Does this include college costs?

Understanding Child-Cost Calculators: Are College Expenses Included?

When planning for a child's future, many parents turn to child-cost calculators to estimate the financial commitment of raising a child. However, a common question arises: does this include college costs? The answer is no. A standard child-cost calculator estimates expenses from birth to age 18, excluding college costs. Let's delve into why this is the case and how you can plan for college expenses separately.

What Do Child-Cost Calculators Cover?

Child-cost calculators typically focus on expenses incurred from birth through age 17 or 18. According to data from the U.S. Department of Agriculture (USDA), the average cost of raising a child born in 2021 to age 17 is approximately $267,000 for a middle-income💡 Definition:Income is the money you earn, essential for budgeting and financial planning. family. This figure includes:

• Housing: The largest expense, accounting💡 Definition:Accounting tracks financial activity, helping businesses make informed decisions and ensure compliance. for about 29% of the total cost.
• Food: Around 18% of the total cost.
• Transportation: Approximately 15%.
• Healthcare: Roughly 9%.
• Clothing and miscellaneous expenses: 6% each.
• Education (K-12) and childcare: About 16%.

These calculators use a lifecycle approach, projecting annual costs and adjusting for inflation💡 Definition:General increase in prices over time, reducing the purchasing power of your money.. However, they intentionally omit college costs, which are treated as separate expenses.

College Costs: A Separate Calculation

College costs are distinct from the general expenses of raising a child because they occur after the age of 18 and vary widely. To plan for these, families should use dedicated college savings💡 Definition:Frugality is the practice of mindful spending to save money and achieve financial goals. calculators. These tools help estimate:

• Tuition and Fees: Vary by institution type (public vs. private) and residency status (in-state vs. out-of-state).
• Room and Board: Costs associated with living on or near campus.
• Books and Supplies: Often overlooked, but necessary for 💡 Definition:A spending plan that tracks income and expenses to ensure you're living within your means and working toward financial goals.budgeting💡 Definition:Process of creating a plan to spend your money on priorities, including fixed expenses like pet care..
• Miscellaneous Expenses: Including transportation and personal expenses.

For context, the average annual cost of a public four-year college (in-state) for the 2023–2024 academic year is about $27,000, while private colleges average over $57,000. Over four years, this translates to an additional $100,000–$230,000.

Real-World Example: Planning for a Newborn

Consider a family using a child-cost calculator for their newborn, which estimates a total cost of $267,000 to age 18. If they want to include college, they need to use a separate calculator. For instance:

• Childhood Costs (Birth to 18): $267,000
• College Costs (Public Four-Year, In-State): $108,000
• Total Estimated Cost: $375,000

This breakdown shows how college costs significantly increase overall financial planning💡 Definition:A strategic approach to managing finances, ensuring a secure future and achieving financial goals. requirements.

Common Mistakes and Considerations

When using child-cost and college savings calculators, keep the following in mind:

• Separate Calculations: Always treat college costs as a separate financial goal.
• Inflation and Cost Projections: College costs typically increase at a rate of 5–7% annually, so adjust your savings plans accordingly.
• Financial Aid and Scholarships: Factor in potential reductions in college costs through scholarships, grants, and financial aid.
• Savings Strategies: Consider 529💡 Definition:A tax-advantaged savings plan designed to encourage saving for future education costs, with tax-free growth and withdrawals for qualified expenses. plans and other tax-advantaged savings options💡 Definition:Options are contracts that grant the right to buy or sell an asset at a set price, offering potential profit with limited risk. to efficiently prepare for college expenses.

Bottom Line

Child-cost calculators are valuable tools for estimating the cost of raising a child to age 18 but do not include college expenses. To effectively plan for a child's entire upbringing, including college, use dedicated college savings calculators. This dual approach allows for comprehensive financial planning, helping ensure you're prepared for both the typical costs of childhood and the substantial investment that is higher education.