4 Financial Tradeoffs Parents are Making for Their Families

Planning to afford children's education
Planning to afford children's education

His son is only two-and-a-half years old, but Myron Lo, the 39-year-old vice president for innovation at ZipRealty, already has at least three plans in place to pay for college in 2025. Between the college savings fund he and his wife set up, a startup side business and, as of last week, an investment in a condominium property, he hopes he will be able to send his son Ryan to the college of his choice.

"Otherwise," Lo nervously jokes, "I think I should get him into a sport like archery or badminton." Of course, college is only one of the many looming expenses of having a child. There are the hospital bills, the diapers and childcare, as well as summer camps and lessons. As every parent knows, children aren't cheap.

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And the price has never been higher. A middle-income family with a baby born in 2010 will spend an average of $226,920 on the child until he or she is 17 years old, according to a government report released in June. That's a 22% increase from 1960, in dollars adjusted for inflation.

So it's no wonder that, in a recent survey from BabyCenter.com, more than 60% of the mothers who participated said they're worried about not having enough money to raise their children. That's a lot of worried mothers considering that more than 4.1 million children were born in 2009, according to the most recent government statistics.

"If the past is any indication, expenses have continued to increase and we don't foresee a significant decrease [in the future]," says Mark Lino, who is the author of the U.S. Department of Agriculture's annual report on how much American families spend on children. That rising cost means many young families are making financial tradeoffs for their families. Here are some of the common tradeoffs that parents are considering:

Tradeoff #1: Embracing a suburban lifestyle for better schools

Planning where to live and raise a family starts long before the baby is born. David King, 34, an attorney, says he and his wife's decision to live in suburban Davis, Calif., after they finished law school -- rather than a bigger city -- was related to their hopes for a family of three or four children. They settled on the location based on a calculation of affordability, quality of schools and neighborhood type.

"It's a conversation you have before you even conceive," King says, between coughs from the cold he picked up from his 6-month-old daughter. "When you are thinking about number of kids you want, it affects all your decisions, from house to car to [neighborhood]."

Lo and his wife, Sandy, also looked at school ratings before moving to the San Francisco suburb of Orinda, Calif., which has some of the best public schools in the state. Yet the economy and budget cuts have hurt many public-school systems, leaving some parents -- including the Los -- wondering if private school might be yet another expense they will have to shoulder in the next five years.

"It's a decision you have to make," Myron Lo says. "It's stressful."

Tradeoff #2: Working full time to pay for child care

One of major shifts in the last 40 years has been the cost of child care, which increased 15% from 1960 to 2010. And one of the biggest causes is increased demand as a result of many more women in the workforce.

Sandra Nakama, who is pregnant, is one of those women. She and her husband, both in their mid 30s, are expecting their first child at the end of September. Nakama is planning to take six months of maternity leave and then to return to her full-time communications job at a technology company in San Francisco. She knows childcare will be a major expense next year.

"It's not an option to not work," she says. "It is next to impossible to live on one income in Bay Area." The cost of living is especially steep in San Francisco, and preschools can cost north of $16,000 in annual tuition.

Childcare and education account for 17% of the total expenses of raising a child, according to the USDA. The price of full-time care for an infant ranges from $4,560 to $18,773, according to the National Association of Child Care Resource & Referral Agencies.

Tradeoff #3: Giving up splurges to build savings

For many of the parents we interviewed, the economy and their job security is playing a significant role in their decisions to stay at work. Having lived through the dot-com bubble burst 10 years ago, Lo says he is "very conscious that we have enough of a cushion to survive any adversity in our jobs."

Meanwhile, Nakama says she has worked hard to live a life free of credit-card debt. She knows she will have to cut back on splurges like restaurant dinners and nights out on the town after the baby is born. Instead of a vacation this year, she has allocated her income from an employee stock program to baby expenses.

For King, planning for a larger family has him considering his earning potential. "You have to plan ahead," he says. "Will the economy stay the way it is now? Or will I be able to find a better paying job?"

Tradeoff #4: Considering a smaller family

Even as King and his wife continue to discuss how many children they can reasonably afford to have, the real cost of having more than two children is still unclear.

Nathan Thornburgh, 35, a contributing writer for Time magazine and a blogger at Dadwagon, lives in Manhattan with his wife and two young children. They recently considered having a third, but opted against it.

"Finances were one of the big strikes [against having a third child]," he says. "Right around the time you start considering a third kid is when you start paying full-fare airfare on the kids you already have, along with expenses like preschool and childcare."

Nakama, who will give birth in the fall, says she and her husband are starting with one child for now. She is more focused on enjoying the moments of her impending motherhood -- shopping for the nursery, picking out a stroller -- than on financial planning. "I have heard about [a] college fund and will probably set up my own savings account in my name," she says, but her planning hasn't gone much further than that.

Her weekly guilty pleasure -- a lotto ticket - is from her entertainment budget, she says. "One ticket is [the] same numbers [every week] and one is quick pick. You never know."

Also See: 10 Financial-Planning Tips for New Parents
Catherine New is a staff writer for DailyFinance. You can reach her at catherine.new@huffingtonpost.com.