Can We Afford to Have Another Child?

A Couple Asks If They Can Afford Another Child

The Facts

Married couple, Age: 35
John's earnings: $0
Paula's earnings: $100,000

Combined 401K savings: $100,000
Regular savings: $25,000
Housing: Own $200,000 home

Paula and John love children and would love to have another. But Paula is worried it will compromise their comfortable financial situation. An extra child means two types of additional costs. First, Paula and John need to support the child, including covering its college costs. Second, another child will delay John’s return to the labor force by, they assume, 11 years. At this point, he’ll be 54. They set up their current case in MaxiFI to create a base plan. They also set up a What-If plan that models adding a third child.

The Base Case

Paula and John are 35 and married with 10 year-old twins. John homeschools the children. Paula works as a banker, pulling down $100K. There other financial circumstances are listed above.

Paula and John plan to send the twins to a four-year college at an annual, real (inflation-adjusted) cost of $75K. When the kids leave home, John, who will be 43, will return to work earning $50K (adjusted for inflation) per job. The couple plans to retire at 65 and start their Social Security benefits and retirement-account withdrawals at 67. Paula and John are considering a third child and turn MaxiFi to calculate the costs. They model their current situation as their base plan and having an extra child as their What-If Plan.


The orange line in the figure below shows the couple’s living standard per person under the base plan. Living standard is measured as the couple’s discretionary spending per household members with an upward adjustment to account for economies in shared living (e.g., with more household members you don’t need to have more heating systems) and our assumption that children are less expensive than adults.

The couple’s baseline living standard is $13,719 per member per year through age 46. It then jumps to and remains at $42,906. Here’s the reason. The couple is severely pinched for cash before the twins finish college and the program doesn’t let them borrow (unless one overrides its zero borrowing setting).

Hence, even without a third child, Paula and John are having trouble making ends meet. As the blue line shows, a third child would further strain their immediate finances. Now the couple is cash (borrowing) constrained over two periods – between 35 and 46, when the twins graduate college, and 46 and 57, when the third child graduates college. Before age 46, the family’s living standard is 37.4 percent lower than the baseline. Between 47 and 57, it’s 38.0 percent lower, and after 57, it’s 9.67 percent lower.

Comparing Living Standards Under the Base- and What-If Plans
In comparing their economic lives with and without a third child, Paula and John focus on the program’s calculated living standard per household member under each scenario. Living standard in a given year is measured as the household’s total discretionary spending in that year divided by the number of household members with an adjustment in the divisor that accounts for economies of shared living and the fact that children are less expensive than adults.

A Solution

Paula and John make two adjustments to their plan to afford a third child. First, they decide to send the third child to school and John to work when the third child starts kindergarten. They also opt to take Social Security at 70, not 66, thereby raising their starting benefit values by about 30 percent. As the second figure shows, this plan entails essentially no reduction in the household’s living standard before the twins go to college and smaller changes after they leave college. The couple is now borrowing constrained over four periods with its ultimate living standard ending up somewhat higher than in the base case.

A Recap

Children aren’t free. MaxiFi can show precisely what they cost with family financial planning. But it also helps couples find ways to make addition children affordable.