By Dr. Joy Eberhardt De Master, WCI Columnist
What is your luxury item? Mine is children.
We all have a luxury. You know, that thing we keep sinking money into “just because” with no clear prospect of returns, be it coffee, clothes, cars, or . . . kids. My chosen luxury is my two children.
Yes, I said my children are my luxury. Sometimes I wish for a red sports car or to be a boutique clothes shopper, instead of my second-hand finds. And then my daughter runs down the sidewalk yelling “Mommy” and jumps into my arms. Or my son excitedly explains to me how if his nails grew one foot in a day that would mean they’d grow a half an inch an hour! They are worth it, my luxuries!
We assume having children is an emotional choice, something for posterity, to continue a legacy, to bring joy. But it is also a financial choice. Let’s take a look.
Children as a Financial Choice
In 2009, I graduated from pediatric residency and easily slipped into homeownership in 2010. No, it was not a “doctor’s home” but a solid home nonetheless. Soon after my first luxury arrived. It was a baby boy.
Ok, you might read on and conclude that I’m a cold-hearted person but I want you to know two things about me:
- I love children. I really do! That’s why I went into pediatrics.
- I am practical. I didn’t grow up with a doctor’s income. I thought $100K was an enormous salary—enough to support a partner in school, own a house, and have a kid in a West Coast City. Soon my practical side kicked in, and I began eating beans and rice to make ends meet despite working as “an attending”.
Family Leave
One of the first shocks was not only how quickly I had to return to work to keep us housed, healthy, and fed but also how expensive childcare was. I was able to squeak out 12 weeks of family leave—one week prior to birth and 11 weeks postpartum. My first solid investment in children amounted to 23% (12 weeks divided by 52 weeks in a year) of my yearly salary, not including pregnancy costs, birth costs, and general baby stuff (clothes, crib, etc.). Disability insurance dripped in a few hundred dollars for four weeks. Then the real sticker shock set in . . . childcare.
Childcare
Cost for childcare in a West Coast city can range wildly. Back in 2012 with my first child, it was anywhere from $800/month to $1,200/month for an infant. (Current rates in 2021 are closer to $2,000/month.) I chose the lower amount because it was what I could afford, it was close to my work, and, most importantly, it was a loving environment for my son. At eleven weeks old, my son transitioned to daycare and that $800/month quickly turned into $1,200/month. Soon after, I took on a new job in 2013 that, thankfully, doubled my salary.
Childcare Can Be Significantly Higher for Physicians
The USDA calculates childcare costs at only 16% of child-based expenses. Housing is 29% of the cost, and food accounts for another 18%. I postulate that childcare costs are a significantly higher percentage for many households working in healthcare for a variety of reasons—long hours, odd hours, on-call status. “After-hours care” can also be more expensive and harder to come by.
So, what is the cost of raising a child? In 2015, a USDA report calculated the cost at $372,210/child for high-income households (income >$107,400/year). And it only goes up from there. Private school. Club sports. Enrichment programs. All of these are liabilities of having a child in a high-income household—or can be. They are not inevitable but easily become expected and necessary. The above cost does not include post-secondary expenses, aka college.
Housing
In 2016, I moved houses prior to my second luxury—a baby girl. The new house had more space and more bedrooms. It again was not a “doctor’s house” but still comfortable. I also managed to keep my first house and rent it. Being pregnant and working as a physician, I opted for a management company. Later I took over and learned the art of short-term rentals. But that is a conversation for another time!
Housing makes up for 29% of the costs of having a child and is said to decrease with subsequent children assuming resources are shared: bedrooms and bathrooms and living spaces. In my case, the expense increased with the second luxury but not the first.
To offset this, I rented space in my home. I had bought a larger home with a basement that allowed me to rent out the basement space.
The extra $1,190 a month didn’t put me ahead, but helped me to cover the increased housing cost and—surprise, surprise—the astronomical increase in childcare cost. My childcare expenses jumped by $2000/month; yes, I still paid the $1,200 for my son and now also paid $2,000 for my daughter. I was now paying a grand total of $3,200/month for childcare.
Schooling
Five years old and kindergarten ready can be as much of a reprieve as three years old and potty trained. I chose to increase my cash flow at this point and enrolled my son in public school. Thankfully, I found a language immersion program that was a great fit for him and supported his academic prowess. My liability dropped by $1,200 and then another $600 as my daughter got older. The childcare costs went from $3,200/month down to $1,600/month.
That trajectory shifted greatly with the pandemic in 2020 and 2021. Suddenly, my newly found cash flow was relegated to paying for someone to come into my home and teach my son online school. That now costs $1,400/month.
A Few Financial Tips for Soon to Be Parents
For those of you planning to bring your own little luxuries into this world, here are a few tips that you may not have thought of to help prepare financially for them.
#1 Know Your Employer
This means how does your employer financially assist if you have a child (through birth, adoption, etc.)? Some employers are starting to cover parental leave, even if not at 100%. This can net you thousands of dollars.
And how does your employer support you financially while parenting? Do you have paid sick time separate from other PTO? Any other support? My employer gave me a weekly grant of $200 to help cover the costs of school closure due to the pandemic. Yes, $800/month tax-free to cover the unexpected cost of care for online school. My childcare costs decreased from $1,400/month to $600/month due to this!
#2 Know Your State
Certain states require paid parental leave. It’s as simple as that. Or should be. You actually may need to know your county or even your city. Check out this article, Paid Family and Sick Leave in the US for details.
