How much does it cost to raise a child from diapers through braces to high school graduation?
The numbers on this all-important question for prospective parents are both scarce and scary. In Canada, arguably the best-known estimate of child-rearing costs until age 18 comes from a 2011 article from personal finance magazine MoneySense, which pegged the figure at $243,656, which works out to $257,364 in today’s dollars.
South of the border, the U.S. Department of Agriculture (USDA) has a similar estimate of US$233,610 for children born in 2015.
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But those quarter-million dollar figures can be discouraging and misleading, said Jason Heath, a certified financial planner and managing director at Markham, Ont.-based Objective Financial Partners.
“Whenever you see big numbers, it can be intimidating — the numbers can seem bigger than they actually are,” said Heath, adding that he sometimes run into this problem with clients who contemplate the magnitude of their total payments over the life of their mortgage loans. Those expenses often appear more manageable when you look at them in terms of monthly expenses, Heath added.
The other problem with estimates of the average cost of raising a child is that actual expenses can vary dramatically from family to family, he added.
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Those are two issues that Canadian financial planning website The Measure of Plan set out to resolve with a new child costs calculator that went live on Tuesday.
“If you’ve decided to take the plunge into parenthood, taking the time to calculate the expected costs will ensure that you aren’t blindsided by the upcoming changes to your finances,” writes the anonymous author of site, which has received accolades from well-known money experts like Heath.
The calculator is a downloadable Excel file that lets users input values for anything from recurring expenses like housing, food, transportation, childcare and extracurriculars to all the one-time expenses of baby’s first year, from crib, stroller and car seat to pacifiers and childproofing supplies.
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For most entries, you can choose among low, medium or high benchmark costs provided by the author or enter your own custom value. You can also exclude certain costs. For example, if grandma guarantees she will provide child care cost-free, you can skip the “daycare costs” row.
Global News tried out the tool by inputting middle-range cost estimates. The calculator came up with a projected spend of $246,320 over the cost of 18 years, an amount similar to the estimates provided by MoneySense and the USDA.
Still, the tool also provided a useful chart that breaks up costs by year and month and category. Users can also find out how their spending will likely vary over the course of the child’s life: If you’re planning on full-time daycare until kindergarten, be ready for some hefty spending in the first three years.
(For the above calculation we used the pre-populated mid-range benchmark values for all recurring costs except spending related to full-time daycare, extra-curricular activities and school supplies. For those categories, we used averages based on, respectively, the latest survey of child care fees from the Canadian Centre for Policy Alternatives, the 2017 Global News-Ipsos poll on extracurricular activities, and latest back-to-school survey by online deals site RetailMeNot.ca.
For baby’s first year costs, the author relies on estimates from Babycenter.com, a U.S.-based website. Instead, Global News relied on average estimates based on Babies: The Real Story of How Much They Cost, an e-book provided by the Canadian Association of Certified Professional Accountants.)
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Adding in college savings and lost income from parental leave
While Canadian and U.S. estimates of child-rearing costs usually exclude college costs, the calculator has the ability to add education savings up until age 18.
There’s also an option to include lost income from staying at home with your little one. Filling out that row will give you a better idea of how you’ll match financial inflows and outflows during parental leave, when most families face not only a cost spike but a significant income drop. But you could also use that feature to get a sense of the opportunity cost of becoming a stay-at-home parent or switching to part-time employment.
When Global News re-ran the numbers including college savings and parental leave costs, the calculator produced a figure of $310,244 over 18 years, significantly higher than the previous estimate.
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We assumed a family income of $87,688 (which is the median income of Canadian couples according to the 2016 census) and Ontario-based parents who earn the same amount and share one year of parental leave equally while receiving EI benefits. The lost income after tax would be around $1,585 per month. (To calculate after-tax income, use this handy tool provided by global consultancy EY. To estimate your EI benefits, you can use TD’s parental leave calculator.)
For college savings, we assumed the couple would put away $208 per month or, roughly, $2,500 per year, which would allow them to maximize the government top-up in a Registered Education Savings Plan (RESP).
The cost of a child’s first year, unsurprisingly, becomes a lot higher when one factors in lost income.
And the chart shows just what a hefty chunk of total spending college savings would take up for a middle-class family determined to cover all or most of the costs of higher education for their child.
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Not included: Additional kids, government benefits and lifestyle changes
The calculator does a good job of forcing people to think about a number of costs they might otherwise forget about when attempting to budget for a growing family, Heath said.
But the tool doesn’t address how much additional kids might add to the family’s expenses.
Heath said parents shouldn’t delude themselves into thinking a second child will cost half as much as the first. Having two kids costs nearly twice as much as having one.
“There aren’t that many economies of scale. You get lucky if you have kids of the same gender close in age, but things like extracurricular activities, food and birthdays can’t be passed on,” he said.
On the other hand, the calculator doesn’t account for government aid like the Canada Child Benefit, which can make a significant difference to a family’s bottom line.
And neither does the tool account for the lifestyle downsizing that usually accompanies the arrival of a little one.
Kids may blow up your expenses, but they also “impede the ability to go out to the bar or fancy restaurants,” Heath said.
And many parents will find that as they learn to juggle diaper changing, feeding, nap schedules and doctor’s appointments, they’re also getting better at budgeting.