Monthly Archives: February 2016

The Cost of Kids — early-retirement edition

The word “children” has been drifting around my life frequently, and the question of how to pay for that childhood is an echo that quickly follows that word. This post aims to more accurately estimate the cost of raising a kid for the frugal folks out there, who plan to do their parenting in the land of financial independence. Other folks, like Mr. Money Mustache & The Frugalwoods / Root of Good have addressed this topic, but I haven’t found a critical look at the numbers. So, I’m writing one here.

The estimates you’ll find on sites like CNN or Huffington Post are derived from this USDA calculator. The calculator gives us a good start to create our own financial estimate for raising a kid, who we’ll call Kid A, but the calculator exaggerates the costs of child rearing for an early retiree in several areas. Below, you see the estimated annual cost for a “low-income” newborn in my neck of the woods, as well as a “wealthy” newborn. I’ve also included the estimate for a 15-year-old, to get a rough idea of how costs change as Kid A moves from nursing and naps to dating and math homework.


Overall Annual Estimated Costs -- Age <1
(Household Type = Two Parents, Income = Less Than $61,050, and Region = West)


Housing
Food
Transport
Clothing
Health 
Care
Child Care 
and Education
Other
Total
Your 
Costs:
$4,650
$1,563
$1,613
$888
$763
$2,738
$713
$12,925
National 
Costs:
$3,875
$1,513
$1,500
$838
$838
$2,750
$538
$11,850
Overall Annual Estimated Costs -- Age 15
(Household Type = Two Parents, Income = Less Than $61,050, and Region = West)


Housing
Food
Transport
Clothing
Health 
Care
Child Care 
and Education
Other
Total
Your 
Costs:
$4,650
$2,850
$2,200
$1,025
$1,225
$1,238
$925
$14,113
National 
Costs:
$3,875
$2,763
$2,088
$950
$1,350
$1,225
$750
$13,000

Overall Annual Estimated Costs -- Age <1
(Household Type = Two Parents, Income = Over $105,700, and Region = West)


Housing
Food
Transport
Clothing
Health 
Care
Child Care 
and Education
Other
Total
Your 
Costs:
$11,050
$2,500
$3,363
$1,438
$1,213
$6,675
$2,438
$28,675
National
Costs:
$9,213
$2,475
$3,263
$1,375
$1,300
$6,875
$2,288
$26,788
Overall Annual Estimated Costs -- Age 15
(Household Type = Two Parents, Income = Over $105,700, and Region = West)


Housing
Food
Transport
Clothing
Health 
Care
Child Care 
and Education
Other
Total
Your 
Costs:
$11,050
$4,175
$3,950
$1,763
$1,888
$8,388
$2,650
$33,863
National
Costs:
$9,213
$4,138
$3,863
$1,663
$2,025
$8,725
$2,500
$32,125

 

These tables show us the government’s best guesses at what it will cost to raise Kid A to age 18. Let’s see whether these estimates hold-up to closer scrutiny:

The government includes loan payments on housing and cars in these estimates. Most early retirees, my family included, plan to have no mortgage or car payments, which reduces the costs of housing and transportation to little more than maintenance and resources — e.g. fuel, heat, water, electricity, etc. Child care is also zero, since either parent is free to stop working and care for Kid A. What’s more, if a family already lives in a house that’s large enough to house the  Kid, the cost of housing is effectively unchanged from when the parents were kid-free. The same can be said for transportation costs: in other words, it doesn’t cost more to house and transport Kid A. So, we can effectively ignore the additional housing and transportation costs, which reduces our range of per annum kid costs to this: $6662 – $18863.

That cuts our expected costs in half from the G-men’s estimate, regardless of whether we’re planning to send the Kid to private school or risk destroying Kid’s moral fiber in the public school system. We’re planning to gamble on public school, for those who care. Since we believe in the public school system, our expected education costs are certainly lower than if Kid A lived in the hypothetical “wealthy” world. Let’s assume A’s annual cost for “Child Care and Education” is $1238, so Parents A can hire the occasional baby sitter and pay for the fringe costs of public school. Kid A’s annual range is now: $6662 – $11713.

