One of the things parents learn hard and fast is that children are expensive, no matter how much you try to save and do right, it’s costly to raise them. According to LendingTree, it currently costs, on average, as much as $389,000 to raise a child from birth to 18 years of age.
Key Points
This Redditor is looking at a financial situation where they could make millions if they don’t raise any children.
This math might be right for the Redditor, but there is a lot of missing thinking from this Redditor on how everything would really work.
There is no denying that the cost of raising children is something to consider in today’s world, but there’s also something money can’t buy, like the love of a child.
It’s hard to believe, but today there are credit cards offering up to 5% cash back, large statement credits, $0 annual fees, travel rewards, and more. See for yourself. If you apply for a card today you could secure some of the best rewards out there. Click here to get started.
This is something one Redditor is finding out the hard way, as they have looked at the opportunity cost of raising a child with a post in r/MiddleClassFinance. While everyone is going to spend a different amount raising their children, this is an interesting “What If” question.
The Approximate Cost of Raising Children
According to the Redditor’s 22-year breakdown of raising a child, they believe they are on track to miss approximately $1.2 million in compounded earnings. This is just after 22 years of saving, as they also did the math for the child staying in the home until they are 30, which they approximate to be around $2.6 million in total compounded money if they had no children.
To break this down, they are looking at an estimated $20,000 annual spend in the first five years, or $120,000 in total. They believe this accounts for daycare costs, food, healthcare, clothes, diapers, early toys, and other associated expenses.
For the next 13 years, the Redditor estimates that it would cost them around $10,000 per year. However, where things get interesting is the $50,000 annual spending they are accounting for during college. As a result, the current expenditure they are totaling up to raise a child, based on current market estimates, is approximately $450,000.
While this number is definitely above what LendingTree estimates, it’s inevitable that some parents will spend more, and others will pay less.
The Opportunity Cost is Big
Given that this Redditor estimates that this $450,000 spent until a child is 22 is giving up $1.2 million, it does stand to reason that the opportunity cost is notably large. For adults who don’t want children, there is no question that they should be enjoying a more flexible financial future.
What’s a little challenging with this Redditor’s situation is that while nobody says raising children isn’t expensive, all of this math is predicated on every penny being used as an investment that would have otherwise been spent on child expenses.
This just doesn’t seem realistic, and neither does the very generous rate of return that this Redditor appears to be accounting for. The reality of the situation is that parents without children are more likely to travel, eat out more, potentially purchase more expensive cars and a more expensive home, while also living in a higher-cost-of-living neighborhood, etc.
In other words, the math here isn’t so black and white as to say that every single person who doesn’t raise children is missing out on millions.
Perhaps most importantly, all of these estimates are based on having enough income so that there is enough money to either raise a child according to LendingTree standards or to put away for investments. There are so many different variables here that this situation seems very unique to the Redditor, and not for everyone else reading this Reddit post.
What Parents Should Really Do
Ultimately, raising children is only as expensive as you allow it to be, and there are ways to reduce your costs. None of this is to say that childcare costs won’t accumulate over time, but not everyone is going to spend the same amount, and raising multiple children is proof that the cost per child isn’t linear either.
Hand-me-down clothes and toys can certainly offset some of the costs that would have been initially included in raising a first child. In addition, the Redditor is responsible for almost $200,000 in college costs, but this doesn’t account for a 529 fund that is likely to be established when a child is born. With the right savings, a good chunk of the Redditor’s estimated college costs can be offset by 18 years of 529 activity.
When it comes to childcare costs, there are ways to look at different tax credits and deductions you can utilize to help offset some savings come tax time. There might even be flexible work arrangements like remote work that can help save on childcare costs.
Of course, everyone knows that none of these potential financial solutions for parents are foolproof and that no matter how you slice it, the opportunity cost of raising a child or multiple children is something to consider.
Get Ready To Retire (Sponsored)
Start by taking a quick retirement quiz from SmartAsset that will match you with up to 3 financial advisors that serve your area and beyond in 5 minutes, or less.
Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.
Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future
Click here to get started!
The post I Realized My Kids Cost Me $1.2 Million – Here’s the True Opportunity Cost of Raising Children appeared first on 24/7 Wall St..
