Becoming a parent
How will you finance child care, medical bills, food,
education, clothing, toys, and education savings? What will
you need to spend money on and how much will each item
cost?
Bear in mind that second or third children will cost less than
the first, since you will already have purchased many of the
items you need. If you have three or more children, you will
spend about 22% less on each child.
If your child requires orthodontia, add another $10,000.
Hospital Costs
An uneventful delivery costs about $6,000-$7,000, and a
Cesarean section $10,000-$12,000. Depending on your
coverage, you will pay anywhere from zero percent to 30% of
this cost.
BIRTH THROUGH INFANCY
Here are the costs you can expect up to birth and during the
first year:
Baby Supplies and Equipment
Before you even bring the baby home, you will buy a lot of
baby supplies and equipment. These include a crib, a
changing table, a swing or other rocking device, strollers,
car seats, high chairs and basic baby clothing. You can
estimate $2,500-$3,000 for these items.
Formula
A year’s worth of formula concentrate costs about
$1,000. If you buy the ready-to-serve type of formula, the
cost is even more.
Child Care
Child care expenses vary widely. Child care in a day care
center costs much less than a live-in nanny, and prices for
day care centers vary widely. For a mid-priced day care
center, you will pay $200-$250 per week for your infantâ
€™s care, or about $10,000-$12,500 per year.
Health Care
Your infant will visit the doctor about six times during his or
her first year. This estimate includes well-baby check-ups
as well as the inevitable colds and fevers of infancy.
How much you will spend out-of-pocket for doctor visits
during the first year depends on your health insurance. If
you are in an HMO, you will pay only the co-payment. (If your
baby needs prescription medicine, you will pay the co-
payment for that too.)
But if you are covered by traditional indemnity insurance,
well-baby visits may not be covered at all, or only a
percentage may be covered. This means (assuming a
doctor’s visit costs $60) you will pay $45 to $60 per visit
for uncovered visits and $45 per visit for medically
necessary visits. You will also need to pay for prescriptions.
Toys and Clothes
You will spend about $500-$600 on toys and clothing
during the first year (in addition to what you bought for the
layette.)
Total For The First Year
Your total expenses for the first year run about
$15,000-$18,000. The biggest variables are child care and
health care.
AGES ONE THROUGH SIX
During these years, you will spend about $1,000-$1,200 on
toys and clothes and about $700-$850 a year on food. If
your child attends day care or pre-school, add in the cost of
these items. Health care costs could run the gamut,
depending on your health coverage. Day care will cost you
approximately $10,000-$12,000 per year, while pre-school
costs vary widely.
AGES SIX THROUGH TWELVE
This is the time when, overall, the expenses of child-rearing
drop, and families can save more. It is an excellent time to
increase what you put away in savings.
During these years, your child care expenses will drop
drastically, which could mean an extra $10,000-$12,000
annually that can go into savings or towards some other
purpose. And you will not have to take your child to the
doctor as often, since they will be past the childhood-
disease stage. (Of course, if your child begins orthodontia
during this stage, or has a special medical problem, you
will have to pay more.)
You will spend more than in the previous stage on clothing,
toys, and entertainment, but your kids will not be
demanding the high-ticket clothing and other items of
adolescence. The bill for food will be just slightly more than
what it was in the previous stage.
Now that your kids are in school, you will want them to have
all those extras that middle class kids have: dancing and
music lessons, sports participation, and so on. All of this
costs money and if you decide to send your kids to private
school or to summer camp, these expenses will have to be
added in.
AGES THIRTEEN THROUGH EIGHTEEN
During this stage, you can expect your child’s food,
clothing, and entertainment bill to greatly exceed what it was
during the previous stage. For instance, food will cost about
$2,000-$2,500 per year, and clothing about $1,000-$1,500
per year—or more.
Once your teen starts driving, your auto insurance will go
up. The extra cost could be anywhere from $300 to $1,000,
depending on your state of residence and whether your
child is a boy or girl. If you intend to buy your child a car, add
this expense in.
Sweet-16 parties, bar and bar mitzvahs, orthodontia, SAT-
preparation courses, music lessons, sports…these are
just some of things you might be paying for during those
years.
TEACHING YOUR KIDS HOW TO HANDLE MONEY
The best time to start instilling financial skills and values is
when children are young. Start giving your kids an
allowance once they reach school age. Let them participate
in making the decision of how much their allowance should
be.
Some parents may want to require kids to do household
chores to earn the allowance. Or, parents might want to
provide an allowance, but pay kids extra for the performance
of tasks. This incentive plan is, of course, a matter of
individual child-rearing philosophy, but it does get the
message across that money does not grow on trees.
Give your kids control over their own money (their allowance
and whatever monies you give them that are not earmarked
for some particular purpose). You can make suggestions to
them about what they should do with it—i.e., that they
might spend half and save half—but allow them the final
say on what happens to the money.
Let them see the consequences of both wise and foolish
behavior with regard to money. A child who spends all of his
money on the first day of the week is more likely to learn
budgeting if he is not provided with extras to tide him over.
