Monday, July 2, 2007

Is Your Baby Cost-Free?

How much does a healthy baby or child cost?

Some new parents get carried away so it might be healthy (financially, physically, and psychologically) to remind yourself of the basics.

The true consumption items

You will have a US federal tax deduction of about $3k and a tax credit of $1k per child, which means that $1k-$2k of child costs will not lower your previous discretionary income at all. Even with a few pediatrician check-ups, depending upon your health insurance and tax brackets, you might make a profit off your baby.

Play time

Patty Cakes and mud pies are free.

Durable goods seems novel only if you are unaware that shared hand-me-downs are the normal way that an entire extended family would outfit new parents for generations.

  • Furniture: It used to be normal to use “grandma’s crib,” the one possibly hand-built by your great-grandfather in 1900, the one in which your mother slept and you slept. In between, your aunts and cousins slept there. “A diaper-changing table” was known as “a table” or “a blanket on the floor.”
  • Clothing: It used to be normal for children to wear their older cousins' outgrown clothes, and for a younger brother to inherit his older brother’s winter coat (that is 1 coat for 2 children, not 5 coats for each child). Your 2-year-old niece has absolutely no use for her 6-month-old-sized sneakers.
  • Toys/books (including educational): It used to be normal to recycle toys, especially the very early baby ones that a more possessive toddler scarcely remembers as “mine.” Unless your family changed language, items such as an older, in-the-extended-family “Jack and Jill” book should be fine.

You might have some cost for new and replacement durable goods but spending a fortune is very often voluntary rather than necessary.

How to turn free or almost free into a $14k/yr loss

Musings on Personal Finance mentions that the average middle-class family spends $4-5k/yr on a baby's first 2 years but remember that is what is spent, not what is necessary. claims $9-11k for the first year but that includes “baby furniture” and “baby gear.” MSN/Money claims $14k/yr (a quarter-million dollars to age 18) but that is for your “basic upscale baby.”

If you are determined to commercialize your child, you certainly can find ways to part with your money for all these services that the new Mom’s Mom and Grandma used to provide for free:

  • $400 to learn how to give birth (Lamaze class).
  • $80/hr to learn how to give milk (“lactation consultant”).
  • $200-$400 to learn how to play/bond with your baby (“mommy and me yoga” class).
  • $300 birth announcements.
  • $60 Teletubbies cake.

Voluntary big-ticket items

  • Daycare: One reason that the “traditional family” has been traditionally common is because it (including Mom, Dad, Auntie, Grandpa, cousin babysitter) does not need commercial daycare cost. However, people are free to choose non-traditional families and commercial daycare. Look at these 3 real families; one couple chose the stay-home-spouse method to avoid commercial daycare, another couple chose to stagger their 2-job work schedule to avoid commercial daycare (even 2 single parents could make a similar arrangement), and another couple decided that they both wanted to work “9-5” so they chose commercial daycare as a lifestyle choice.
  • Education: You can do homeschooling relatively inexpensively (a good encyclopedia CD-ROM provides impressive bang-for-your-buck since even most parents know only a tiny fraction of its knowledge). Public education is expensive but you pay for it through taxes whether you have children or not so having a child does not change your cost much. You can choose to pay for private school in addition to public school. You can choose to pay for college, or not pay and let your new adult son or daughter decide how to spend his/her own money.
  • Housing: It used to be normal for young children to share a room or to have a "girls' room" and a "boys' room." Even the affluent Brady Bunch had only 2 rooms and 1 bathroom for 6 children. You also can split a room into 2 rooms with affordable interior walls.
  • Vehicles: It used to be normal for 2 families to fit inside a single mid-sized sedan for family outings. Even the extra space for baby-seat regulations does not require today’s smaller families to buy a $30k minivan or SUV—unless it is to fit the $10k of ski equipment and Gameboys.

The "Dog Food Effect": Who is the spending really for?

Spending to provide a healthy, happy child is different from spending to use a child as a billboard for the parents’ ostentation. Babies know when they are warm but not when they are fashionable. Many of us have seen the child who unwraps a present and throws the toy aside to play with the packaging. “Dollar store” toys can be just as astoundingly educational and fun as boutique toys when you are fresh out of the womb—it is all new to you.

Many baby products are examples of the "dog food effect," marketing slang for when a product must appeal to the buyer rather than to the actual user of the product. Choose safety and fun for the child over prestige for the adult.

By the time the child has been socialized to fashions and brands, the child can start thinking about getting a “job” to pay for wants: The “lemonade stand” stage is an important part of education and socialization.

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