“What is a cynic? A man who knows the price of everything and the value of nothing,” wrote Oscar Wilde. “And a sentimentalist,” he added, “is a man who sees an absurd value in everything, and doesn’t know the market place of any single thing.”
I thought about those famous lines when going through a recent report from the U.S. Department of Agriculture on the cost of raising children. When it comes to considerations of money and kids, it often seems as if two very different perspectives dominate the conversation: a cynical voice that emphasizes how expensive it is to raise kids, and a sentimental tone that sees children as priceless. In this case, of course, the truth lies somewhere in the middle. Children are wonderful, well worth the money, but for many families the money spent on them isn’t chump change either.
According to the USDA, a middle-income family with a child born in 2013 can anticipate spending about $245,340 ($304,480 adjusted for projected inflation) on food, housing, child care, education, and other expenses up to age 18. In other words, before counting any costs from investing in postsecondary education.
The more intriguing and informative numbers come from the USDA’s breakdown of where the family money goes in 1960 and in 2013. Families are spending much less on food, clothing and miscellaneous expenses in 2013 compared with 1960. In 1960 food absorbed 24 percent of the household expenditures on children. In 2013, the percentage had shrunk to 16 percent. Housing has barely budged, 31 percent in 1960 and 30 percent in 2013. Transportation, another big ticket expense, has dropped from 16 percent in 1960 to 14 percent in 2013.
What’s striking is how much more we spent in 2013 on health, education and child care than in 1960. Specifically, child care and education expenses absorbed 2 percent of household budget in 1960. In 2013 the family’s spent 18 percent of their budget on those areas, with child care accounting for a big portion of the spending. Health care expenses have doubled from 1960 to 2013 — from 4 percent to 8 percent.
What this means is that personal finances for young parents are increasingly dominated by the need to save for and invest in their child’s human capital — their education, their skills and their health. Parents at all income levels have absorbed the message in the economy and job market: Education boosts the odds for their children to grow individually and to enjoy good career opportunities over a lifetime. Child care absorbs more of the household budget for single parents and two-income couples and, sad to say, it’s unlikely Washington will design policies anytime soon making it easier for families to have children and stay employed.
So where will the money to come from? Young families are savings more and spending less in general, largely in reaction to the job risks of the tough economy. My guess is that families will find additional sums to invest in their children’s human capital by embracing a more frugal approach toward housing and transportation expenses — two big-ticket items. Thrift with both pays off with time.
But prospective parents should not be frightened of the USDA number. You can make the finances work. Most parents do. Anyway, what’s really scary isn’t money. It’s when your child gets the flu for the first time or has a nasty setback on the playground. Now that hurts.
Chris Farrell is economics editor for “Marketplace Money.” His e-mail is email@example.com.