#3 Know Your Financial Situation
A good starting place is to subscribe to the WCI Newsletter where you can receive the White Coat Investor Boot Camp emails for free. Boot Camp will give you 12 weekly assignments to strengthen your financial situation. I’ve used it myself and it helped me examine my spending for—you guessed it—my kids! Pick the free email version or buy the book. I recommend you do it even if you are not planning a luxury. It becomes a necessity before a luxury.
In the past, children were a financial asset. They were needed to help the household, run the farm, and care for us as we age. Now, they are a financial liability due to cost and, hence, should be considered a luxury. Still, I am a proponent of the luxury of children and cherish my two little luxuries. Well . . . most days that is! Do you have $370,000 to spare? If not, begin to make raising children a part of your financial planning today.
What do you think? Have you calculated the costs of raising your children? Comment below!
Great post. This doc is smart! Love the bits she throws in sort of casually- … second hand clothes…. Doubled my income. Sounds like she has her priorities right. I will be sharing this article with my younger family members who don’t have kids yet, but lots of dental school debt! Thanks for the entertaining and honest post.
$2000 /month for child care? That equates to around $12.50 per hour—sorry but in most metro cities this is not realistic (and less than a living wage). Hard to take advice from a post that isn’t even close to reflecting the realities on the ground (for me).
I assume the cost is for group care, not a nanny. $2000/month is a very typical monthly cost for a good infant daycare. It doesn’t need to be a livable wage because more than one family is contributing toward the wages (and for the space, management, supplies, etc).
I know of no daycare that only takes one child at a time.
I would assume she’s not referring to a nanny for an only child. If that were the case, I expect she’d be paying much more.
Lots of child care providers are caring for more than one child at a time, which explains how one might pay less than minimum wage for child care. Take a look at this:
https://childcare.gov/index.php/consumer-education/ratios-and-group-sizes
School age: 10-12:1
Preschoolers:6-10:1
Toddlers:3-6:1
Infants:3-4:1
So if your provider is caring for 5 kids at $2K/month each and so is getting $10K a month for it, that’s $120K a year in revenue. Subtract out 20% for expenses and maybe that’s a pretty darn good business profit for a lot of people.
Hope that helps you take the post a little more seriously, even if your particular costs are higher.
In strict financial terms, kids are definitely a liability. But every other way as you point out they are such an asset. It still is 100% important to financially plan for them and include them in your budget and written financial plan otherwise you’re in for a big surprise!
Very thought provoking article. I admire your pluck and dedication. Even more impressed because it reads like you are a single parent and sole provider for your family.
These days it’s hard enough to raise children with two parents!
This is often the most missed concept on all of these financial blogs. We get into the details about consumptions items (house, cars, student loans; which is all important) but kids are extremely expensive. Simply waiting to have children until late residency and early attendinghood can make up for many financial mistakes secondary to increase income and often prolonged dual incomes.
I’m not sure I can look at kids that way, they aren’t a possession and they aren’t primarily for your benefit or pleasure. Rather you are obligated to take care of them, they are a responsibility rather than a hobby. The job is raising good adults and that’s the important thing, not how much fun you have going about that mission. Done right parenting can be like a fun job, done wrong it is a lousy job, but either way it shares much more with the concept of a job than it does with the concept of a luxury, in my opinion. My wife and I raised three millennials to adulthood and they are all out on their own, off any parental welfare. Two called me for advice on financial planning just this week, which I take as a good sign. I guess I’d call them a blessing if I had to put it in one word. But there were a few times……
Thank you for your post—very good information about the cost of child care. In this life we all have a purpose. For most of us on this blog at some point it was to provide medical care for others—we view or have viewed medicine as a calling. For most of us another purpose is to become financially sound or to FIRE, etc. My main purpose, the thing that drives me more than any other purpose, is to raise six amazing children. I do not view them as a luxury, but as a reason for everything else that I do. My wife and I sacrificed throughout school and residency and beyond to bring them into this world. While this is a blog about finances, there are many things in life that just can’t be understood or valued simply by how they look on our balance sheet. For me, they are precious and should be loved. For what it’s worth, I feel that this purpose has made me a better physician and a better member of society.
Good grief! You sure missed the point.
Hard to beat the ROI for the cost of an IUD 🙂
Daycare is definitely expensive. And I have the advantage of a spouse who works normal business hours, so we don’t have to pay for childcare on nights/weekends.
Another hit for new moms is a pay cut due to breastfeeding, which often happens for physicians on productivity or RVU models. Which is really quite short-sighted of the employers, because breastfeeding is associated with reduced absenteeism from work (fewer days out because the kid has a URI/otitis/diarrhea/etc)
Love this! My kiddos are definitely my favorite little luxuries 😆. It’s a great way to put it. Lavishing all the love and time on them that I can manage brings me so much joy. And I’m constantly showing pictures and telling stories about them to people who probably secretly wish I would stop. Sounds a lot like someone that’s a little too into their fancy car or designer handbag! 🤣
I am driving a 2005 Toyota Scion xa with 215,000 miles while spending $3300 a month for my 3 daughters dance classes. Yep, my children are my luxury.
Man, I can’t wait for that luxury. Let’s not forget about those who desperately want to become parents but can’t naturally. The cost of assisted reproductive technologies (IVF, IUI) is not small with IVF costing upwards of tens of thousands of dollars. This is definitely a reality for those who delay childbirth until after medical training, when natural methods don’t work as well. But certainly a cost I think that will be well worth it.
Yea, people don’t like talking about it much, but a very significant percentage of female professionals struggle with fertility issues. 30-35 doesn’t seem very old unless you think of it as 60-80% of the way through your fertile years (15ish to 40ish). Fertility treatments are expensive, both financially and emotionally.
Agreed! And, like those fancy cars or designer handbags, we have to fit our children into our financial lives–accounting for the many associated expenses and planning for their futures.