Monday, March 31, 2008

The Financial Implications of a Theoretical Kid

There’s tons of great information out there on raising a family cheaply. Still, one of the most frequent questions I get when talking about my plans to retire early is “what if you have kids?” In this post, I’ll explain, broadly, my kid plan.

Background Info
I’m not yet certain I’ll have a kid. The maximum number of kids I would have is two. Kids are at least five years into the future. If I had one child, I estimate that our housing costs would remain relatively stable. We live in a three-bedroom apartment now in the middle of the city. This apartment is big enough, though barely, to raise a child in. If we had a child, I’d guess that we would probably move to a slightly bigger place (still three bedrooms, but with bedrooms larger than a king-size bed) in a cheaper area (an inner suburb).

Stage 1: Birth to Two: Kid is Born. Kid Cries a Lot. Kid Needs Constant Care.

  • Breast-feeding: Increased amount of food for lactating mother. Increased food bill as kid starts on solid food.
  • Cloth diapers: Diapers are icky, but if my squeamish dad did it, so can I. This is important to me not only because of the cost, but because of the environmental impact of disposable diapers. Disposable diapers make up a significant percentage of the trash in U.S. landfills—studies seem to vary from about 2% to 4%.
  • Daycare/Baby-sitting: I hope to be semi-retired or working from home by the time I have a child. If I was not in this sort of situation, or if my spouse was not able to support me, I would not purposely get pregnant.

Stage 2: Three to Ten: Kid Runs Around a Lot. Kid Starts Getting Interesting. Kid Starts Wanting Things.

  • Food: Further increase in amount of food.
  • Clothes: Purchase used. Little-kid clothes are destroyed/grown out of quickly. If the kid starts caring about clothes when the kid grows older, I will show the kid through field trips that thrift stores offer a much wider variety of interesting clothes than retail stores.
  • Toys: Buy used, buy at garage sales, trade with friends who have kids of similar or older age. Let kid play with Mommy’s art supplies, pots and pans, sticks. Buy kid a few toys kid really wants for birthday or Christmas.
  • Gimme-Gimme-Gimme: Give kid allowance. Tell kid most things must be purchased out of allowance. Be firm. If tempted not to be firm, call my mommy and ask her for advice.
  • Candy/junk food: A limited number of treats will be on hand. Mom will always love ice cream, so there will be plenty of ice cream. Mom is also happy to make cheap cookies, such as snickerdoodles. Mom will not listen to pleas for specific types of candy, Pop-Tarts, etc. Nutritionally empty snacks are what an allowance is for.
  • Physical Activity: Once the kid starts walking/running, I’d attempt to have a yard or a nearby park/field for the kid to play in. Our upstairs neighbors have a kid who is about three. This kid runs around all the time. He runs from one end of the house to the other end of the house and then turns around and goes back again. It really doesn’t seem normal. When I was a kid, I made noise playing with blocks or torturing my brother, perhaps even kicking a ball down a hallway or something, but I don’t recall ever just plain out running back and forth for no reason. This kid needs to go to the park, which is conveniently located about four buildings down.
  • School: I plan to unschool. Briefly, unschooling is unstructured homeschooling. I won’t be sending my child to school. I plan to encourage my child’s interests and support them, but not to follow a curriculum or force them to learn anything in particular. My interest in unschooling and my interest in early retirement go hand in hand, so I'm sure I'll talk about unschooling in more detail later on. From a financial perspective, this means that I will likely spend more money on hobbies/sports equipment/travel for my children. I won't be spending on things like private school tuition or textbooks (real books are better and as a bonus can be bought used).

Stage 3: Ten to Eighteen: Kid Learns About Opposite Sex. Kid Has Emotional Problems. Kid Wants Car. Kid Becomes Independent.