How much allowance to provide is a matter of parental
discretion. Most parents provide about $7 per week to their
elementary school children, and from $12 to $20 a week to
kids in junior high.
SAVINGS AND INVESTMENT
Beyond the basics of budgeting and saving, you will want to
get your child involved in saving and investing. The easiest
way to do this is to have the child open his or her own
passbook savings account.
If you want your child to get familiar with investing, there are
various child-friendly mutual funds available. The mailings
from the fund can be a source of education. Or you may
want to get the child interested in individual stocks.
You may want to start a "matching" program with your kids
to encourage saving. For instance, for every dollar that the
child puts into a savings account or investment, you might
match it with 50 cents.
If you want to get your kids involved with investing, it will
usually have to be done through a custodial account. There
are generally two types of widely used custodial accountsâ
€”one is set up under the Uniform Gifts to Minors Act, and
the other under the Uniform Transfers to Minors Act. The
type of custodial account available depends on which state
you live in.
With a custodial account, the child is the owner, but the
custodian (usually a parent) manages the property until the
child reaches the age of majority under relevant state law—
either 18 or 21. The custodian must follow certain rules
concerning management of the property in the account.
These rules are intended to ensure that the custodian does
what is in the child’s best interests.
IRAs For Kids
If your child has earned income—from a paper route or
baby-sitting, for example, or from working in the family
business—you can contribute his or her earnings to an
IRA. The IRA can be an extremely effective investment for a
child because of the IRA’s tax-deferral feature and the
length of time the money is left in the IRA. If $2,000 per year
is contributed to the child’s IRA for ten years, and the
money is left to grow until the child reaches age 65, the
amount in the IRA could reach as much as $600,000, or
more, depending on the returns on the investment.
To replace the "lost" earnings, the parents can give $2,000
per year to the child (or the amount of earned income the
child has, if less). The child may have to file tax returns.
The drawback is that the money cannot be withdrawn
before age 59-1/2 without penalty. Thus, if the IRA money
ends up being used for a first home or a college education,
much of the benefit is lost. Recent tax laws have also
created Education IRAs and permit some limited penalty-
free withdrawals from other IRAs.
How will you finance child care, medical bills, food,
education, clothing, toys, and education savings? What will
you need to spend money on and how much will each item
cost?
Bear in mind that second or third children will cost less than
the first, since you will already have purchased many of the
items you need. If you have three or more children, you will
spend about 22% less on each child.
If your child requires orthodontia, add another $10,000.
Hospital Costs
An uneventful delivery costs about $6,000-$7,000, and a
Cesarean section $10,000-$12,000. Depending on your
coverage, you will pay anywhere from zero percent to 30% of
this cost.
BIRTH THROUGH INFANCY
Here are the costs you can expect up to birth and during the
first year:
Baby Supplies and Equipment
Before you even bring the baby home, you will buy a lot of
baby supplies and equipment. These include a crib, a
changing table, a swing or other rocking device, strollers,
car seats, high chairs and basic baby clothing. You can
estimate $2,500-$3,000 for these items.
Formula
A year’s worth of formula concentrate costs about
$1,000. If you buy the ready-to-serve type of formula, the
cost is even more.
Child Care
Child care expenses vary widely. Child care in a day care
center costs much less than a live-in nanny, and prices for
day care centers vary widely. For a mid-priced day care
center, you will pay $200-$250 per week for your infantâ
€™s care, or about $10,000-$12,500 per year.
Health Care
Your infant will visit the doctor about six times during his or
her first year. This estimate includes well-baby check-ups
as well as the inevitable colds and fevers of infancy.
How much you will spend out-of-pocket for doctor visits
during the first year depends on your health insurance. If
you are in an HMO, you will pay only the co-payment. (If your
baby needs prescription medicine, you will pay the co-
payment for that too.)
But if you are covered by traditional indemnity insurance,
well-baby visits may not be covered at all, or only a
percentage may be covered. This means (assuming a
doctor’s visit costs $60) you will pay $45 to $60 per visit
for uncovered visits and $45 per visit for medically
necessary visits. You will also need to pay for prescriptions.
Toys and Clothes
You will spend about $500-$600 on toys and clothing
during the first year (in addition to what you bought for the
layette.)
Total For The First Year
Your total expenses for the first year run about
$15,000-$18,000. The biggest variables are child care and
health care.
AGES ONE THROUGH SIX
During these years, you will spend about $1,000-$1,200 on
toys and clothes and about $700-$850 a year on food. If
your child attends day care or pre-school, add in the cost of
these items. Health care costs could run the gamut,
depending on your health coverage. Day care will cost you
approximately $10,000-$12,000 per year, while pre-school
costs vary widely.
AGES SIX THROUGH TWELVE
This is the time when, overall, the expenses of child-rearing
drop, and families can save more. It is an excellent time to
increase what you put away in savings.