Clothing’s next — first, how on earth does a newborn’s wardrobe ever cost $888 – $1438? Are parents dressing their kids in Arcteryx and J. Crew exclusively? Whatever explanation the G-men have for those whacked numbers, Kid A will be swathed in the Second Hand’s finest until A’s capable of caring where clothes come from — and even after A gets fashion-conscious, maybe still. Hand-me-downs and thrift stores will ensure Kid A is decently clothed for much less than $900+ per year. I’m guessing we can get it below $400 without sending Kid A into the January blizzards naked and freezing. With clothes under control, Kid A’s annual cost is: $6262 – $10463.

The “Other” column includes personal items (such as hair cuts and hygiene items), entertainment, and reading materials. Before cutting anything, the range is $713 – $2650. I’ll admit Kid A needs hair cuts, toothpaste, floss, and soap. However, most of our books and movies come from the libraries, and A will indeed have toys that aren’t homemade, but I doubt A’s “Other” will average $2500 per year. Let’s assume we can reduce the costs by $1000 per year at the high-end and $200 at the low-end: $6062 – $9463.

Using Mint’s comparison tool, we can estimate what it will cost to feed Kid A. Parents A spend 50% of what other folks in our area to feed ourselves. Therefore, it’s safe to assume we’ll be able to feed Kid A for 50% of the G-men’s estimated food costs. Annual cost for Kid A: $5280.50 – $7375.5.

We’ll leave healthcare at it’s G-men estimate, since I don’t know how to estimate how many broken arms Kid A will suffer or braces needed. Regardless, we’ve reduced the annual cost of raising a kid from $6662 – $18863 to $5280.50 – $7375.5.  We did this by cutting costs in areas that are either inapplicable to an early retiree, or finding ways to reduce the costs of services we still need to purchase, such as food, clothes, or education.

To raise Kid A to 18 on this modified budget, we’ll spend a total of $89768.50 – $125383.50. That’s a big pile of cash, so how do we pay for Kid A? We could save and invest a nest egg that pays for Kid A’s childhood. $100,000 will provide more than enough to fund these estimated costs. Using a tool like CFireSim or FireCalc, as well as the updated research on safe withdrawal rates, we see that we can withdraw 5-7% of a $100,000 fund to pay for Kid A, and still have enough left over for Kid A to attend college, buy a BMW, or put a down payment on a house. In short, Kid A will be well cared for, even if there will be some family photos showing A in thrifty second-hand clothes.

Of course, the finances of raising Kid A will change from family to family. Some folks will do it for more, some for less. My goal here is to show how we can reduce the costs of raising a kid, to arrive at a more realistic estimate of child-rearing costs, rather than ringing the alarm bells and crying that having kids costs too much.

What do you think? Are there parents out there who are doing this? Are my numbers nuts?

 

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Howard Roarke goes slumming for fun and profit

Nickle and Dimed by Barbara Ehrenreich, is the story of the author working low wage jobs around the country, trying to make her income meet or exceed her cost of living. She tries this in Key West, FL; Portland, ME; and Minneapolis, MN. Ehrenreich’s narrative is peppered with liberal socialist and Marxist rants about the difficulty of making ends meet in American low-wage work. In fact, it seems like this is the primary thesis of the book: pitting Ehrenreich’s social politics against the American economy in 1998-9, to see who is “right”. In other words, can someone make a living off the lowest paying jobs in America?

I picked up this book because it looked like an interesting test case for the kind of frugality proposed by the early-retirement writers: Mr. Money Mustache, Early Retirement Extreme, Your Money or Your Life, etc. These writers generally describe workers who earn far more than the wages in Ehrenreich’s story, yet they claim that their methods of frugality and saving will work for any income, large or small. I find some amount of naivete in this argument, since while they spend like they are, most of these writers never admit to being poor: they’ve never written about trying to find housing, food, or medical care on a shoestring budget. The whole premise of an early retiree’s frugality is based on having enough liquid assets to avoid exactly that situation.

