Tag Archives: money

How ritzy to be?

Cases where I wonder about whether I’m setting a bad precedent by getting nicer versions of things:

  • We’ve had a debate recently about whether to get cheaper Wonderbread-type bread or more expensive, more textured bread. There’s no nutritional benefit to the more expensive bread, and if our kids grow up preferring the cheap kind they’ll lose nothing except status in the eyes of people who consider it low-class.
  • I’d prefer to get incandescent Christmas tree lights because the color of the light looks right to me, but they’re less durable, take more electricity, and are getting harder to find than the LED lights. So I’ve grudgingly decided not to raise my kids to prefer an outdated product they probably won’t even be able to buy.
  • I like our house to look nice, but I also worry that this isn’t a very productive thing to spend time and money on and is just contributing to everyone feeling they have to make their houses look a certain way so other people will accept them as grown-ups.
Advertisements

Cost comparison of childcare

Now that we have two children, the cheapest form of childcare has changed. Double daycare didn’t sound appealing, so we did the math and decided that an au pair was cheapest (see tables below). Jeff’s family used au pairs and were happy with the arrangement. So we’re planning to go ahead with that this coming year.

Au pairs have a connotation of being something only posh people have, perhaps because having live-in help seems like having servants. But the state department is very clear about them not working extra hours or taking on housework beyond what’s child-related, and they’re supposed to be like a family member (“au pair” literally meaning “on par” or “on equal terms” with the family). Jeff’s sister was an au pair and it was something I considered after college, so it’s not as if it’s a one-way stream either.

Pros:

Cultural exchange. The whole reason au pairs don’t make minimum wage is that they are technically having a cultural experience rather than being employees. If you’d like to expose your children to another language and hang out with someone from another country, this might be a nice way to do it. Caveats: the kids I see with Spanish-speaking au pairs or nannies seem to understand Spanish but don’t speak it themselves (they respond in English). Jeff’s father said they preferred au pairs who spoke English as a first language because it made communication easier. I also think childrearing methods vary quite a bit by culture, and there are some cultures that seem pretty low-interaction, which is not what I would want.

Flexibility: An au pair works up to 45 hours a week, and you can schedule the hours anytime during the week (with a max of 10 hours/day and with at least one weekend a month fully off). Because we both travel for work, the ability to have someone watch our children at odd hours as we’re coming and going from the airport sounds good.

You can also have your au pair travel with you (so if I were at a conference for a week, I could potentially bring the kids and the au pair, which would certainly be nicer than being away from my baby for that long. But the cost of extra airfare and lodging means we’ll probably use this very sparingly).

You also don’t have to cram your child into a daycare’s timeframes: no need to drag them out of bed in time for you to leave for work, or to keep them awake or make them lie down because that’s the group schedule. There’s no panic if they’re not potty trained and won’t be allowed into the three-year-old classroom.

Sick days: An au pair doesn’t work when they’re sick, but they can work when the kids are sick. (With a daycare, the kid can’t be there when they’re sick or for 24 hours afterward.) Since little kids get sick more often than adults, we expect this will mean we miss less work caring for a sick child. Also, snow days, which we have a reasonable number of in Boston.

No commute: having care in our own home is huge for us. When we took Lily to daycare every day, it added about 90 minutes to our days (because you have to manage a child’s commute in addition to your own).

Less stress for children: At home, young children’s level of cortisol (a stress hormone) peaks in the morning and falls throughout the day. At daycare, many children’s levels rise again during the middle of the day. (Caveat: I couldn’t find out whether in-home care with a non-family caregiver matches the home pattern or the daycare pattern, but I’m assuming it’s closer to being home with your family on a weekend.) It’s not clear that this has any long-term effects, but it seems plausible to me that it does.

Cons:

Socialization: It takes extra effort to get socialization for the children because they’re not already in a group setting. For a baby or young toddler, I don’t think this is a problem, but for older kids you could potentially be looking at the cost of preschool on top of an au pair. But I think it’s possible to supplement with visits to library story hours, play groups, etc. Certainly most children throughout humanity have been reared primarily in their own (extended) families rather than in a classroom-type setting.

