How Much Does a Toddler Cost? – FIRE Edition

Our youngest turned two recently. With two young kids in the house (a toddler and a pre-schooler who often behaves like a toddler…), I thought this is a great time to write a follow-up on our popular article about the cost of having a baby.

The cost of raising a child is a heavily debated topic in the personal finance community and amongst parents in general. In this article, I share our child-related expenses during the toddler years to help answer some of the questions I get asked about this topic.

So, how much does it cost to keep a toddler happy, fed, clean, healthy and entertained in Australia in 2022?

Let’s find out.

First Things First: What Is a Toddler?

Different people have different opinions about what is considered a toddler. For this article, the toddler age range we’ll use is 12-36 months. Between 12 and 18 months, the baby/toddler lines are a bit blurred. After turning three, a child is a pre-schooler, in my opinion.

The Cost of Raising a Toddler

Just like no two babies are the same, no two toddlers are the same. Your family, situation and setup are probably different from ours, so your costs will also be different.

People often say that kids don’t cost a lot of money while they are young. There is some truth to this statement: they don’t need a lot of “stuff”, don’t eat that much and are happy in second-hand clothes.

But what often gets ignored (more often than not by people without kids who write about this topic) is that it’s not the child that costs a lot of money – it’s the family’s lifestyle, spending patterns and needs that change when you have kids. And these changes don’t come cheap in our experience.

In this article, I’ll cover our child-related expenses during the toddler years. We’ll also discuss going back to work after parental leave, working part-time and how having young kids impacts the FIRE equation.

Note: For reference – we are a semi-retired family with two young kids and live in Sydney, Australia. The costs listed below are per year per toddler (I mainly used data for our oldest but used averages where it made more sense). All amounts are in $AUD.

Toddler Cost #1: Toys, Clothes and Equipment

Just like with one-off baby purchases, people focus too much on the cost of toys, clothes and equipment for toddlers. These don’t make a big difference in the long run as long as you don’t go overboard and resell some of the more expensive items once they are no longer needed.

We bought a mix of new and second-hand “toddler equipment”.

Here are some examples:

• Balance bike and helmet – new (incredibly hard to find second-hand in our area)
• Scooter – one new, one second hand
• Toys, puzzles, Duplo bricks, books – a mix of used, new and received as gifts
• Backpack for childcare, lunch boxes, drink bottles – new
• Clothes – mostly second-hand
• Shoes – always new
• Sleeping bags – some used, some new
• Furniture – second-hand

You get the idea.

A note on clothes: after size 1 (12-18 months), finding decent-quality second-hand clothes (especially bundles) becomes increasingly challenging. This is probably because kids wear sizes 2 and 3 for much longer and are much more active. Some of the second-hand clothes I bought for our first wore out before our second had a chance to wear them, so I would have been better off buying some clothes new.

Average annual costs for toddler toys, clothes and equipment: $1,754.38

Note: The expenses in this category are MUCH lower for our second for obvious reasons.

Toddler Cost #2: Activities

Toddlers want to be entertained, but fortunately, they are pretty cheap when it comes to activities.

We spend a lot of time at the beach, and in the park and know every playground in a 3km radius like the back of our hands.

The most expensive toddler activity for us was swimming lessons ($240 per term) which we started at age 2. Before that, we often went swimming at the beach and occasionally visited our local aquatic centre.

Other activities included frequent visits to Taronga Zoo (we love our annual Zoo Friends membership, such a bargain!), occasional play centre and museum visits on rainy days.

Around age two is when getting invites to other kids’ birthday parties becomes a thing, so there is also the occasional cost of a small present.

Average annual costs for toddler activities (including swimming lessons): $1,360

Of course, you could also spend a lot more on activities. I know a lot of families who spend big on classes like music and dance, toddler yoga, messy play, etc. My kids do many of these things at childcare, so I never saw the need to pay for additional classes.

Toddler Cost #3: Food and Nappies

After age 1, toddlers can switch to regular cow’s milk (if they were on formula before that). They also don’t eat that much (well, at least ours don’t/didn’t). So we have found the food cost for toddlers negligible. We did spend a bit of money on some special toddler snacks that are technically not needed but make morning tea on the go easier.

When eating out, we usually just asked for an extra plate and shared some of our food (again, our kids are/were not big eaters).

Sometime after age 2, most toddlers start toilet training. Our oldest was almost three by the time he was ready, so we still bought nappies for most of his time as a toddler.

I tried to estimate the cost of food for our toddler plus nappies, wipes, etc. by comparing our supermarket spending to the baby years. Overall I would say the cost of food and nappies for a toddler is similar to that of a formula-fed baby – about $200 a month.

Annual cost for toddler food and nappies: about $2,400.