Ehrenreich touches on this point in her book, noting that the starting conditions of one’s frugal lifestyle likely have a large impact on a person’s success. For example, having a $5000 emergency fund makes living on low wages much less stressful and difficult, since it’s possible to use the emergency fund as a buffer in lean times. One is less exposed to financial hardship with money in the bank: it’s simple personal finance, but it’s the kind of detail that determines whether a low wage worker winds up homeless due to an unplanned visit to the doctor. The question that I wish Ehrenreich had addressed a bit more critically and objectively is: can a low wage worker accumulate an appreciable emergency fund?

I don’t feel that Ehrenreich can answer this question because, despite having a Ph.D. in biology, her story lacks the experimental controls I expected her to use. Rather, her story is intensely subjective and personal, often neglecting the strategies or tools that could allow her to survive as a low wage worker.* For example, she doesn’t try to be as frugal as possible, which is a skill most low wage earners must master: she doesn’t shop at thrift stores; she frequently eats out at restaurants; she doesn’t look for housing that provides a kitchen where she can prepare cheaper, healthier meals. Her approach to housing, food, clothing, and transportation seems rather short-sighted, and rightfully so, given that she is not planning to live this lifestyle for more than a few months at a time. However, this bias is an important reason why she finds it so difficult to succeed in the difficult economic position she puts herself.

What makes Ehrenreich’s book feel more like a tale of “low-wage tourism”, rather than a story about making ends meet on a low income, is that Ehrenreich does several things that ham-string her efforts: she gives her earnings to co-workers; she quits jobs without thinking about finances, and she takes lower-paying jobs over higher-paying jobs. What’s more, she does this without developing a social support network. Ehrenreich treats herself as an island, as a sort of low wage protagonist from an Ayn Rand novel. It’s ironic that Ehrenreich notes how her coworkers rely on social support networks to meet the needs that their jobs don’t supply, and when an acquaintance offers Ehrenreich a place to stay while she finds another place to live, Ehrenreich turns her down, claiming she must do this on her own. All of these decisions, make Ehrenreich’s project appear more like a glib adventure, rather than investigative journalism about America’s working poor.

Ehrenreich concludes that low wage workers have to play a difficult game, and I agree. There is nothing easy about making ends meet on less than $15,000 per person per year. However, I know it can be done. I’ve done it, and I’ve known many others who have done it. Ehrenreich makes her own story unnecessarily difficult, and then holds it up as proof that low wage workers can’t make ends meet — which is simply mendacious.

What’s missing from Ehrenreich’s book is a genuine discussion of what low wage workers need to do to make ends meet. We ought to discuss the long-term thinking that Ehrenreich discards: such as buying kitchen utensils for her trailer in Key West, so she can cook meals at home, or living with her friend in Minneapolis while she hunts for an affordable apartment. These two examples would have allowed her food and shelter while she saved money.

Reading Nickel and Dimed has reinforced my belief that it is possible to live frugally and save money, regardless of one’s income. It’s certainly true that low wage workers cannot quickly save the enormous piles of money that the authors of Mr. Money Mustache or Root of Good have saved, but the difference is one of degree rather than kind. Had Ehrenreich made different decisions, she could have made a living in any of the cities she chose in her story. And while there are certainly changes we could make to the social programs offered in the U.S.A. to support low wage workers, there are also certainly changes that low wage workers can make to save money: such as cancelling television subscriptions and using the public library for movies and TV shows, cooking all meals at home and eating vegetarian, and getting low-cost or free cell phones and internet from companies like Ting or Freedompop. While some of these cost-cutting techniques may not be welcomed by many Americans (we do love our meat and television…), they are effective, and these are the cost-cutting techniques that the early retirement bloggers use to live on less than $15,000 per person, per year. Poverty is a complex problem, but there are little things people can do every day to address the problem.