  • Car: I’ve never had a car. If my kid wants a car, the kid will have to pay for it. I wouldn't live somewhere where it was impossible not to drive.
  • College: If my child chose to go to college, I would like to be able to pay for it, mainly because I *hated* having student loans. I got off lucky with only about $8,000 in debt from my private college. It took all my self-control not to pay it off as soon as humanly possible. I finally caved and paid them off in January, when the interest rate from my savings account got lower than the interest rate on the loan. It was still probably a bad financial move, but it feels sooo good not to have that money going out of my account every month.
  • Once the kid is born, I’ll start “snowballing” into a savings account/trust fund/529. I expect to have some earned income during “retirement,” even though I’ll no longer be working a full-time job. We’ll see how that goes. I can adjust as the kid grows older. If I save a bunch of money and the kid doesn’t end up going to college, the money can be spent by the kid on a big round-the-world trip/capital for starting a business/a house.
  • Orthodontia: I had a cute answer for this one, but it just occurred to me that this theoretical kid is going to need health insurance, which I’d guess is a sight more expensive than health insurance for a healthy adult. Now that I’ve done all this thinking about my theoretical kid, can I sit on this question for a couple of years?

More on Frugal Child-Raising:

-Kacie at Sense to Save recently expressed skepticism at the “official” cost to raise a kid—an average of $204,000, depending on family income. In the comments, readers shared some great ideas.

- Leo Baubata at Zen Habits is a frugal dad with a family of six kids. One of his posts lists 100 Ways to Have Fun with your Kids for Free or Cheap. Lots of them would make a fun night for adults as well!

- Teaching your children about money can make it easier to raise them frugally. I’ve Paid for This Twice Already posted about Teaching Preschoolers about Money, with links to other posts about giving kids of various ages a financial education.

-Another excellent source on raising kids cheaply is the ever-helpful Amy Dacyczyn, who became frugal in an effort to raise a large family on one income.


Anonymous said...

I was all prepared to leave my "what about health care costs??" comment here, but once you got to "Orthodontia" you mentioned it yourself.

I know that for my friends with kids, the one thing they didn't collectively budget enough for was medical bills. For the first 2 years in once couple's parenting experience their son went to the doctor an average of once a month. Babies get sick. Kids get sick. A lot. I never went to the doctor that much, and who knows if I was better or worse off for living through my illness without medication, but I know I didn't get to go because my family was poor. [And maybe that's why I'm tempted to take my cat to the vet *immediately* when I think he is "walking funny" or if he sneezes more than once. I want to give him all the necessary and unnecessary medical care I never had! (My boyfriend just shakes his head, laughs, and leaves the room.)]

Anonymous said...

On the 529 plan-

Have grandma or grandpa or an aunt or uncle be the 'owner'. That way, when Theoretical Kid files student aid applications, the 529$ don't count as 'family' assets (at least under current rules) for aid/grant/needs based assistance. If T-Kid should get an academic or athletic 'ride' as an undergrad, the 529$ are available for med school (or something grad). If no ride, at least T-Kid has a better shot at beginning adult life debt-free.

I'm currently putting $ monthly into four 529's for my grand and step-grand children.

I don't know I'll be around for those graduations, but they'll know I thought about them and their future-before they were poty-trained.

Dana Seilhan said...

Some kids get sick a lot, and others not quite so much. I don't think that the premiums on health insurance cost any more than they do for an adult, though. And if your income is low enough you may qualify to put your child on a state plan. The thing about being retired is you tend to be on a fixed income, even when you do it on purpose and you do it early. So, who knows.

If your child needs orthodontics, be aware that they are not always covered by dental plans so you will need to save up in advance just in case. And by all means get them done if they're needed. I'm grateful to my parents that they got my teeth fixed because even my jaws were misaligned and I would have gone through life not able to chew properly.

Of course, as you intend to breastfeed, you may never run into this problem: children who are breastfed experience better cranial and jaw development because their "head" muscles work harder! I didn't have that--I was bottlefed.

Thea didn't get sick a lot. Occasionally she would get an ear infection or some weird viral thing that passed as quickly as it came on. But she got one serious thing: urinary reflux. Basically the valves in her bladder were faulty and stuff was backing up into her kidneys. We found out when she got a UTI at four months old. So it was another year and a half of antibiotics, and then surgery that left her with an abdominal scar to match the one on me that marks where she came out of my body. :( I think I would have preferred mother-daughter dresses... And that's one of the most common birth defects, so budgeting for health insurance, both premiums and deductibles, is terribly important.

Scarlett said...

@anonymous: Good thought on 529s!

@dana: I'm glad to hear that health insurance premiums aren't necessarily more for kids. It occurred to me that my income at that point might be low enough to qualify for a state plan...but I'm not sure if I'd feel right about it if I'm living on a low income by choice. Unless, of course, we have universal healthcare by then (I can dream).

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