During these years, your child care expenses will drop
drastically, which could mean an extra $10,000-$12,000
annually that can go into savings or towards some other
purpose. And you will not have to take your child to the
doctor as often, since they will be past the childhood-
disease stage. (Of course, if your child begins orthodontia
during this stage, or has a special medical problem, you
will have to pay more.)
You will spend more than in the previous stage on clothing,
toys, and entertainment, but your kids will not be
demanding the high-ticket clothing and other items of
adolescence. The bill for food will be just slightly more than
what it was in the previous stage.
Now that your kids are in school, you will want them to have
all those extras that middle class kids have: dancing and
music lessons, sports participation, and so on. All of this
costs money and if you decide to send your kids to private
school or to summer camp, these expenses will have to be
added in.
AGES THIRTEEN THROUGH EIGHTEEN
During this stage, you can expect your child’s food,
clothing, and entertainment bill to greatly exceed what it was
during the previous stage. For instance, food will cost about
$2,000-$2,500 per year, and clothing about $1,000-$1,500
per year—or more.
Once your teen starts driving, your auto insurance will go
up. The extra cost could be anywhere from $300 to $1,000,
depending on your state of residence and whether your
child is a boy or girl. If you intend to buy your child a car, add
this expense in.
Sweet-16 parties, bar and bar mitzvahs, orthodontia, SAT-
preparation courses, music lessons, sports…these are
just some of things you might be paying for during those
years.
TEACHING YOUR KIDS HOW TO HANDLE MONEY
The best time to start instilling financial skills and values is
when children are young. Start giving your kids an
allowance once they reach school age. Let them participate
in making the decision of how much their allowance should
be.
Some parents may want to require kids to do household
chores to earn the allowance. Or, parents might want to
provide an allowance, but pay kids extra for the performance
of tasks. This incentive plan is, of course, a matter of
individual child-rearing philosophy, but it does get the
message across that money does not grow on trees.
Give your kids control over their own money (their allowance
and whatever monies you give them that are not earmarked
for some particular purpose). You can make suggestions to
them about what they should do with it—i.e., that they
might spend half and save half—but allow them the final
say on what happens to the money.
Let them see the consequences of both wise and foolish
behavior with regard to money. A child who spends all of his
money on the first day of the week is more likely to learn
budgeting if he is not provided with extras to tide him over.
How much allowance to provide is a matter of parental
discretion. Most parents provide about $7 per week to their
elementary school children, and from $12 to $20 a week to
kids in junior high.
SAVINGS AND INVESTMENT
Beyond the basics of budgeting and saving, you will want to
get your child involved in saving and investing. The easiest
way to do this is to have the child open his or her own
passbook savings account.
If you want your child to get familiar with investing, there are
various child-friendly mutual funds available. The mailings
from the fund can be a source of education. Or you may
want to get the child interested in individual stocks.
You may want to start a "matching" program with your kids
to encourage saving. For instance, for every dollar that the
child puts into a savings account or investment, you might
match it with 50 cents.
If you want to get your kids involved with investing, it will
usually have to be done through a custodial account. There
are generally two types of widely used custodial accountsâ
€”one is set up under the Uniform Gifts to Minors Act, and
the other under the Uniform Transfers to Minors Act. The
type of custodial account available depends on which state
you live in.
With a custodial account, the child is the owner, but the
custodian (usually a parent) manages the property until the
child reaches the age of majority under relevant state law—
either 18 or 21. The custodian must follow certain rules
concerning management of the property in the account.
These rules are intended to ensure that the custodian does
what is in the child’s best interests.
IRAs For Kids
If your child has earned income—from a paper route or
baby-sitting, for example, or from working in the family
business—you can contribute his or her earnings to an
IRA. The IRA can be an extremely effective investment for a
child because of the IRA’s tax-deferral feature and the
length of time the money is left in the IRA. If $2,000 per year
is contributed to the child’s IRA for ten years, and the
money is left to grow until the child reaches age 65, the
amount in the IRA could reach as much as $600,000, or
more, depending on the returns on the investment.
To replace the "lost" earnings, the parents can give $2,000
per year to the child (or the amount of earned income the
child has, if less). The child may have to file tax returns.
The drawback is that the money cannot be withdrawn
before age 59-1/2 without penalty. Thus, if the IRA money
ends up being used for a first home or a college education,
much of the benefit is lost. Recent tax laws have also
created Education IRAs and permit some limited penalty-
free withdrawals from other IRAs.
Cell: 415 308-0678
Fax: 415 704-3238
Lee@RileyAccounting.net
1001 Bridgeway, #229
Sausalito, CA 94965
Conference room locations;
San Francisco
Directions Map
Sausalito
Directions Map
San Mateo
Directions Map
Larkspur
Directions Map
Walnut Creek
Directions Map
Fax: 415 704-3238
Lee@RileyAccounting.net
1001 Bridgeway, #229
Sausalito, CA 94965
Conference room locations;
San Francisco
Directions Map
Sausalito
Directions Map
San Mateo
Directions Map
Larkspur
Directions Map
Walnut Creek
Directions Map
| Robert Lee Riley CPA, MBA-tax |
| Riley Accounting |