to the size of their monthly welfare check. 1) If people were more informed of how much it costs to properly raise a child (assuming just the basics of food, clothing, shelter, and education), and (2) if society didn't pay so highly in benefits to those who go without (essentially rewarding a person NOT to work, or to have ten children), then my tax dollars could be given to the people who really are in need of them. Condoms are free at Planned Parenthood (and other family planning establishments), and jobs are available (albeit they may be for less than a person may want to work for, or be "beneath" a person -- but a paycheck is a paycheck). As long as society continues to allow people to take advantage of social welfare, people will continue to do so. It's time to fix the system.

  • Yahoo! Finance User - Sunday, June 14, 2009, 5:43PM ET  Report Abuse

    • Overall: 3/5

    I want to mention that part of the planning process should be to consider how you would handle a child with special needs. People go into childbearing assuming that they will have a typically developing child, but this is not always the case. Both my kids are on the autism spectrum (it's 1/150 now). While our special kids are well worth the effort, I have to tell you that they are more money and more work. Although we were not planning on using daycare anyway, I can tell you that it would have been more difficult fo find daycare for my kids. There are a lot more school meetings to attend, and time spent running the kids around for OT and speech. When out participating in activites, I have seen a lot of autism, Down's and genetic/developmental disorders that I didn't even know existed. For kids who are more 'severe", there is planning for their financial future. Advice for people considering having children: work out a "what if" scenario for having a special needs child.

  • ldace - Sunday, June 14, 2009, 11:41AM ET  Report Abuse

    • Overall: 2/5

    If you are going to have financial anxieties about raising children, you shouldn't have them. You don't need to do everything for them and letting them do for themselves is not all bad.

  • Barry - Sunday, June 14, 2009, 8:27AM ET  Report Abuse

    • Overall: 3/5

    If you decide that you want children, check your finances first to ensure that YOU can afford them rather than depend on society to pay for your children. After that, having children is an emotional decision rather financial.

  • Love2Fly - Sunday, June 14, 2009, 3:43AM ET  Report Abuse

    • Overall: 3/5

    I think finances do play a huge role in having kids. My bro-in-law has 3 kids and a new born baby. He lost everything in Lehman Brothers and came crying to me he didn't have money to even pay for the baby's milk. I think that buying baby milk is part of personal finance.

  • Yahoo! Finance User - Saturday, June 13, 2009, 8:11PM ET  Report Abuse

    • Overall: 3/5

    Having children is highly over rated.

  • Yahoo! Finance User - Saturday, June 13, 2009, 1:47PM ET  Report Abuse

    • Overall: 3/5

    Kids are definitely not as expensive as it is claimed to be, especially if you love them and enjoy their presence. They fill a void in someone's life that cannot be filled in any other way, and (since the topic of this post is money) make you save money in the process. I have 3 kids, stay at home wife. My monthly spending is much less than my friends without children. It really all boils down to the lifestyle. For my friends, video games (pretty much every game console, and game), expensive dinners (many times in the same restaurant), expensive cars is where they seek their happiness. We on the other hand have most of our dinners at home (my stay at home wife is a great cook), while dining out is something we do for enjoyment. Expensive cars is not something we seek, video games is neither something we seek nor something that we find meaningful ... So it really all depends on how you look at it. If you take my friends' life and add kids onto them, kids are extra expense, and can be daunting. If you take their happiness as the basis, and try to attain it through kids, you could actually cut on expenses and still come ahead in terms of happiness. It is all in the way you see it.

  • Yahoo! Finance User - Saturday, June 13, 2009, 12:40AM ET  Report Abuse

    • Overall: 1/5

    What a sad commentary on America and it's current values. This column illustrates what we have lost by our focus on money. There is nothing more valuable to this world or to a married couple than a child. My parents raised eleven children. When they had 7 children they lost everything and had to start over. Was it hard, you bet. We struggled financially for years. We had to put ourselves through college and didn't have all of the latest fads and all of us are happy. No drugs, no divorces, but lots of grandkids. They may not have a lot of money but their legacy will continue forever. They sacrificed the worldly comforts for us and we all love them for the power of their lives and their faith to continue to have children in the midst of challenges. Now they enjoy the fruits of their labors - grandchildren. We have no regrets for Mom choosing to stay home baking cookies, just happiness. It makes no difference what kind of car you drive or how big your house is, if you make a difference in the life of a child. Maybe they never achieved great wealth and maybe they didn't change the world in your shallow understanding, but I can assure you, they changed the world for me!

