The calculation we discussed was indicative at best and by no means scientific. It also reflects the real estate price in Manhattan (where all of my colleagues live) and cost of private schools (where they are sending or plan to send their kids to). The calc goes like this:
Education: private school from age 5 to age 22 -- costs around $30k/yr currently (I believe the cost of top colleges have already far exceeded that; but one may assume that pre-school is be a bit cheaper. Can't say that I know the detail). Tuition and fees have been going up 7-8% a year, taking out inflation of 2-3% a year, your tuition effectively goes up 5% a year for NPV calculation. That alone is around $1mm in NPV.
Housing: assuming you can get away with a two bedroom with one child, you may need to have a three bedroom with two children. A two bedroom condo costs $1.5mm, a three bedroom condo costs $2mm. That is $500k of additional cost. This does not include additional taxes and maintanance fees associated with bigger space.
Other expenses: food, nanny, clothes, travel, toys, medical, other misc. for 18years, $500k might not be far off
Also all these numbers are after tax, so depending on how you look at it, the numbers should be a lot higher from a gross income perspective.
Clearly nobody has to go to private school all the time, and nobody has to have a bigger apartment or house just because they have one or two more kids. the calculation is very generic, and reflects (in my opinion) a pretty high standard of living. Personally I would much rather prefer having two kids and live in a less expensive suburb in a good school district. That will save quite a bit from "education expenses", THE single biggest expense on a child.
Education: private school from age 5 to age 22 -- costs around $30k/yr currently (I believe the cost of top colleges have already far exceeded that; but one may assume that pre-school is be a bit cheaper. Can't say that I know the detail). Tuition and fees have been going up 7-8% a year, taking out inflation of 2-3% a year, your tuition effectively goes up 5% a year for NPV calculation. That alone is around $1mm in NPV.
Housing: assuming you can get away with a two bedroom with one child, you may need to have a three bedroom with two children. A two bedroom condo costs $1.5mm, a three bedroom condo costs $2mm. That is $500k of additional cost. This does not include additional taxes and maintanance fees associated with bigger space.
Other expenses: food, nanny, clothes, travel, toys, medical, other misc. for 18years, $500k might not be far off
Also all these numbers are after tax, so depending on how you look at it, the numbers should be a lot higher from a gross income perspective.
Clearly nobody has to go to private school all the time, and nobody has to have a bigger apartment or house just because they have one or two more kids. the calculation is very generic, and reflects (in my opinion) a pretty high standard of living. Personally I would much rather prefer having two kids and live in a less expensive suburb in a good school district. That will save quite a bit from "education expenses", THE single biggest expense on a child.
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