A new study released today by BMO Harris Bank found Indiana parents spend an average of $704 each month on child-related expenses, slightly below the national average of $795.

Hoosiers who are planning to have children estimate the cost will be $1,379, closer to the mark than the national average estimate of $2,143, but still more than actual. Fifty-seven percent of all Indiana respondents recognized the need to save for kids, but only one in five prospective Indiana parents have started saving money specifically for child-related expenses, on par with the national average of 21 percent.

Three out of four Indiana parents of young children (76 percent) have budgeted for the cost of raising them. However, 37 percent of parents have gone into debt to cover the cost of raising children, the highest percentage in the country.

“It’s difficult to estimate the cost of raising a child, especially when you have no experience doing so,” said Tim Massey, Indiana Regional President, BMO Harris Bank. “Creating a detailed budget, that includes everything from childcare to extracurricular activities, can help those expecting their first child to understand better the overall costs and how to prepare financially for the inevitable changes children bring.”

The study, which surveyed parents expecting to have a child in the next 5 years or with children less than 10 years old, found that in Indiana:

• Future parents underestimated the costs, expecting to pay $292 per child annually, while those who currently pay for it saying it costs $429 (Nationally: $507 vs. $437).
• Those soon-to-be parents planning to contribute to a 529 Plan estimated they would put away $185 on a monthly basis. Current parents who already contribute said they contributed only $119 (Nationally: $303 vs. $196).
• Future parents estimate food costs would be an average of $308 per child monthly, but the average spend for current parents was half that – $155 (Nationally: $347 vs. $160).

At a national level, the survey found:

• Most parents (85 percent) report having to make cutbacks to pay for children.
• More than a quarter (28 percent) have gone into debt.
• 82 percent of new and expecting parents have a budget in place.

“The cost of raising a child is a major outlay for households, but current and would-be parents have to be careful to incorporate these actual and expected outlays in their family budgets. This often means cutting back on spending elsewhere and exercising caution when using credit,” said Michael Gregory, Head of U.S. Economics, BMO Capital Markets. “Households across America have made remarkable progress in repairing their balance sheets during the past few years. Across all households, mortgage and consumer credit peaked at nearly 125 percent of after-tax personal incomes during 2007 and it has since fallen under 99 percent, hovering around its lowest level in more than a decade.”

For more information about planning for the next Life Stage, visit bmoharris.com/yourfinanciallife.

Survey results cited in this release are from a Pollara survey with an online sample of 1,500 Americans (including 150 from Indiana) conducted between Nov. 22-29, 2013. This includes 993 interviews with parents of children under 10 and 507 interviews with Americans who expect to have their first child in the next 5 years. The margin of error for a probability sample of this size is ± 2.5 percent, 19 times out of 20.

Source: BMO Harris Bank, Inside INdiana Business