Financial Independence and The Cost of Raising a Family

A few weeks ago, Darrow Kirkpatrick blogged about the cost of raising a family while you’re saving for financial independence. Before I read his post, I had just finished emptying our 529 account with the final payment for our daughter’s college room & board. This seems like a great opportunity to compare our parenting expenses to the national statistics.

Raising a family is worth every penny, but finances are the wrong reason for starting a family. Hopefully, you make your decision to have kids (or not) for all the right reasons in your situation. Nobody has to start a family– there are already plenty of people in the world who need your love & support. Families are a personal choice, and financial fears should not hold you back.

Yet starting a family might even improve your finances.

Before we justify that bold assertion, I highly recommend that you click the link to Darrow’s post. (It’ll open a new tab in your browser so that you can switch back & forth between our blogs.) He and I reach the same conclusions, although we got there by different paths.

For those of you reading on a tiny mobile device, here’s a key quote from Darrow’s post:

According to the USDA’s 2012 Expenditures on Children by Families, child-rearing expenses to age 18 across the U.S. averaged $241,080 per child in two-child middle-income families. Higher-income families spent $399,780 per child. (Expenses for an only child were greater by a factor of 1.25, while those for 3rd and subsequent children were lower by a factor of 0.78.)

Photo of baby sticking out its tongue at parent.

Setting a good example.

That cost doesn’t even include college! Are you really going to spend a quarter-million bucks on your child? More importantly, how much sooner could you retire if you invested that money?!?

First, let’s see whether those numbers are realistic. According to the government’s agricultural experts, my spouse and I should have spent at least $300K raising our little bundle of joy. If we’d elected to stay childless and invest that $16,700 per year in the S&P500 between 1992 and 2010, then we’d have a cool $543K in our Fidelity account.

We reached financial independence in the late 1990s, so even by the end of 1997, we would have saved a minimum of $85K. That would have substantially improved our net worth, generated a few thousand dollars a year in dividends, or made a nice down payment on a Hawaii rental property.

Yeah, but who even bothers to track 18 years of expenses, let alone the costs of raising a child?

Photo of a parent holding a baby upside down.

Future Navy officer.

Hey, I’m a nuclear-trained submariner. I like taking logs.

My spouse and I have recorded our spending since 1986. By the time we started a family, I was rockin’ Quicken 5.0 for DOS on our PC-XT. That database is getting a little creaky today with over 150,000 transactions, but it includes everything from the crib (garage sale, $10) to the college fees.

How much did it cost to raise your kid?

I’ll spare you the suspense: just under $156,000. (The data table is at the bottom of this post.)  You can also scroll down there to see the USDA’s infographic on the cost of raising a family, which breaks down the numbers in much more detail.

Photo of young girl eating a slice of pizza.

Mmmm… pizza.

Raising our daughter cost barely more than half of the USDA estimate. Admittedly I didn’t track her food expenses separately for all of those years, but our happy & healthy darling cost at least as much to feed as a full-grown adult. If you check the prices on formula & baby food, and if you’ve seen a teen eat, then you’ll know that this figure is conservative. That hammered our spending harder than anything else, and at 22% it’s well above the USDA’s 16% average.

I also included over $27K for the price of starting college and, in our case, nearly a semester of room & board. The USDA data goes up to age 18 but they didn’t consider all of the expenses for Kumon math tutoring, AP classes & exams, SAT/ACT fees, college visits, and applications. (If you’re doing it from Hawaii then add extra for airfare.)

You could spend far less on your own teen’s college prep, or you could spend far more on private high schools, but I bet we’re pretty close to the middle of the bell curve. I think it’s also a fair compromise on the perpetual debate over whether to pay full retail for Harvard– or make them pay their own way through college.

Photo of teen driver changing oil on car.

“My first oil change.”

I should point out that the USDA also spends way more than necessary. They claim that “housing” a child is nearly a third of the total cost, but we had already bought a home that we were perfectly happy with. We didn’t buy a bigger place just because we were parents, and we were already in a great school district because we shopped for a nice neighborhood.

