Struggling To Make Ends Meet

Rodney Johnson |


I recently wrote about the cost of child care, which got me thinking of my own experience. My wife and I were in our mid-20s when we had our first child. To prep for the expenses, we sold my car. I replaced it with a 10-year old pickup painted in primer. It had an AM radio, vinyl seats, and no air conditioning. I took our son to daycare, so we commuted in the Texas summer heat with 2-by-60 air conditioning. By that, I mean rolling down both windows (by hand) and driving 60 miles per hour.

It wasn’t pleasant, but it did the trick. We all survived and kept moving up the economic ladder. If we were young and in the same position financially today, though, I’m not sure we could have pulled off raising a child at all.

As I noted in the earlier article, the cost of child care averages $11,600, or $972 per month. That’s like renting another apartment, or leasing a Maserati, except this payment comes with all the joys of late-night feedings, 10 to 15 different cold infections per year, and the knowledge that there’s no such thing as a cool car with a baby seat in the back. A Porsche Panamera with a baby seat is still a kid taxi, albeit a very fast one.

While the expense of early child care is high, before this ever starts, the kid has to be born. Twenty years ago, we spent about $1,000 all-in, meaning pre-natal care, sonograms, and the delivery itself. Today, the total package costs around $8,800, and that’s if the parents have health insurance. Without coverage, the cost easily shoots past $25,000.

And all of this is in addition to daily living.

The Uphill Climb of Starting a Family Today

The average rent for a two-bedroom apartment is roughly $1,000 per month, and obviously much more in high-rent, urban settings. In addition, the average student loan payment is $200, cell phone $100 for two, and house utilities $160. A car note runs $350, with insurance adding another $100. Then there’s health insurance, which for a young family runs about $335 per month after the subsidy.

All in, if they live modestly, the typical young family shells out $2,245 before they eat a thing, pay for gas, or spend any money on entertainment and travel. Adding in the new youngster would kick the basic monthly up to $3,217, not including diapers, formula, pediatric visits, etc.

Median household income is $52,000. With a 15% effective tax rate, the take-home income is $44,200, or $3,683 per month. That leaves our young family with a whopping $466 to use toward food, entertainment, and any emergency costs. If the couple is more fortunate and earns $70,000 per year, then with a 15% effective tax rate they bring home $59,500, or $4,958 per month.

This leaves $1,741 in the budget each month to buy food, diapers, clothes, gasoline and any extras such as a baby crib, high chair cabinet locks, electric outlet covers, and a battery-powered vacuum cleaner for sucking all the nasty stuff out of the baby’s car seat. I made a lot of assumptions above, like that the couple has only one car payment and one student loan note.

I also left out any mention of saving for the child’s college education. These considerations would only make the picture worse. On the flip side, there are some tax consequences (such as the $3,000 child care tax credit) that could ease a bit of the pain.

But in a broad sense, the point is clear. A young couple, even a young professional couple earning more than 65% of all US households, will have a difficult time making ends meet when they start a family. That appears to be the overarching reason why so many young couples have put off having children.

Raising a Family – Bad for Personal Finances, Essential for the Overall Economy

As we’ve noted many times, this might be good for the couple’s finances, but it slows down the economy. Nothing requires spending like having kids. As noted above, there’s all the medical costs and child care issues, but then there’s daily living.

Parents end up buying more clothes, sports equipment, musical instruments, Halloween costumes, and toys than they ever dreamed possible. And that’s in addition to the extra daily living, entertainment, and vacation costs the family will incur.

While all of this spending puts a strain on mom and dad, it’s the sweet sound of commerce to toy companies, family restaurants, destination vacation companies, and a host of other retailers. What they all know is that families with young children eventually become families with older children, who will eat more food, wear out more clothes, and in general require more spending right up until they leave home.

It all starts with young couples taking the leap and starting a family. Without that step, the economic train never leaves the station…putting a cap on consumer spending for years to come.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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