How Much Bank Do You Really Need To Have A Baby?

When Capri and Dennis Prentice, 25 and 28 years old respectively, found out they were having twins, the first thing that ran through their minds was “Can we afford this?”

Babies are expensive — this we know. Yet potential parents tend to underestimate just how much those bundles of joy actually cost.

Here’s an infographic from the financial site NerdWallet:

Infographic courtesy of NerdWallet.

About half of future moms and dads think a baby’s first year will cost less than $5,000. Womp womp. A recent study found that the first year in a baby’s life will cost closer to $21,000 for a family that makes $40,000 per year and around $52,000 for a household making $200,000. (Those different figures assume that a family making $40,000 would opt out of life insurance, recommended college funds, and in-home nanny care, all things that rack up the higher-earning family’s expenses.)

Infographic and data via NerdWallet.

The expenses start early, with the delivery. The median charges for a childbirth hospital stay in the United States are $13,524 for the delivery and mother’s care and $3,660 for the newborn. A cesarean section is around $18,500, and any complications can raise the price of either natural delivery or C-section by about $3,000. For the Prentices, the complications were way beyond what they had budgeted for.

Their boys were delivered a month early via C-section. Both babies were born with respiratory distress syndrome and had to be sent to the neonatal intensive care unit for intubation, medication, and constant monitoring. They were eventually transferred via ambulance to a hospital an hour from their home for more specialized attention. In total, their sons were in the NICU for 11 days each. (Thanks, insurance!)

“The total cost of our medical bills was over $250,000 before insurance,” Capri says. “Luckily, we had insurance, but we still had to cover $6,000 out of pocket.”

[quote position="full" is_quote="false"]86% of those who just had a child — or are planning to have one within five years — say they have money saved (or plan to save) for their baby’s first year.[/quote]

Capri and Dennis’ experience is atypical, but how many of us would be prepared for even a fraction of their medical bills? Almost half of Americans don’t have $400 on hand for an unexpected emergency. Millennials like to think they are getting ahead of the game: 86% of those who just had a child or are planning to have one within five years say they have money saved (or plan to save) for their baby’s first year.

Unfortunately, they’re not saving nearly enough. Only 1 in 10 parents has $10,000 in baby savings — just a chunk of the $21,000 needed for a tight budget.

Capri and Dennis had set $3,000 aside for the three months Capri would take off from her job as a nurse. “But we needed almost three times that in reality,” she said. Beyond their crazy-expensive hospital stays, just a snapshot of their other expenses included $200 per month in diapers, $150 per month in clothing, $40 upfront for bottles, $500 for a double stroller, etc. Then there were the less obvious expenses: increased heating costs in the winter because babies can’t regulate their temperature; special laundry detergent for babies with sensitive skin; the time lost to pumping milk (3-4 hours per day for Capri). Plus, once Capri went back to work, day care cost them $300 per week — and that was with a family friend discount rate. Day care is so expensive in the United States that for some parents, it is more cost-effective to live on one salary and have one parent stay home than to pay for child care.

Capri and Dennis were lucky to have help from family and friends: a hand-me-down cradle and baby monitor, discounted day care. But Capri noted that expenses could be even worse for families “if they do not have support.” The majority of millennials, however, are banking on their families to help out with a significant portion of the first year costs, whether they have the money or not.

[quote position="full" is_quote="true"]Money is just money. The most important thing once you become a parent is time. You don’t get time sealed in an envelope every two weeks like a paycheck.[/quote]

The not-so-subtle silver lining in all of this is, of course, your baby (or babies for the Prentices). Since having their boys, Capri said that the way they think about money has completely changed. “We think about money as less essential now,” she said. “Money is just money, and we will most likely earn all that we spent back. The most important thing once you become a parent is time. You don’t get time sealed in an envelope every two weeks like a paycheck, and time doesn’t earn interest in a bank account.”

Capri and Dennis know they are lucky in that regard: They both have well-paying jobs and have gotten to a manageable place financially. Others might not be able to count on these lifelines. To realistically prepare, Matt Becker, a financial planner and the creator of the finance and parenting website MomandDadMoney.com, recommends couples start living on their baby budget ahead of time. Becker suggests using a calculator such as this one from Babycenter to estimate monthly expenses and then start putting that money away in advance. The baby calculator takes into account your location, income, and whether you’re saving for college before spitting out an estimate of what you will spend in a year. “This builds up a savings buffer to help you ride the inevitable ups and downs,” he says.

Becker also recommends checking your health insurance policy to see if you have access to a health savings account, which can help pay for medical expenses tax-free. Some employers offer a health care flexible spending account or a dependent care flexible account, which pay medical and childcare expenses tax-free as well. According to Becker, “Those savings can really add up.”

Some of the smartest financial planning for babies is the least fun. Becker suggests that parents not neglect their wills or life insurance. “They’re not the most enjoyable topics,” he said, “but they’ll ensure that your child will always be taken care of.”

So, if you’re even remotely thinking about having a baby in the next few years, it’s time to also start thinking about how you’ll afford it. Calculate a baby budget, like you would for a car or a house, and then double it. The cost of a child inevitably is more than you think it is.