Privacy: An extra person in your household brings more possibility of conflict and awkwardness.

Inexperience: I know 19-year-olds can be clueless, because I cringe at some of the mistakes I made at that age working in daycares or as a babysitter.

Year-long schedule: If you end up with someone who’s a bad fit for your family, you’re kind of stuck unless you want to pay the fee to re-match. Also if you no longer need childcare (say one parent is unemployed for a few months) you’re still paying for it. But this is true in the better daycares, too.

Unpredictability: The au pair can decide to buy a flight home any time (edit January 2017: ours did this with less than a week’s notice). Young adults who have never lived away from home before are not known for their consistency. There are also factors beyond their control: their visa application could be delayed. They could have a family emergency and need to return home. Trump has mentioned getting rid of the J-1 visa that au pairs use, so who knows whether he’ll follow through on that.
A daycare could also close or lose its license, particularly if it’s a home daycare that relies on a single person, but I’m guessing it’s less likely.

Housing: You need an extra bedroom. If you have the flexibility to rent a larger space this may be fine, but for people who own condos or houses it may not work. In our case, it was possible to build an extra bedroom, which we’re happy to do because we’d like to have a spare room after we’re done having au pairs.

Transportation: If the au pair will need to drive, adding them to your car insurance (and getting another car, as some families do) would add extra cost. In our case, we’re near the subway and don’t own a car, so the transportation cost is just a public transit pass.

Monthly costs in Boston area using public transit:

Au pair

Au pair stipend and agency fees: $1620
Rent: $770 (based on renting a four-bedroom vs. a three-bedroom apartment in my neighborhood)
Utilities (including cell phone): $65
Food: $200
Worker’s comp: $30
Misc spending (museum admissions, public transit pass, etc.): $100
Total $2785

Daycare (this varies a lot but is based on the daycare Lily went to)

Infant in daycare with sibling discount $1794
Toddler in daycare $1885
Total $3679

Nanny 

$20/hour (more if withholding tax and social security), 45 hours/week $3900
Worker’s comp: $30
Food, museum passes, etc. $100
Total $4030

Affordability

I’m careful not to say I can’t afford things, because I have a pretty well-paid job and my husband has a very well-paid job. A lot of our friends are doing low-paid nonprofit work, grad school, etc. and have much lower incomes than ours.

Most of the things people talk about not affording are not literally things they can’t afford. When we say we can’t afford something, we usually mean, “There’s something else I would rather spend that money on.” Which is a perfectly reasonable choice to make.

(Some of my clients are truly poor, in that they don’t have $200 to bail themselves out of jail and don’t know anyone willing to lend them $200. Bail is pretty much the most essential expense there is—if you can’t bail yourself out, you lose your job, housing, and belongings. I think holding such people in jail is usually a stupid use of the government’s money.)

Jeff and I are almost the only ones in his family that don’t vacation in Italy, which is weird because we can “afford” more than the electrician and the schoolteacher, but we choose not to. Half our money goes to charity, and the rest goes to taxes, raising our kid, and buying a house. There’s not a lot of spending money left over, and that’s fine, because we chose all of this. But it still makes it awkward to go out with friends and be the cheapest ones there, or to turn down invitations to do things with them that cost money.

When I worked at a charity, I heard a lot about “fixed incomes.” Charities want to suggest donation amounts that sound reasonable to you. The charity I worked for had a default mailing with checkboxes for $15, $35, and $100 (with $35 in bold). If the algorithm thought you were likely to donate more, presumably based on your previous donations, you would get a mailing suggesting $100, $500, or $1000. Sometimes the algorithm guessed wrong, and we would get angry letters from people asking if we thought they were rich or something. These letters often mentioned being on “a limited income” or “a fixed income.” I was never sure what that meant, since most of us have an income that is fixed rather than being . . . constantly in flux? Infinite? I don’t know what the alternative was supposed to be. I think they often meant it as “retired on a pension that’s smaller than my income used to be.”