* Ehrenreich notes this lack of experimental objectivity in her introduction to the book, but I still find her decisions difficult to accept.

Religions: cheat-sheets of useful behavior

I finished reading The Year of Living Biblically by A.J. Jacobs. In a sentence, it’s about a guy trying to follow the rules of the Bible literally. Many folks tell him this is impossible, but Jacobs sees a personally and culturally instructive lesson to this task. Some parts of the book struck me as naïve or superficial, such as his tithing and “caning” his son, other parts were observant or insightful, like his praying and honestly talking with a broad spectrum of different Christian and Jewish groups. Despite my criticisms, it is one of the best concluded books I’ve read in a long time. The last few pages show that, despite what others think of his Year, A.J. Jacobs gained something meaningful from it. He says, starting on page 328:

“There’s nothing wrong with choosing (the parts of the Bible that one wants to adhere to)…. The key is in choosing the right (parts)….*

“Now, this does bring up the problem of authority. Once you acknowledge that we pick and choose from the Bible, doesn’t that destroy its credibility? … Why should we put stock int he Bible? “…Let me offer two interesting ideas from (A.J. Jacobs’ spiritual advisers during his Year):

“Try thinking of the Bible as a snapshot of something divine. (i.e. not a perfect portrait, but an aid to job memory or thought about the subject.) “…(W)e can’t insist that the Bible marks the end of our relationship with God. Who are we to say that the Bible contained all wisdom? … You can commit idolatry on the Bible itself. You can start to worship the words instead of the spirit….

“…I’m now a reverent agnostic…. Life is sacred.”

Jacob’s conclusion to his Year is interesting. He didn’t convert to any brand of Christianity or Judaism, although he was raised and is culturally Jewish, but he found meaning in some Biblical activities despite his lack of faith. N. N. Taleb has come to similar conclusions about Christianity. I’ve discussed his views about following the Greek Orthodox calendar of feasts and fasts for dietary and health benefits, and he claims in Antifragile that religions provide useful heuristics that help people make decisions, regardless of the religion’s metaphysical or ontological presuppositions. Taleb claims that these religions have survived because practitioners of these religions have survived to teach the religion to their children, and he argues, if these traditions have survived millennia, perhaps there’s something to be learned from them. Note, in Taleb’s view, it does not matter whether one believes in the existence of gods. What matters are the commandments of the religion about how one ought to organize their daily activities.

In part, Taleb’s point is similar to Jacob’s Year: because Jacobs didn’t believe in the Bible’s divinity, he was simply trying to follow the rules stated in the Bible. Some of the Biblical rules dictate that one believe in a particular type of God, but by the end of Jacobs’ book, the rules that stuck were not that metaphysical or ontological rules about God: they were rules about the actions one ought to take, such as “give thanks”, “don’t lie”, “don’t steal”, “don’t work on the Sabbath”. After ending his Year, Jacobs’ feels like he has too many decisions to make, which is similar to the point that Taleb makes about heuristics, including religious ones, that people use to navigate the ocean of decisions we make each day. These millennia-old cultures can give us systems that simplify our daily lives: we may not know why these systems work, since they may be based on simply doing it, but these systems have kept people alive and socially interactive for a very long time. There is something of value to be gleaned from the practical behaviors outlined by religions.

However, warnings about false prophets are apt here. Scott, the writer of Sceptic Meditations, makes a good point that some folks use religious traditions to take advantage of others, and we ought to be on guard against those who would abuse religious practices simply to make money or control others. I don’t advocate that we ought to follow a religious tradition blindly because it’s apparently worked for others. Rather, I think that secular people can learn something from religious traditions. The Enlightenment, Renaissance, and Modernity did wonderful things for individual freedoms, but these historical movements also lead to an emphasis on an individual’s decisions over acting in the interest of a collective, which leads to a problem of which decisions one ought to make and where one ought to find guidance on those decisions. Some behavioral psychologists, such as Dan Ariely, Daniel Kahneman, and Amos Tversky, have noted that there is a problem in having too much choice: people don’t know how to choose when our choices multiply.

