Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Struggling To Make Ends Meet 

Politics / Social Issues Aug 19, 2015 - 04:32 PM GMT

By: Rodney_Johnson

Politics I recently wrote about the cost of child care, which got me thinking of my own experience. My wife and I were in our mid-20s when we had our first child. To prep for the expenses, we sold my car. I replaced it with a 10-year old pickup painted in primer. It had an AM radio, vinyl seats, and no air conditioning. I took our son to daycare, so we commuted in the Texas summer heat with 2-by-60 air conditioning. By that, I mean rolling down both windows (by hand) and driving 60 miles per hour.


It wasn’t pleasant, but it did the trick. We all survived and kept moving up the economic ladder.

If we were young today, I’m not sure we could have pulled that off having a child at the same age.

As I noted in the earlier article, the cost of child care averages $11,600, or $972 per month. That’s like renting another apartment, or leasing a Maserati, except this payment comes with all the joys of late-night feedings, 10 to 15 different cold infections per year, and the knowledge that there’s no such thing as a cool car with a baby seat in the back. A Porsche Panamera with a baby seat is still a kid taxi, albeit a very fast one.

While the expense of early child care is high, before this ever starts the kid has to be born.

20 years ago we spent about $1,000 all-in, meaning pre-natal care, sonograms, and the delivery itself.

Today the total package costs around $8,800, and that’s if the parents have health insurance. Without coverage, the cost easily shoots past $25,000.

And all of this is in addition to daily living.

The average rent for a two-bedroom apartment is roughly $1,000 per month, and obviously much more in high-rent, urban settings.

In addition, the average student loan payment is $200, cell phone $100 for two, and house utilities $160.  A car note runs $350, with insurance adding another $100. Then there’s health insurance, which for a young family runs about $335 per month after the subsidy.

All in, if they live modestly, the typical young family shells out $2,245 before they eat a thing, pay for gas, or spend any money on entertainment and travel. Adding in the new youngster would kick the basic monthly up to $3,217, not including diapers, formula, pediatric visits, etc.

Median household income is $52,000. With a 15% effective tax rate, the take-home income is $44,200, or $3,683 per month.

That leaves our young family with a whopping $466 to use toward food, entertainment, and any emergency costs.

If the couple is more fortunate and earns $70,000 per year, then with a 15% effective tax rate they bring home $59,500, or $4,958 per month.

This leaves $1,741 in the budget each month to buy food, diapers, clothes, gasoline and any extras such as a baby crib, high chair cabinet locks, electric outlet covers, and a battery-powered vacuum cleaner for sucking all the nasty stuff out of the baby’s car seat.

I made a lot of assumptions above, like the couple has only one car payment and one student loan note.

I also left out any mention of saving for the child’s college education.

These considerations would only make the picture worse. On the flip side, there are some tax consequences (such as the $3,000 child care tax credit) that could ease a bit of the pain.

But in a broad sense, the point is clear. A young couple, even a young professional couple earning more than 65% of all U.S. households, will have a difficult time making ends meet when they start a family. That appears to be the overarching reason why so many young couples have put off having children.

As we’ve noted many times, this might be good for the couple’s finances, but it slows down the economy.

Nothing requires spending like having kids. As noted above, there’s all the medical costs and child care issues, but then there’s daily living.

Parents end up buying all sorts of clothes, sports equipment, musical instruments, Halloween costumes, and toys than they ever dreamed possible. And that’s in addition to the extra daily living, entertainment, and vacation costs the family will incur.

While all of this spending puts a strain on mom and dad, it’s the sweet sound of commerce to toy companies, family restaurants, destination vacation companies, and a host of other retailers.

What they all know is that families with young children eventually become families with older children, who will eat more food, wear out more clothes, and in general require more spending right up until they leave home.

It all starts with young couples taking the leap and starting a family. Without it, the economic train never leaves the station, putting a cap on consumer spending for years to come.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2015 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in