Growing Up – Childhood and Beyond

As your child grows, each stage has distinct costs. There are certain costs that can be expected over the first few years of a child's life. However, it’s the additional costs as well as "indirect" costs related to raising kids that can be overlooked.

Toddler to Pre-K 

As your child moves out of babyhood and into the toddlerhood/pre-school stage, your costs remain the more or less the same - with the addition of preschool tuition and (ideally) the deletion of diaper costs.

You might be thinking that you’ll save money on childcare if your child is in preschool. If your child is in paid daycare when preschool begins, costs are likely to similar. In fact, many daycare providers also run a preschool on site. Some preschools are "full-time" while others last only few hours on the mornings on a few days of each week. If a stay-at-home parent cares for your child, preschool tuition would be a new expense. Should you pay for preschool, keep in mind that it does count as "childcare" for tax and Flexible Spending Account purposes.

Childhood to Teen 

In the childhood and teen years, you possibly have more flexibility with costs - including spending even more than you'd spend on full-time daycare. As children transition to Kindergarten, they have the option of attending local public schools at no cost. On the other hand, some parents will seek an education from an independent, private school - typically costing between $20,000 and $40,000 per year unless your family qualifies for financial aid. Other costs for older children and teens include extracurricular sports, music lessons, and summer camps. Most of these expenses are optional and don't qualify for payment with Flexible Spending Accounts or childcare tax deductions. However, the childcare tax deduction continues to be available for qualified expenses until your child turns 13.

Higher Education

Are you ready to start saving for college? Yes, the ever-increasing cost of college means that families are starting the process of saving earlier than ever. Today, college students graduate with debt burdens averaging between $30,000 and $50,000 for a four-year degree. One of the best ways to get your child off to a great start in life is to help them minimize any college debt. There are many vehicles to saving for college, including an Education IRA, 529 College Savings Plans, Coverdell Education Savings Accounts, custodial accounts, and prepaid tuition plans. Some of these plans even offer tax benefits. For more information, see the Paying for College material elsewhere on this website.

The Indirect Costs of Children 

If you viewed the introduction to our Having a Baby material, you read about the fictional new car buyer. Before becoming a parent, they thought a sporty convertible would be the ideal car. After having kids, it turns out that the convertible was neither practical nor safe, so the "perfect" car was actually a minivan. This is just one example of the "indirect" costs of having kids. Indirect costs include any changes in the way you, as a parent, choose to spend time and money compared with what you would have done without kids. Would spending more time at home with kids put you on a different career path that ultimately results in lower lifetime earnings? That would be kind of indirect cost. Would having kids cause you to not travel as much and not spend as much time with friends? That's an indirect cost. Would paying the expenses of raising a child (and possibly paying for college) cause you to have a less comfortable retirement? That's yet another indirect cost.

While studies clearly show a link between taking time off from a career to care for kids and lower lifetime career achievement and earnings, how you choose to apply this kind of information to your life is completely up to you. Many people view sacrifices made for kids - from financial to career to sleepless nights - as part of the job. Others see daycare and afterschool care providers as the key to both having kids and a satisfying career.

One area in which parents may, perhaps, err on the side of generosity is in paying for college instead of saving for retirement or even taking retirement savings to pay for college. While parents are often in a position to provide the gift of money to kids and the young adults they eventually become, kids have one asset that parents may lack - time. A recent college graduate, for example, has a lifetime of earnings ahead. If that involves purchasing a smaller home or older car because of student loans, the sacrifice is relatively small. On the other hand, if a parent sacrifices the bulk of their retirement savings to pay for college, the number of years remaining for that parent to restore that lost savings is continually declining.

As with many financial decisions, there's no "right" decision for everyone - only "informed" decisions based on the facts and your values.

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