A few prominent bloggers like Budget Babe have started talking about the costs of having a child. Quite intimidating for married couples planning to have kids and singles is the infographic of the price-tag of $1,000,000 to have a child.
I think this number is blown out of proportion, even if empirically true, the $1,000,000 payment does not happen up front but over the the life of the child but it creates an illusion that $1,000,000 is a pre-requisite to being a parent.
I am pretty sure that our birthrate would be zero in such a case.
Let's mathematically perform a very crude net present value analysis on the cost of having a child :
Based on the infographic :
Maternity ward expenses : $7,000 - $24,000 [ But can take from Medisave ]
Age 0 - 6 : $1,200 - $1,700 per month - Average of $1,500
Age 6 - 12 : $100 - $3,500 per month - Average $1,600
Age 12 - 18 : $500 - $1,300 per month - Average $900
I've projected up to age 18 because beyond this age, the child get a loan to get a degree.
( A problem occurs when he can't get into a local degree program, then it's up to the parents to determine whether it makes sense to put their kids into Australia. I think by then ASPIRE would have been refined to make this unnecessary and an Australian qualification by then may actually send bad signals to HR anyway. )
If you observe this analysis, the most expenditure occurs at ages 6-12 which is $1,600.
If you go by my 8% portfolio yield idea, an investor who invests at a yield of 8% would need only $240,000 invested in the markets to completely cover the costs of having a average child from ages 6-12. That is interesting because the yields from this portfolio covers all child expenses on its own without requiring the parents to dig into their earned income, freeing them to save more money or pay for their mortgage.
I think this information is a lot more valuable for couple who want to do some family planning before having kids. Suppose you are a married couple and both husband and wife are working. If you can commit to saving $40,000 a year together, 6 years of savings can fully support one child and maintain your previous life as a dual income couple with no loss of quality of life. Based on my previous blog postings, another $300,000 may even allow mum to stay at home and be a full time mom.
Of course, real couple will never be so deliberate when it comes to family planning but prudent individuals should have some savings before getting married. No point blowing everything on an event you wouldn't even care about 20 years down the road.
This number is also useful for getting the right perspective when planning wedding expenses. Best approach is to keep everything low key and ensure that the couple can keep $240,000 after the wedding is over if they want to have kids immediately, otherwise they can always hold their horses until the finance is right.
Of course, by following the advice from this blog you would always be erring on the conservative side, but having kids which are free and paid by dividends is something every parent should give it a try every now and then. ( Just don't start naming your kids Croesus or Sabana because of that. )