4 ways to curb the high costs of raising a teen
By Matt Alderton
December 18, 2015
Teenage kids — if you're not careful — raising them can break the family bank. Had you known teenagers would be so expensive, you would have started saving up when they were infants. Odds are that didn't happen and now you're stuck.
Between cellphone bills, band instruments, sports gear, Starbucks coffees, camping trips and other expenses, the U.S. Department of Agriculture in 2014 estimated it will cost $245,000 to raise a child from birth to 18 years. The figures are based on costs for a child born in 2013, and costs vary by region ($193,590 in rural areas to $282,480 in the urban Northeast) and do not include college expenses. The highest-expense years are from 14-17, costing about $14,970 per year.
“Whether you're looking at what it costs to go out as a family, or just to stock the refrigerator, you're going to see an increase as the kids get older,” says J. J. Montanaro, a certified financial planner at USAA financial services group in San Antonio, Texas.
Montanaro, a father of three, including an 18-year-old son and 17-year-old daughter, said some of his family's biggest budget surprises (and not the good kind) have come from social activities.
“All of the expenses associated with homecoming, prom or other big events seem to have skyrocketed. The costs associated with dresses, tuxes, flowers, cake, candy, transportation and the like can leave your head spinning,” he says.
And then there's driving. “Our car insurance more than doubled with the addition of two teenage drivers,” Montanaro says.
What's a parent to do? With these four strategies, parents can get a better handle on and even rein in their teen-related expenses:
1. Curb discretionary spending
If your spending, like your child, is experiencing a growth spurt, it might be time to make a budget. That's what Rohit Sharma, founder of Chicago tech startup Cago, did when he noticed that his family was dipping into savings to pay monthly expenses.
“We created a simple Excel spreadsheet and looked at how much was coming in versus how much was going out,” says Sharma, a father of two girls, ages 11 and 13. “We came to the realization that the mode we were in was not sustainable because you can't keep borrowing from long-term savings forever.”
Sharma's daughters were the culprits: As the girls got older, the family was spending more on extracurricular activities — music lessons, dance lessons and private math tutoring — and other things like Starbucks.
To stop the bleeding, Sharma and his wife put every family member on a monthly budget for discretionary spending.
“Each of us gets $50 in pocket money to pay for things like Starbucks, iTunes purchases, eating out with friends and so on,” Sharma says. “This teaches kids the concept of saving and, from our perspective, allocates a fixed amount to these kinds of expenses.”
2. Be a savvy shopper
Parents of teens can save by being strategic shoppers. A “back-to-school” shopping list, for instance, can help in researching which stores or websites are offering the best deals on clothes and school supplies. Likewise, buying in bulk at warehouse clubs can help reduce food costs.
Diane Johnson, a mother of three boys ages 14 to 21 in Bonney Lake, Washington, said shopping around for car insurance for teen drivers can lead to big savings, since many insurers offer discounts for students who have good grades or have taken driver's education courses. “Call and ask what discounts are available,” says Johnson. A Driver's Edge program for teens resulted in an extra discount, she says.
Julie Rains, a personal finance writer and mother of two sons ages 18 and 21 in Winston-Salem, N.C., says one of her family's major expenses has been big trips associated with Scouts, church and extracurricular activities such as band.
“A fellow mom told me I should take money for gifts and apply it to their trips,” she says. “For example, my 18-year-old did a wilderness backpacking trip with the Boy Scouts. When someone says, ‘What can I get your son for his birthday?' you could anticipate that and ask for some of the gear they'll need.”
3. Put your teens to work
A part-time job helped Rains' son to pay some of the costs of his trips — as well as his pricey video game hobby — while he was in high school. He also participated in fundraisers by trip organizers.
Sharma, meanwhile, discovered through the budgeting exercise that the family was spending a couple of hundred dollars a month for a cleaning lady to come a couple of times a week and a gardener to do the yard work. “As the kids are getting older,” he says, “we figure they can help out a little bit more with household chores so we as a family can cut back on paid services.”
4. Save now while you can
If your children are still young, you can prepare for their teen years by increasing your savings.
One way to do this is with a college savings plan, such as a 529 Plan or a Coverdell Education Savings Account. Although these accounts can't be used for car insurance, band trips or prom dresses, knowing that college is taken care of can ease the pressure those expenses place on your family's budget.
“If you start these very early on, when your kids are born, you'll have a pretty good balance by the time they are teenagers,” says Sharma, who has 529 savings plans for both of his daughters. “That way, when they are turning 13, 14, 15 years old, you're not panicking about how you're going to take care of college. And compared to that, everything else feels much smaller.”
Investments are another option, says Montanaro. He suggests setting up a mutual fund account and making automatic and regular contributions when the child is young to pay for your teenage child's expenses later.
Whatever your strategy — saving, budgeting, cutting costs or putting your teen to work — the sooner you come up with a plan, the better.
“If you start planning while your kids are young, all the pieces will fall into place by the time you need them to,” Montanaro says. “Sure, there will be a few extra line items that you didn't anticipate, but planning and discipline are going to pay dividends — whether the child is 4 or 14.”