LOUISE FAIRSAVE: Investing in children
RAISING A CHILD TO SUCCESSFULLY launch his or her own career can be your most prized investment and proud legacy as a parent. Yet, the cost of raising a child is rising dramatically.
This cost may vary depending on whether the child is being raised by a single parent or a couple; it depends on the earning level of the parents and the capacity to fund the child’s upbringing and education; and it tends to be less per child where there are a number of children.
The costs to be considered are those of housing, transportation, child care and education, food, clothing, shoes, books, digital gadgets and miscellaneous supplies, health care, vacation trips/camps and entertainment. These costs are estimated to total over $300 000 to raise one child born into a middle income family during 2015 to, say, 18 years old. Furthermore, this estimate does not make provision for inflation or for university or college level education.
As young people enter the workforce and look to plan their finances, they need to consider this significant investment as they plan their families. The need to fund the cost of bringing up and educating children can vie with being able to set aside adequately for retirement.
Let’s look at three specific costs: housing, child care and education.
Say a middle-class furnished home rental of $3 000 with utilities averaging about $300 per month. If one-third of this cost is allocated to a single child in a family of three, then the estimated housing cost for the 18 years is $237 600, calculated as ($3 000 + $300)/3 persons x 12 months x 18 years.
Say the child is placed in day care for the first four years at $100 per week, then the estimated child care cost for the first four years is $20 800, calculated as $100 x 52 weeks x 4 years.
Say the child attends private schooling for the other 14 years at $800 per term. There is the additional cost of supplying uniforms, books, sporting equipment and miscellaneous supplies estimated at $3 600 per year. Then the estimated education cost for the next 14 years is $84 000, calculated as $800 x 3 terms x 14 years for private schooling, plus the estimated cost of uniforms, books and miscellaneous supplies for school of $3 600 x 14 years.
Thus for these three cost items alone, the total cost is already well over $300 000, calculated as the sum of housing – $237 600, child care – $20 800, and education – $84 000. This total is $342 400. Even if the cost of private schooling is avoided by the child attending a public school over the 14-year period, the estimated total cost of these three items still exceeds $300 000.
This estimate does not yet include the cost of essential food and healthcare in raising the child. The point is that raising a child is a significant investment. With more children in the family, the most significant cost of housing is spread wider, yet although the average cost of raising a child will be reduced by increasing the number of children in the family, the overall total cost will rise.
Putting these costs in perspective, given a median middle class household income for a two-parent family (with both parents working) of $7 000 per month, the total income over 18 years would be $1 512 000, ignoring inflation, raises, and so on. This puts the cost of raising a child to 18 years old somewhere between 20 and 30 per cent of the net household income.
The greater burden may yet arise as the child goes on to the next stage of pursuing a tertiary education. With the introduction of tuition fees for tertiary institutions in Barbados, parents may find it even more challenging to assist children at this stage.
Next time, we will look at the possible ROI on such investments.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.