  • Yahoo! Finance User - Friday, June 12, 2009, 11:17PM ET  Report Abuse

    • Overall: 1/5

    maybe the kid will be a financial expert....big demand for them these days

  • looneytarian - Friday, June 12, 2009, 7:17PM ET  Report Abuse

    • Overall: 3/5

    If you want kids, go at it. While they may not be wealthy, they are well enough off to afford them (currently). I would say that some of these comments about how finance doesn't enter into it is ridiculous, except that we live in a welfare society that seems to reward promiscuity. It just doesn't seem right that we have welfare moms and dads, who couldn't afford one kid, are having 4-6 kids while middle class families struggle to maintain 2 kids. So unless you plan on welfare, things like increased food costs, healthcare, education. roof over the head, etc. Need to be considered. The important thing is making sure you can feed, shelter and keep them healthy. Anything beyond that is icing on the cake.

  • GenevieveH - Friday, June 12, 2009, 6:25PM ET  Report Abuse

    • Overall: 3/5

    are kids expensive? It's all in how you look at it. Since I had my three year old she's done nothing but enrich our lives -- and now we don't spend much money on eating out, entertainment (the park is fine for her), alcohol, parties etc. These bizarre estimates of the cost of children assume you don't change your behavior one iota after you have a kid, which is never true. Many of the costs come out of things you're no longer paying for.

  • NW - Friday, June 12, 2009, 6:19PM ET  Report Abuse

    • Overall: 2/5

    "If you wait until you can afford kids you will never have any." 10:41 approximate Exactly what my Dad (father of 10) told me. He somehow managed to keep us all fed, clothed, and even paid for huge chunks of our undergraduate education on a single income. We were raised poor but if you don't know any better, ignorance is bliss. We never felt like we lacked for anything (although I never ate McDonald's until I was 17 yrs. old). My wife and I do it very different as two working parents. As has been stated time and again your priorities shift and you make it work. We rarely eat out and we are driving two ten yr old cars, but our house is warm and spacious enough for all of us. MY KIDS won't be sharing a bedroom with three siblings like I had to! Although you need to consider economics it cannot rule your life when it comes to this type of decision. Children offer a huge return on investment, but this shouldn't be measured in dollars. Our lifestyle is enhanced by their direct impact (hugs and kisses, life mentoring opportunities) but also indirectly (social circles open up drastically when everyone is sharing cold bleachers at a T-ball game in early spring!)

  • Yahoo! Finance User - Friday, June 12, 2009, 5:15PM ET  Report Abuse

    • Overall: 3/5

    3:33- The University of Northern Iowa is in Cedar Falls, and the article is correct in associating The University of Iowa with Cedar Rapids as it is located within 25 miles.

  • Kate - Friday, June 12, 2009, 5:07PM ET  Report Abuse

    • Overall: 5/5

    Okay...really? One of the first few comments talks about how the article gives misinformation. If you're going to accuse an article of giving misinformation, at least give the correct information as proof!! The University of Northern Iowa is located in Cedar Falls, Iowa--an hour away from the U of I! Get it right!

  • happy customer - Friday, June 12, 2009, 3:59PM ET  Report Abuse

    • Overall: 3/5

    Wow 12:31 ! Seeing as you admire Europe so much, why not do us all a favor and move there. Sounds to me like it would be one less parasite that the hard working citizens of USA to carry. Something tells me your taking alot more than you are giving in this world.

  • Mobyware - Friday, June 12, 2009, 3:35PM ET  Report Abuse

    • Overall: 3/5

    I'm one of the poor slobs who is trying to be responsible and supporting my family and paying for my kids college. How stupid! If I was lazy and didn't save a cent for college my kids could go full boat with very little out of pocket expenses. It does not pay to work hard and save in this country. I am really struggling with teaching my kids a good work ethic so they can support themselves just so they can pay outrageous taxes and support other people who don't work. Better to teach them to get a job where they can get paid cash and work under the table so they don't support the parasite that will kill them. If we stop funding the government they will eventually lose their power over us.

  • Yahoo! Finance User - Friday, June 12, 2009, 3:33PM ET  Report Abuse

    • Overall: 1/5

    I am disappointed to see misinformation appear in this article which could have been easily fact-checked. The University of Northern Iowa is located in Cedar Rapids while the University of Iowa is in Iowa City, IA. I'm sure to someone out-of-state this may seem confusing but these are completely separate universities and should not have been confused.