When I was first hired at that charity, I told them I didn’t want their 401(k) contributions because I wanted them to keep the money. The woman from HR raised her eyebrows and asked if I was independently wealthy. I was pretty upset at the idea that she didn’t believe I would donate to the charity unless I had more money than I knew what to do with. But that was her idea of who could “afford” to pass up the $400 or so that they were going to give me.

I don’t mean any of this as a complaint. I’m very lucky to have what I have. I’m just noticing the way the concept of “affording” is not always the same thing, and how that leads to strange situations. A similar thing happens with having “not enough time” to do something—we usually mean a budgeting choice, rather than an actual impossibility.

I’m going to quote Thomas Cannon again:

The self-described poor man’s philanthropist, he gave away more than $150,000 over the past 33 years, mostly in thousand-dollar checks, to people he read about in the Richmond Times-Dispatch who were experiencing hard times or who had been unusually kind or courageous. . . .

Mr. Cannon supported his wife and himself, their two sons and his charitable efforts on a salary that never topped $20,000 a year. . . . When he retired from the postal service in 1983, he and his wife lived in virtual poverty on his pension. “We lived simply, so we could give money away,” he told the Times-Dispatch this year. “People say, ‘How can you afford it?’ Well, how can people afford new cars and boats? Instead of those, we deliberately kept our standard of living down below our means. I get money from the same place people get money for those other things.”

How much does it cost to have a baby?

Short answer: about $20,000 for the first year.

baby cost with food

I just did the math on how much greater our expenses were in 2014 than we would have expected if we had not had a baby in March. I did it based on the calendar year because many of the expenses (medical visits, pre-birth purchases) started before the birth.

Childcare: We only used a couple of weeks of daycare at $350/week. We’ve since switched to a system in which Jeff works full time and I work part time, and Lily is never in daycare. Our social life consists mostly of things we can bring her to, so we haven’t really needed babysitters at night.

Clothes: we got a lot of hand-me-downs, and aside from that bought clothes from thrift stores or the local children’s resale shop, where they cost about $4/item. I inflated our number in case you needed to buy everything.

Gear: includes bottlefeeding stuff, cloth diapers, toys, a crib, a rug, a couple of carriers, and a series of glider chairs. Includes $100 for extra loads of laundry done. We got a carseat as a hand-me-down, but I added $100 to the tally in case you needed to get one. Breast pumps are now covered by insurance in the US, but bottles and other parts are not.

Medical/hygiene: copays and miscellaneous purchases at the drug store. We paid more for better medical insurance this year, plus more copays for more medical visits. Most of our insurance premiums are covered by Jeff’s work, so if he worked for a less generous company we would have paid more.

Lost wages: I got no paid matenity leave from my job, though I did save up about two weeks of vacation days. I quit my job for five months, then went back part-time. Jeff used 8 weeks of paid parental leave to care for Lily while I was working. My schedule currently dovetails with Jeff’s: he works full-time starting at around 7 am, and I work evenings and Saturday mornings. If we had less flexible work schedules, or if he had not gotten the two months of paid leave, our costs would be higher.

Housing is conspicuously absent on this chart. We did not change our housing this year, though we did start the process of buying a house. Lily slept in our bedroom. This got hairy at times, and we’re looking forward to having a separate room for her. The delay in moving was more about looking for the right house than about trying to save money.

Food for a breastfed baby costs virtually nothing.  Edit: I forgot that I eat an extra 500 calories daily while pregnant or breastfeeding. This cost about $500 extra in groceries. Lily’s also eating some solids now, but she mostly eats yogurt and bits of what we’re eating.

We did not pay more for transportation because we did not buy a car. Living with family and being able to use their car sometimes was helpful.

Not included: tax breaks. We expect around $350 in the child tax credit (maximum is $1000 if you earn less than we do). We also expect lower taxes in general because of having a dependent. We don’t know how much this will end up saving us; I’ll update after we do our taxes.

Also not included: costs to our careers. Jeff taking the full paternity leave provided by his work probably hurt his job slightly, though not like it would in a more cut-throat business. Taking time off delayed me getting the hours of supervised work I need for the final step of social work licensure, which is essentially a ticket to better jobs.

