Kids and Money

Business Week has a major feature on the cost of kids. I thought I'd highlight a few of the articles in this series and give you the key thoughts from each of them.

Here's an interesting fact from Managing Financial Ties to Your Kids:

Researchers at the University of Michigan's Institute for Social Research reported in 2004 that 34% of adults between the ages of 18 and 34 receive financial assistance from their parents, and that the average total contribution during those 17 years is $38,340.

Ok, I can see how 18-22 (college) or 18-24 (college and graduate school) fit in here, and maybe they are the bulk of the numbers. But into your 30's? Really?

Then there's this from Is Raising Kids a Fool's Game?:

All of that sounds nice, but what's it going to cost me? The Agriculture Dept.'s latest survey found that households in the top-third income bracket (with average pretax income of $118,200) will spend $289,380 by their child's 18th birthday—or about $17,000 a year (in 2006 dollars).

Considering extras like sports equipment, summer camps, private school, Disney vacations, and a full-time nanny, raising a child through age 17 could cost $1 million or more.

Ha! It looks like Business Week was trying to be sensational here. $1 million? Are they serious? Yeah, I guess if little miss smarty pants has $20k tuition at a private school from kindergarten through high school you can pay that much, but who really does this?

How to Pay for Kids is a bit more realistic saying:

Children born in the U.S. today will cost their parents more than $338,000, on average, by the time they graduate from a public college. That's according to BabyCenter.com, based on College Board and Agriculture Dept. data. Send your precious offspring to a private university, and you can expect to shell out an additional $70,300 for tuition.

No mention of the $1 million here. Still, kids are expensive. This piece also gives some decent thoughts on the main costs of kids and how to handle them.

I love the idea discussed in IRAs for Kids: It's Never Too Soon. The highlights:

The demise of traditional pension plans, uncertainties about the future of Social Security, and the increasing reliance on 401(k)-type plans to finance retirement are all good reasons to expose your children to the idea of retirement savings at an early age, many financial experts agree. What's more, with the potential of 50 years of compounding returns, even a modest amount of money in an IRA now can turn into very big bucks.

Imagine it -- 50 years of compounding returns. I'm salivating! (FYI, I've discussed a similar idea -- a couple times.)

The key issue is that the child needs to have income to contribute to an IRA. I have one friend who's found his granddaughter a gig as a model in a series of baby ads. She makes the money (for a few days' work) and he contributes to an IRA for her.

Finally, Strategies for the "Sandwich Generation" covers how to manage the costs of taking care of kids and the costs of taking care of parents. Here are some thoughts on the latter:

The costs for the Sandwich Generation can add up, even if your parents have been saving for their own future care. That's because they're living longer, maybe into their 90s, thanks to better medicines and health care, and the cost for that care is rising.

The estimated average cost for a nursing home stay was around $64,000 a year—or about $176 per day—for a semi-private room, according to the 2005 MetLife Market Survey of Nursing Home & Home Care Costs. A private room runs just over $74,000, or $203 per day.

Assisted living at home can run more than $38,000 a year, or $19 per hour for a home health-care aid. The survey found that these costs can be higher in larger metropolitan areas. The average stay in a nursing home is about 2.5 years, but that can vary.

Overall, lots of good stuff (though some of it might be a bit overblown) on dealing with kids and money. If you want more on this topic, see these posts:

• Adoptionomics, Part 1: Why is Adoption So Expensive?

• Teach Your Kids How to Handle Money

• Ten Principles for Teaching Children about Money

Comments

[Zook]

I am amazed at the amount of "help" young adults get these days. Call me old fashioned [and jealous] but "help" should end around 25-years of age, assuming the child is a student or still getting their feet wet. I would love to have some handouts, but no one is there.

Folks I know in their mid-20's and beyond still have their cell phone bill taken care of and IN the name of their parents. Car insurance is taken car of, parents give them their down payment on a house, take them on vacations and pay for everything and on and on.

Basically we got millions of pampered 20-somethings running around trying to have it all for free and want people to think they are "stars". What will Generation X's kids look like when they are in their 20's? Wow.

[annab]

I think I'd like to see that age bracket split into more meaningful divisions. 18-34...well 18 is nearly half of 34. So that's a huge window of time. I'd be curious to see the 18-22 (college) 23-28 (grad school or work) and 29-34 (getting the career ramped up.)

@ zook...hey do your friends parents want another kid? They can adopt me : I would love some help, lol.

[PaulD]

Whenever I read articles on the costs of raising kids, I take them with a huge grain of salt. I have four kids. The low figure of 338,000 up to the age of 18 comes to about 19,000 per year per child. For four kids, I would be spending about 75,000 per year on my children. I know that I don' spend that much even with an upper middle class income.
If an average family has two children, then most of the average household income goes to raising children.
These figures don't seem right to me. Certainly, it is possible to raise children at far lower costs.

[Anitra]

My parents did buy me my first (junker) car, and pay for a large percentage of my college costs. The last help I got from my them was in paying for my wedding when I was 22. I did not expect much help with that, and it was a big surprise that they ended up reimbursing me for most of the cost. My husband and I didn't get any help with our house down payment, but we planned for that.

All that privilege comes with responsibility, though. I am an only child, and my parents are in their late 60s and divorced. My mother is also in poor health. It is my duty to make sure both of my parents are taken care of, and I have a feeling that my mother will be moving in with us by the time I am 35.

I do know several people in their mid-to-late-20s who still live with their parents. That would probably be considered financial help.

[beastlike]

I agree with Paul D, those numbers seem quite off to me....

Wow, I wish my parents would have supported me like that!

[fathersez]

Thank God, my parents never read this kind of articles. And thank God, my wife and I never read them.

We have 5 children. And no financial regrets at all.

I do agree with what Zook has pointed out, but as he also says, not everyone's children are pampered like that.

My wife and I have already benefited from tremendous returns from our children. From their "no strings attached smiles and hugs" to acting as family solidifiers.

Maybe Business Week should study the cost of the food we eat. They may just conclude that we should just starve ourselves and "save" all that money.

Go on and have children. We are designed to do this, to procreate.