Why the average wage-earner can’t afford kids
During the third quarter of 1994, the median U.S. home sale price was $129,700. By the third quarter of 2024, it was $420,400, according to the Federal Reserve.
Not only have home prices soared in the wake of the pandemic, but mortgage rates, after dipping to record lows, have remained elevated in the past few years.
This double whammy has put homeownership out of reach for many potential buyers, particularly first-timers who don’t have existing home equity to tap into.
In fact, based on today’s average 30-year mortgage rate of 6.81% (as of Nov. 29), a $420,400 home that’s 80% financed would leave its owner with monthly payments of roughly $2,202 for principal and interest alone.
However, according to data from the Bureau of Labor Statistics (BLS), salaried workers in the U.S. had median weekly earnings of $1,165 in the third quarter of 2024, which adds up to a $60,580 annual salary.
That puts a $2,202 mortgage payment at almost 44% of the median monthly income, which is well beyond the 30% rule for housing costs most financial experts recommend.
Given that many adults today can’t even afford the stability of homeownership, it’s easy to see why they feel they also can’t afford kids.
But it’s not just that housing costs are up. Inflation has surged since the pandemic, driving up the cost of just about everything — and that extends to child care.
Care.com puts the average cost of infant daycare at $321 a week for one child.
At four weeks of care per month, a parent earning the median U.S. income would be spending about 25% of their pay on child care alone.
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Learn moreA down payment may not solve the problem
As a parent of an adult child, you may have the best intentions in wanting to buy them a home so they can feel more secure about having kids of their own. But unless you’re buying them that property outright, your financial assistance may not solve the problem.
A down payment on a typical home today would be an extremely generous gift. But if your adult kid is worried about affording the cost of raising a kid and child care, they may still struggle to swing a mortgage, property taxes, and insurance.
So, unless you're willing to continue subsidizing their lifestyle, buying them a home may not be a great solution. It also won’t guarantee that you even get a grandchild, and it may put undue pressure on your adult kid to “repay you” in the form of procreation.
It may be that you’re able to offer ongoing financial support on top of a home down payment, or that you’re willing to step in and provide free child care, thereby eliminating that expense.
However, the world isn’t only expensive for millennials and Gen Z. According to a report from Edelman Financial, 72% of Americans are struggling with cost of living increases and credit card debt.
Factor in the study from Northwestern Mutual that showed the vast majority of future retirees believe they need a whopping $1.46 million saved in order to retire comfortably, and it becomes clear as to how difficult it would be for many older Americans to offer financial support to grown kids.
That number is also far from reality, with boomers having only an average of $120,300 saved for retirement. At the end of the day, saving responsibly for retirement and building a considerable nest egg is still an important priority.
In addition, you can be as generous as your means allows for, but at the end of the day, it’s your potential grandchild’s parents who will be taking on the logistical and emotional burden. This is assuming they even truly want to have kids.
Finally, remember that there may come a point when your financial resources run dry. If your grown child isn’t in a position to support a kid of their own, that’s a bad situation for everyone to be in.
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