The tradition of Rational philosophers, such as Plato, Descartes, and Adam Smith, were wrong about people being Rational agents. Humans aren’t rational in the way that some Modern philosophers want us to be: we often behave irrationally, and consistently so. But somehow despite our inability to make the “right” decisions, Religions and ancient cultures that have survived to the present are a sort of cheat-sheet to simplifying some of life’s difficult decisions.

I think the recurring popular interest in Stoicism relates to folks’ desire to simplify, or get guidance on, some of life’s myriad decisions. Stoicism is an ancient tradition that happens to have several writers whose works have survived to the present. Additionally, one can read the Stoics in an agnostic way, without reference to the influence of dieties: combine that with the old-world guidance that writers like Seneca provide, and it’s easy to see why Stoicism appeals to folks who don’t already follow an “ancient behavior tradition”, for lack of a better term. And I think that’s what people are looking for: a guide for how to behave, rather than a guide about what to believe.

* To save space, I have to substitute the tenor of a complicated metaphor Jacobs builds in this paragraph.

How do you know?

In philosophy, the textbook definition of knowledge is, “Justified true belief.” This is also called, “propositional knowledge” because it can be embodied logical propositions. Most of the controversy in this definition occurs over what is ‘justified’ and ‘true’. Few people question that humans have beliefs. After listening to a podcast by James A. Lindsay about his new book Everyone is Wrong About God, in addition to a book I read nearly a decade ago, called Laboratory Life, early-twentieth century American philosophers James Dewey and William James, and N. N. Taleb’s ideas about religion. I’ve been thinking about alternative approaches to defining knowledge. I’ll explain these sources and try to tie them together into a new method of defining knowledge.

The problem with current epistemology is that it creates a problem out of how people logically express the contents of their mind. This bias in epistemology is taken as an axiomatic assumption, and it descended through philosophical practice from big names like Plato and Aristotle. I admit that this approach is valid and useful, but I wonder if there are other ways to understand human knowledge that may also shed different light on how we demonstrate what we know.

There is an alternative epistemological tradition, stemming from ancient writers such as Seneca and moving through history via thinkers like Nietzsche, the Pragmatist philosophers, and Taleb. In addition to our propositional knowledge, these writers describe performative knowledge, or knowledge based on what we do, but cannot necessarily describe in propositions — instincts are an obvious example of such knowledge, but I think some cultural traditions are also part of this kind of knowledge. In the field of cybernetics, such knowledge might be called an “emergent property” of an information processing system. In other words, there are actions that people do that are useful or valuable, but their value is not propositional. Moreover, Taleb claims that religious propositional knowledge is a second-order effect of religious actions; in other words, religious actions are primary to reasoned arguments people write to advance a particular religious tradition — according to Taleb, religions are nothing but performative knowledge that has been dressed up with post-hoc justified true beliefs; the theology books are post-hoc work that doesn’t necessarily defend a religious position. This idea is interesting to me, since much of our propositional knowledge is often wrong or at least inaccurate — consider that most human knowledge has been replaced over the recorded history of humanity.

If much of our knowledge is wrong or inaccurate, and we’re constantly revising and correcting it, what else can people rely on to provide useful information about the world, or do useful work? I think that behavior presents a useful alternative to propositions that we believe to be justified and true, since we’re typically interested in what we can do with those propositions: it’s not enough that we know how to build a house, cope with emotions, or treat a disease; we need to act on those statements to actually do those things. So, to say that knowledge is justified true belief seems to only address half of the problem. The other half is what we can do with those beliefs: do they work?