The USDA also claims that transportation is 14% of the total, but our daughter only rode the school bus for three years out of 12. She wore out some sneakers and bicycle tires, but when she got her driver’s license she paid that back that investment by running all of our household errands. We did some driving for sports and other activities, but we could have stayed local and ridden a bicycle.

The real payoff

You might be reassured to know that the cost of raising a family is a very wide bell curve with fat tails, and it’s a relief to know that you can do it for even less money than we spent. But if you could spend “only” $100K to launch your first child from the nest, how can this expense possibly improve your finances?

Yeah, I know, some of you more experienced parents are snickering: “Because you won’t have any spare time in your life to spend more money on anything else!” I can’t argue with that. Raising our daughter involved far more trips to the park and the library than to Bangkok or Europe.

But we parents didn’t just trade our liberty cards for a pile of food & diapers. Nearly every new parent has experienced this feeling on the first day after labor & delivery: “Holy crap, I’m exhausted we’re responsible for a human life. We’d better grow up and get our act together!” Starting a family makes you get a handle on your lifestyle, whether you’re competing for “Parents of the Year” or just trying to improve on your own upbringing. Before kids, you might not have wanted to examine the details of your entertainment budget. Once you have kids, however, you start tracking your spending just to figure out where it’s all going.

You also behave more responsibly. Admittedly you’re also too tired to get into as much trouble as you used to, but nothing improves your driving more than strapping a baby seat into the vehicle. Racy sports cars are eventually replaced by larger, more crash-resistant kid haulers. You spend less money on expensive home furnishings and instead you focus on baby-proofing. Your old wild weekend behavior that might have resulted in a visit to the emergency room is now spent at the doctor’s worrying about a cough or an ear infection. You even eat healthier. Worst of all, you now have to set a well-behaved example for a new little person who will try to imitate everything you do.

Better yet, you start planning for everyone’s future. It’s not just getting the kids out of the house and over to the park to burn off a little energy before nap time. You not only take fewer risks with your lifestyle, but you cut back on risky behavior with your money. You not only continue saving and investing, but you may become more thoughtful with your career planning. You might still quit your corporate cubicle for a startup or self-employment, but you’ll be much more analytical about the decision– and you’ll work a lot harder to make it pay off.

When we had our daughter, our planning for financial independence changed from a fantasy to a reality. I wanted to spend less time working for a paycheck (and deploying to the Western Pacific) and more time helping my daughter grow up.

Photo of parent and daughter surfing together.

High five at the end of a wave.

I’d like to think that my spouse and I would have saved for financial independence with or without starting a family. However, starting a family made our goals much more compelling, and our daughter motivated us every day.

So don’t let the USDA scare you about starting a family, let alone have money anxiety. If you decide to start a family then it’ll be for all the right personal reasons– and it’ll be a good decision. The USDA’s “average expenses” reflect more about America’s hyperconsumer lifestyle than the true cost of feeding a few more mouths at the table. (Amy Dacyzcyn, the original Frugal Zealot, raised six kids on her spouse’s enlisted Navy paycheck.) Instead, you can apply the same techniques to family budgeting that you do for financial independence– track your expenses and then spend the money only where you find the most value. Before long you’ll have your expenses more in line with your priorities, you’ll be spending far less, and you’ll be on your own path to financial independence.

Darrow, thanks again for inspiring this post!

Here’s the cost of raising our child to her 18th birthday:



















Girl Scouts





















The infographic of the USDA’s cost of raising a child (PDF)

Related articles:
“Can I Retire Yet?” blog post: Having Kids vs. Retiring Earlier
USDA’s cost of raising a family
Retiring early– with kids?
Book review: “All The Money In The World” (includes a section on raising kids)
Old-school frugal (part 2 of 2) (Amy Dacyczyn)

About Doug Nordman

Author of "The Military Guide to Financial Independence and Retirement" and co-author of "Raising Your Money-Savvy Family For Next Generation Financial Independence."
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10 Responses to Financial Independence and The Cost of Raising a Family

  1. Wow! What a post :-) Thank you so much for sharing. This is so important for us (post-wedding, pre-children DINKs) to read. To be honest, we’ve been putting off having children because we wanted to be financially ready – we heard something like $800 a month per child being thrown around by our friends! Ouch.
    But you’re right, having children will get us to buckle down, get our act together, and tidy things up in our financial household. But it helps that you put all the cost down on paper. For analytical, visual learners like us, it puts it into perspective. Thank you for sharing and you might have just pushed us over the edge – gasp! Could it be, we’re ready for our first kid?!?!?

