Having children is one of my life’s greatest events. But few great events come without a price tag and in the case of children, the financial shocks that new parents experience are strong. According to the US Department of Agriculture, a middle class family will spend $250,000 to raise a child from birth to age 17. Now if you’re like me and wondering why the Department of Agriculture is commissioning a study on the costs of child rearing, bear in mind that figure doesn’t include college expenses and probably doesn’t include the cost of cell phone data plans, car insurance, cars, wrecked cars, homecoming dresses, etc, etc, etc!
Though most people are first shocked by the lack of sleep and pure exhaustion, the first year’s financial shocks to their budget are just around the corner with some estimates in excess of $12,000. Our first child came as a complete surprise to my wife and me and then our second surprised us even more when she showed up just 12 months and three weeks later! I was COMPLETELY unprepared for either of them from a financial standpoint (and most other standpoints as well), but somehow we made it. I only WISH I had been smart enough to even marginally prepare financially for our three children.
What are the financial shocks that I experienced? What financial shocks will new parents experience at the birth of a child?
Financial Shocks for New Parents
- Medical expenses
- Maternity leave
- Life insurance
- Diapers and wipes
- Formula and breast feeding
- Baby food
- Child care
Our first child was relatively easy on us financially (that first year). Easy delivery, no health problems, and the standard doctor’s checkups. Still, she wasn’t cheap even with my very good health insurance coverage. Our second child was a different story and she required home health care … and we had changed insurance … to one that wasn’t quite so good.
Delivering a newborn can cost anywhere from $5,000 to $15,000 and depending on your medical insurance and your deductible, you could be faced with paying a large portion of it. My advice is to budget NOW for the expenses you know you’ll incur.
Preparation: Contact your insurer or the benefits director at your work to make certain you understand what is and isn’t covered then set up a savings account and make regular deposits into it. You won’t regret it.
Many companies offer a short-term disability insurance policy to cover the time Mom is out of work to have a baby or for any complications during pregnancy. Still, the average policy only pays a fraction of Mom’s gross income and then only for four to eight weeks after the birth (policies vary so be sure and check). For a maternity leave beyond the set time, or if Mom or Dad decides to take advantage of the Family and Medical Leave Act (FMLA), it will be at zero pay unless you use vacation or sick leave.
Preparation: Try living on one income for several months prior to your child’s birth.
You should consider increasing your life insurance prior to the birth so that each spouse will be financially able to raise the child through the college years. Go with a level term policy that is convertible to permanent at some point in the future.
Preparation: check out InsureMe.com to get a quote from a top rated insurer.
Diapers and wipes
Whether you use disposable diapers or cloth, they’re not free. The average baby goes through 10 to 12 diapers each day and if you use disposable wipes, count on spending a minimum of $100 per month to keep that little bottom clean. If you plan to use a cloth diaper service, you may make out a little cheaper but it has its own drawbacks. Be careful what you believe, both have their advantages and proponents (and lobbies and websites and assertions).
Preparation: do your own investigation. Ask friends which system they preferred and don’t be swayed by rabid proponents either way, and possibly consider laundering your own. That will save a lot of cash.
Formula and breast feeding
Formula can be a big shock. A general rule of thumb is that a baby needs 2.5 ounces of formula per day per pound of body weight. While breastfeeding can certainly minimize that expense, it isn’t as free as you may think. There are breast pumps, lanolin ointments, nursing garments, and breast feeding pillows to add to your expenses.
Preparation: find out how much savings you could realize by breastfeeding and then shop hard to find the best prices.
Baby food and cereals
Once your newborn reaches four to six months, he or she will begin to want more solid food and cereals (just wait til they’re teenagers!). Baby foods can get expensive so consider making your own by pureeing fresh steamed organic carrots, broccoli, or other vegetables.
The cost of children’s clothing is ridiculous, rivaling the cost of adult clothing ($34.99 for baby Nike’s?). Babies grow so quickly that they need new clothing regularly and even when friends give you clothing as gifts, many times your child has outgrown them by the time the season is right!
Preparation: shop at consignment shops and yard sales and remember: since children outgrow their clothes so fast, it doesn’t make sense to splurge on the latest fashions.
The amount of gear babies need will blow your mind. Strollers, car seats, toys, swings, monitors, bouncy seats, changing tables, cribs, baby beds, cradles, pacifiers, bottles, plates, bowls, sippy cups, high chairs, bibs, bathtub seats, safety supplies, blankets, sheets, and of course, the giant backpack (or little red wagon) to haul it all around.
Preparation: don’t be afraid to have second-hand gear. Shop at yard sales, consignment shops, and thrift stores to find some great deals. Also network with other parents or family to use gear they no longer need or use.
If both parents work, or plan to, they better be prepared for one of the largest financial shocks associated with having a child – child care. Paying someone to care for your child can cost anywhere from $5,000 per year for a family day care center to $20,000+ for a live out nanny (and don’t dare forget the taxes). My wife quit work 18 years ago when our first daughter was born so we didn’t have this shock, but we did have the shock of losing her salary.
Preparation: investigate the childcare options available in your city and decide which one meets your needs and values. Be sure to evaluate whether you or your spouse’s income will be vaporized by childcare, work clothes, transportation costs, meals, and other items associated with having a job.
No one is ever really prepared … you can’t be
Sure, maybe a lottery winner is prepared, but for rest of us having a baby has its own financial shocks. The fact is that few families begin thinking seriously about the money a child requires until after they become parents, so you are not alone if you haven’t considered these types of expenses.
But … you are in a LOT better shape than I was. You know what to expect and if you’re willing to follow the preparation recommendations above, you’ll be miles ahead of other newborn parents.