August 23, 2014

(Child)Free Money #2: How much $ can I save by not having babies?

In (Child)Free Money #1: Can I afford to have kids?, we introduced the USDA’s “Cost of Raising a Child Calculator” and noted the high cost of having kids.

A middle income family, defined as a married couple with two children and a before-tax income averaging $79,940, spent approximately $13,050 per year on each child for their first 18 years of life.

Assuming the $13,050 as a starting point (spending varies and depends on household income), parents spend $234,900 per child just to get them out of High School.

So, congratulations, by choosing to remain childfree. Instead of having 2.1 kids like the average U.S. family, you saved about $470,000, and that is just the beginning.

That number assumes that there is no inflation or that wages keep pace with child-rearing and living expenses. It does not account for higher education, the boomerang babies, lost wages or productivity or unmeasurable costs of added stress and inadequate sleep.

It also doesn’t account for lost savings. The cost to parents is not only what they spend, but the lost opportunity to invest that money.

If instead of spending $13,050/child annually, you invest that money the end of each year to age 18, you will earn $107,000 in interest and save nearly $343,000 by not having just 1 baby.

If you invest $26,100/year instead of having 2 kids you will save $685,000 – before college!

These results assume investment in secure tax-exempt, insured bonds. The investment is virtually riskless. Based on average yields for similar investments over the past 18 years, I assumed an average return of 4.25% for an average investment period of 9 years. Feel free to write if you want more details.

In the next installent we will calculate saving/cost through college graduation. (Hint: ouch!)

 

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