    • Doug Nordman says:

      Thanks, Anneli, glad to help! Thrift stores & garage sales. Start your family when you feel mentally & emotionally ready.

      I hope you never need this book, but we found it very helpful: “The Fussy Baby Book: Parenting Your High-Need Child From Birth to Age Five” by William Sears…

  2. Chris says:

    Great post and timely Doug. We’re debating on having a second child right now and I’ve been doing a lot of number crunching to make sure it’s feasible with our ER plans. So far, most peoples experience seem to point to the conclusion that kids cost as much as you’re willing to spend on them. However, it’s nice to see some hard numbers between you and Darrow.

    PS-I’m still waiting eagerly on my TERA application outcome.

    Cheers, Chris

    • Doug Nordman says:

      Very well put, Chris! I hope the numbers remove the uncertainty around the discussion.

      Waiting on TERA is no fun, and they’re probably reviewing three years of billet projections. Hang in there and keep us posted…

  3. Clif Purkiser says:

    Doug you are the only person I’ve ever meet that could tell me how you spent raising a kid to the dollar… She is a remarkable young woman and worth 10x what you spent… Fascinating post.

  4. Matthew Staebler says:

    Very good article. My fiance and I are planning on trying for kids soon after our wedding, so the information presented is very timely for us.

    I do have a question, though, about your child costs. Are the costs the nominal values or the real values? In reading the article, I assumed that the costs were the actual outlays that you made without any adjustments for inflation. With that assumption, your real costs in today dollars are likely quite a bit higher than what you have calculated. Do you think that, as real values, your child costs are closer to the USDA estimates?

    Thanks for your time in putting together this article.

  5. Doug Nordman says:

    Thanks, Matthew, and congratulations on your wedding!

    You’re correct– the USDA’s numbers are real (adjusted for inflation) and my numbers are nominal. However it may be distracting you from the main issue, and there are better ways to adjust your estimate.

    Inflation is not as high as you might think. The “child-raising price index” is lower than the Consumer Price Index. The USDA’s infographic (the PDF link at the end of this post) says that their cost estimate has only risen 23% since 1960– that’s less than 0.4% annually. Child-raising tech and safety has made quite a few leaps since then, so the hedonic adjustment has been well worth the price.

    Although you could rigorously adjust your calculations for inflation, it’s (hopefully) only for two decades (unlike retirement). In the meantime, your personal child-raising costs are going to be very different from the median. The data is a huge bell curve with very fat tails from garage sales to Gucci. Inflation adjustments pale in significance next to your consumer choices.

    Instead of looking at the statistics, consider how you’re going to keep your family costs on the lower end of the bell curve while keeping quality at the top. For example, you could have a blowout $25K wedding– or you could have a more affordable $5K wedding with $20K left over to buy two decades of childcare and babysitting. You could pay full retail for baby gear, or you could start visiting the garage sales now. Read more here:

    I’m not suggesting that you go cheap– just frugal. Ideally you’ll choose a neighborhood with good public schools, nearby parks, and public libraries. A private school may deliver value, but you may find far more value in homeschooling or tutoring services like Kumon. You’ll cook healthy (inexpensive) meals instead of dining out. You’ll choose outdoor activities instead of the Fun Factory. You’ll borrow library books instead of buying video games. It’s all a matter of matching your spending with your values and balancing your own financial independence with your kid’s quality of life. Frankly, they’d much rather have your time than your money.

  6. FinancePatriot says:

    Great article, I have two kids and plan on retiring this summer at 41. I guess I forgot to take the USDA’s math lessons.

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