If you have a
child, you may want to read the recent analysis from the Brookings Institute
which details just how expensive raising kids can be. It’s downright
frightening.
According to the
Brookings Institute analysis, the average amount a married, middle-income
couple with two children would spend to raise through age 17 is estimated to be
$310,605.
That’s over $18,000
a year, a 9% increase from the previous estimate due to inflation. Again, that
$18,000 per year is per child. Have more than 1 child? Multiply your number of children
by $18,000.
More Than $300k Per Child
The analysis states
that child-raising costs can vary greatly based on where you live and on the
number and ages of children in a household. For example, housing costs are
greater in the urban Northeast, urban West, and urban South, while lower in the
urban Midwest and rural areas.
And as family size
increases, costs per child generally decrease. But the analysis makes it
abundantly clear – raising children is expensive no matter where you live.
And inflation has
made it worse.
That is Before College
Costs
This analysis does
not, however, include costs related to college. Today, the average cost for
college, which includes tuition, room and board, and supplies is:
- $54,800 for private colleges
- $44,150 for public out-of-state students
- $27,330 for public in-state colleges
529 Plans
529 college savings
plans are state-sponsored investment accounts that offer two distinct tax
advantages:
- The
potential for earnings to grow free of federal income tax; and - The
opportunity for withdrawals to be made free of federal income tax, if funds are
used for qualified education expenses, such as tuition, fees, room, and board.
Certain state taxes may apply, though. Nonqualified withdrawals may be subject
to a 10% federal income tax penalty.
Contribution limits
vary by state, and in many states exceed $300,000. While contributors are not
eligible for any federal income tax deductions, some states allow for certain
state income tax deductions.
Investment options will
vary by plan, but they often include a selection of mutual funds. Generally,
diversification – a strategy used to manage risk and maximize potential
earnings – of the portfolio’s assets is based on the beneficiary’s age or the number of years until the beneficiary begins college.
Your
Financial Professional
The cost of raising
children is just one of the dozens of variables to discuss during the financial
planning process. Other variables include your tolerance for risk, your age,
marital status, household income, household expenses, tax liabilities, number
of dependents, and most importantly, your specific goals.
And just as your
household will change from year to year, remember to make sure you review and
change your financial planning documents as necessary.
Sources:
Isabel V. Sawhill, Morgan Welch, et al. “It’s Getting More Expensive to Raise Children. and Government Isn’t Doing Much to Help.” Brookings, 30 Aug. 2022, www.brookings.edu/articles/its-getting-more-expensive-to-raise-children-and-government-isnt-doing-much-to-help/. Accessed 05 Sept. 2023.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses.