  • Aaron - Friday, June 12, 2009, 2:02PM ET  Report Abuse

    • Overall: 2/5

    If it costs $300k to raise a kid for 17yrs, thats $17.6k/yr, $1470/month? Baloney. My kids cost me $100/month each max. Granted they are 2yrs old and 7 months. I take them to all the checkups, I work a private sector job and have avg health insurance. Most of child-rearing costs is capital cost, not ongoing cost.

  • CB44 - Friday, June 12, 2009, 1:52PM ET  Report Abuse

    • Overall: 4/5

    Kids cost money lots of it. But most of the cost is in start up expenses, so each kid cost less than the one before. Toys and clothes are great hand-down items...but I've never seen anyone say having kids was a smart financial decision. It's an emotional one and a quality of life one. As you get older, it's nice to have a family and frankly it's more fun. Not to mention a great excuse to sit around and watch cartoons, just because the kids are. But a financial decision it is not. It's never a smart financial move.

  • Yahoo! Finance User - Friday, June 12, 2009, 1:13PM ET  Report Abuse

    • Overall: 5/5

    Wow 12:31, would you like us to pay for your family vacations as well? You CHOOSE to have kids, you should bear the associated costs.

  • Jack - Friday, June 12, 2009, 12:49PM ET  Report Abuse

    • Overall: 3/5

    Children are wonderful. It's the teenager from hell they'll become that will really kill you.

  • Yahoo! Finance User - Friday, June 12, 2009, 12:31PM ET  Report Abuse

    • Overall: 3/5

    If the old want us to reproduce so that they have Social Security and Medicare, they should pay for my childcare and give me a bigger home for free. Add to that stop complaining about funding public education. Too much to ask for? If so just get rid of both programs. In Europe companies and the government do everything possible to help out young families. Why not getting that in USA? Paid childcare, long maternity leaves, part time job schedules are a necessity to have a life/work balance with kids.

  • Yahoo! Finance User - Friday, June 12, 2009, 10:02AM ET  Report Abuse

    • Overall: 1/5

    Yeah Laura, but hope is a strategy and we all need change we can believe in. That's why I'm not worried. As soon as Obama pays for my rent and my medical bills, everything will be alright. Using the police power of the state to take money from the rich never made more sense. I mean, come on, they are the ones that produce everything and they want to keep it for themselves? I want to stay at home with my 4 children from 4 different fathers and make the taxpayer pay for it. To suggests otherwise is simply insensitive. Nevermind I chose not to pay attention in school or learn a marketable skill. Now that we have Obama, I don't have to worry about anything.

  • AlexH - Friday, June 12, 2009, 8:28AM ET  Report Abuse

    • Overall: 1/5

    As noted by others, I call BS. My wife and I are in the same income bracket. We live in a higher RE cost area than Seattle ($1500/mo for 600 sq ft!). We don't drive around with broken cars, or any other absurdly over-the-top frugal things like that. Funny thing is, half our income still manages to make it to savings every month. Whether it's being too important to cook for themselves or turning their "rambler" into a mansion, there's at least one fundamental issue for their finances, and kids ain't got nothing to do with it.

  • Yahoo! Finance User - Friday, June 12, 2009, 7:12AM ET  Report Abuse

    • Overall: 1/5

    This article seems to me to point of a lot of the "ooh scary" things about financing a family, without pointing out many ways of being creative to live the life you want in an economy over which you have no control (pointing out craigslist as a place to save money doesn't count as creative). How can couples maximize the tax deductions related to raising a family? What options are there for modifying student loan payments to maximize tax benefits and immediate liquidity? I think the implicit suggestion that these folks should either A) not have children or B) move to a small town states the obvious choices, without providing any real value one might expect from a financial "expert."

  • Christopher - Friday, June 12, 2009, 6:22AM ET  Report Abuse

    • Overall: 4/5

    we already had our first child and are expecting number 2 at this time. I also found it interesting that she mentioned the cost of living difference between Seattle and Cedar Rapids. We just moved to CR from the Chicago area (similar cost of living to Seattle) because of the cost of living difference and we have already seen a huge improvement in our financial situation.

  • Jim M - Friday, June 12, 2009, 1:38AM ET  Report Abuse

    • Overall: 5/5

    Great article. Not sure where someone got that they make $36K each with masters degrees, since it says their income bracket is $74K and UP. And to whoever says kids are not a financial decision never lived as an "oops" baby.

  • Yahoo! Finance User - Thursday, June 11, 2009, 9:27PM ET  Report Abuse

    • Overall: 1/5

    Expect higher gold ,silver and oil prices. Expect the Chrysler CEO to walk away with most of the bailout money.Expect higher taxes for the working class.

Showing comments 6-35 of 82<< PreviousNext >>
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