The federal government’s “cost to raise a child” calculator thinks we (as a two-parent high-income family in the Northeast) would spend about $30,000 during our child’s first year, not including lost income, which I count as an expense. So we came in well below average. If we had been scrimping, we could have spent less, especially by using paid childcare for more of the time.

Things that could make it more expensive for other families: moving to larger housing; buying a car or better car; formula-feeding (would cost around $1200/year); less flexible work schedules that would necessitate more child care from other people; less of health insurance covered by work; no paid paternity leave; higher initial earnings resulting in more earnings lost from unpaid leave; living in a more expensive area; using disposable diapers, living in a country with free healthcare.

Things that could make it less expensive for other families: generally scrimping more; more free care from relatives; receiving food assistance, daycare vouchers, or other benefits; lower income and thus more child tax credit; living in a cheaper area; using daycare more, allowing both parents to work full time; living in any of the 163 countries that provide paid maternity leave.

Part two: thoughts on the non-financial pros and cons of having a baby.

How much does it cost to raise kids?

If you try to find out how expensive it is to raise a child, you see lots of different figures. The Wall Street Journal thinks it costs $47k a year.  The FDA calculator thinks it’s more like $13k a year.   Early-retirement gurus like Mr. Money Moustache think it costs virtually nothing. How is that last category coming up with their numbers?

I can see two sides to this – if you have at least one stay-at-home parent, live in a cheap area, and generally reduce expenses, yes, I agree, raising children doesn’t have to be expensive. People all over the world do it for a lot less than Americans spend.

Even American spending varies wildly by income level. Higher-income families spend over twice as much as lower-income families.

cost to raise child

Let’s say we wanted to be a one-income household with a young child. How would we manage?

– One stay-at-home parent means virtually no childcare costs.
– Health care (insurance, copays) for all three of us might be $3k.
– A two-bedroom apartment in Cambridge, MA with utilities might be $21.5k a year.
– Spending money (clothes, vacations, cell phones, entertainment): $5k a year.
– Groceries: $200/month; $2.4k a year.
– Taxes: $1k a year
– Saving: $4k a year
– Transit (public transit pass, bike repair, etc): $900/year

That would put our expenses around $38,000 a year. I used to earn $33,000 as an administrative assistant, so this would be doable if you could earn a little more. If we earned less than this, we’d probably move to somewhere cheaper than Cambridge.

Of course, this isn’t what we actually do.

For one thing, we don’t reduce expenses as much as we could. The Boston area is expensive, but we like it. We like living near Jeff’s family. We like the public transit system. We like the thriving folk dance community. We like being near great universities and the people they attract. And while we could live more cheaply in another city or a rural area, we think the benefits of this environment and community outweigh the costs.

Also, we use money for more than just establishing our own quality of life.  We value our family a lot and we prioritize ourselves financially, but not to the expense of all else. Specifically, we donate a good chunk of our income (50% this year) to the best charities we can find. That’s possible because we have two incomes.

I can see the appeal of retiring early, working part-time, or having a stay-at-home parent. But I also value other people’s children, and this year we expect to save about 20 people’s lives from malaria. To me, that’s totally worth it.

As for the question of how much it will cost to raise our child: Jeff and I write down everything we spend, so I’ll let you know after the first year.

Update: what we spent in the first year.

Timing what you buy

I have a relative who wanted a sports car since he was young.  He finally bought it in middle age.  “I don’t want to have this car now,” he complains.  “I want to have had it when I was 20!”

I notice this frustration.  Long-term goods like houses would ideally be bought early on so you can enjoy them as long as possible.  But young people don’t have the money to buy a house they want to live in for a long time.  One traditional solution is for older people to give durable goods to young people.  But the incentives aren’t the same as for something you buy yourself: young people are notoriously bad at caring for, say, cars that daddy bought.

I’m realizing that I ought to change my spending patterns based on this.  I currently buy a mix of short-term pleasures (food, flowers, clothes that I probably won’t like forever) and long-term ones (furniture, a sewing machine, books).  I would do better to prioritize long-term goods now so I’ll have them for longer, and later buy more short-term goods.  I’ll enjoy chocolate the same whether I have it now or in 40 years, but a banjo gets more use the longer I have it.