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My youngest daughter was born 21 years ago this week. At the time, I called an economist named Mark Lino from the U.S. Department of Agriculture, who told me to expect to spend as much as $300,000 to get her to age 18; toss in college costs, and it was well past $500,000 to get her to adulthood.
As a result, after she was born my lifetime financial priorities were reorganized. They became:
When I wrote about those priorities for The Morning Call in Allentown, Penn., where I worked when my daughter Whitney was born, I recognized that what I lacked was a plan to achieve my goals.
I've realized over the years that the one financial "plan" that most parents have is to handle all of their most immediate needs and goals first, and assume everything else will just work out somehow. That's how it was for us. And that's why while my first two goals have been met — and the third may not be an issue for a while — it's the fourth one that has me most concerned.
So when the Department of Agriculture recently released its latest child-rearing numbers, I talked to Lino again, this time about financial planning.
Adjusted for inflation, the cost of raising a child born in 2013 to age 18 is $304,480, according to USDA numbers.
The changes in the last few decades have come in a few key areas. Health-care costs accounted for about 4% of child-rearing costs in 1993 when my daughter was born, but they amount to 8% of the tally today.
The biggest change since the USDA started keeping the numbers back in 1960 comes in child-care costs, which the agency lumps in with education costs (which can range from preschool and nursery school to private school). On average in the 1960s, child-care costs were roughly 2% of the total paid to get a child to the age of majority; today, child-care/education costs make up nearly 20% of the total.
The Department of Agriculture doesn't keep these numbers to terrorize parents, but rather to help set standards that can be used to determine child-support levels and more. Incidentally, the reason the USDA handles these child-rearing numbers is mostly tradition. According to Lino, "We originally examined food expenses on children and then were asked to extend it to other expenses. The Department is concerned about food, as well as the economic well-being of all families, especially rural families."
"My hope," said Lino, "is that this is used to better the economic well-being of families.…I know the numbers have been shown to high school students, and that they sometimes are discussed with couples, but I don't know how many people actually think about those numbers before they have a family."
Let's assume virtually no one thinks about the costs. Instead, a young couple meets and marries and maybe starts saving for a future that they hope will include a house and kids and the rest of the American Dream. That's pretty much how every generation has done it since there was an American Dream.
Now if you think that the cost of raising two kids and putting them through college is going to be somewhere around $1.6 million — the amount I estimated back in 1991 throwing in college costs and other niceties not included in the USDA numbers — it can make you frugal right quick. For most people, the number feels unapproachable.
But recognize that on top of the child-rearing costs you've got to save for retirement.
Fidelity Investments created a rule of thumb that an appropriate amount of retirement savings — for someone who retires around age 65 — would be eight times their final full-time salary. By age 35, according to Fido, you should have saved one times your salary, going to 3 times by age 45 and 5 times by age 55.
Meanwhile, a recent Federal Reserve Board study showed that about 40% of Americans ages 45 and up — the range where they typically start to get past the burden of raising kids to age 18 — said they had thought "only a little" or "not at all" about financial planning for retirement.
If you didn't plan for how you were going to handle the kid costs, then you are like most people and undoubtedly behind in handling your own retirement costs. And that retirement bundle of joy, depending on your age, matriculates in less than 18 years unless you plan to work past the age of 65.
Studies show that the vast majority of consumers fail to do any financial planning when they are young, largely because they don't feel like they have sufficient money for such planning to make a real difference. Only when they have more serious chunks of change do they seek guidance.
But financial planning isn't just about picking investments, it's about developing emotional discipline and setting expectations, deciding what you can accomplish and when. It's about making sure that when you are serving your first priorities — raising the kids — you aren't forgetting about your later priorities, like supporting yourself in retirement.
You don't need a financial adviser to achieve any of those things, provided you can do it yourself. There are plenty of available resources online, provided by employers and others.
If, however, you are not doing it yourself and you are waiting until the kids are nearing college age to think about your retirement savings, then you need to recognize that your future may never be secure. Life is expensive. We don't need studies to tell us that. But if you haven't figured out your solutions for dealing with it, chances are good that you're not going to achieve all of your financial priorities.