Toddler Cost #4: Doctor Visits and Other Medical Expenses

I experienced pregnancy complications (requiring lots of ultrasounds and tests) with both of our kids, and they needed frequent specialist appointments in their first year of life. Fortunately, they are both happy and healthy now and needed very few doctor visits after age 1.

So apart from some paediatrician and GP visits (mostly bulk-billed), the occasional urgent care visit (also bulk-billed) and some over-the-counter medications, they did not incur high medical costs.

Average toddler annual medical costs: $372.14

Of course, the costs could be completely different if the child requires more frequent specialist appointments, medical equipment or hospital stays. I know several parents with toddlers who need a lot of medical attention and their costs are wildly different.

Toddler Cost #5: Travel

I am using the travel expenses for our youngest (who just turned two) over the last year as we didn’t travel much before then because of COVID.

We aim to do two domestic trips and one international trip to Europe each year.

Travel is a tricky cost to calculate because the way we travel has changed when we had kids. Some examples:

• We choose faster flight connections at convenient times and with airlines we know and trust. In my 20s I picked whatever route was the cheapest, even if it took 2+ stops and over 30 hours of travel time to fly to Europe, for instance.
• We stay in nicer hotels or Airbnbs with better amenities and usually opt for apartment-style accommodation, which generally costs a lot more.
• We park our car at the airport for shorter trips because we have a lot of luggage with two young kids. When we travel for longer we book a private shuttle transfer to get to the airport.
• Rental cars cost more because we need room for our luggage and stroller and have to pay for car seats.

The list goes on. It’s just different when you travel as a family. So for this line item, I’ve divided our total family travel cost for the past year by 4.

Average annual travel cost per person: $2,783.25

This includes two domestic trips (1 week in QLD staying in hotels; 4 days in SA staying with friends) and six weeks in Europe (staying with family).

Note: From age two, toddlers need their own seat on a plane, so the cost goes up a lot if you fly regularly. During our recent trip to Europe, we booked our youngest as a lap infant at 21 months old. It saved us some money, but we paid for it with back pain and no sleep.

Ok, so now that the standard line items people think about when they talk about kids’ expenses are out of the way, let’s move on to the actual expensive stuff.

The Elephants In The Room – Loss of Income and Childcare

I wrote about this in detail in the previous baby cost article, but this is a big factor in the toddler years as well.

Most parents (mainly the mums) are back at work in some capacity when their child turns 1, often on a part-time basis.

I started back at my old job one day per week when our second baby was 10 months old and then transitioned to two days. Three days per week seems to be a happy middle-ground for many. Four days is a slippery slope as it’s pretty much a full-time role and gets treated that way in terms of expectations and workload as well.

I know quite a few parents (ok, mums…) who went back full-time after having a baby and are making it work. However, both parents working full-time becomes a lot less feasible (both financially and stress-wise) once you have more than one child.

The loss of income comes from several factors:

• The obvious one – when you work less, you earn less.
• Career stagnation – after taking time off to care for a baby, parents tend to return to the job they had before they went on parental leave, meaning they missed out on career advancements and raises. Plus, when you work part-time, it’s much more likely your career will stagnate.
• Childcare! More on this below.

Toddler Cost #6: Childcare

Unless you get free childcare in the form of grandparents you’ll definitely pay for the privilege of working. I know several mums whose entire pay goes to childcare because their household income is so high they don’t qualify for a rebate.

We are in the fortunate position that, technically, one of us could stay home with our kids full-time. Alternatively, we could adjust our part-time schedules so that at least one parent is home each day to look after the kids.

However, we would send our kids to childcare even if we stopped working completely because we appreciate what it does for their development and independence. We believe in the value of high-quality early childhood education. The social interaction and learning opportunities provided in the childcare setting are just not things we could ever replicate at home.

Both our toddlers go/went to childcare three days per week, and we receive a CCS (child care subsidy) rebate of around 50%.

Average annual cost of childcare per toddler: 13,495.82

I won’t calculate our loss of income because we work part-time by choice, not out of necessity.

A Word On Housing

This is the other elephant-in-the-room type of expense. Before kids, we lived happily in a 1-bedroom apartment by the beach. Once our first turned one the space became too small, and we now rent a 3-bedroom apartment. We also just purchased a 4-bedroom home in a family-friendly location with decent schools nearby that we’ll move into sometime in the next few years.

Would we have bought a house if we didn’t have kids? Most likely not. We would probably have purchased a bigger apartment or a townhouse in a lifestyle location at some point instead.

This is another example of how having a family just changes your life, priorities and spending. The difference between the apartment/townhouse we would have bought without kids and the house we ended up buying is several hundreds of thousands of dollars.

Would I list this difference in the “kids expenses” category? Of course not. All I am saying is that these are considerable costs that people forget about when they are too busy talking about how to save money by buying second-hand toys. I think you get my point.

So, How Much Does a Toddler Cost?

Let’s do the sums:

Toys, clothes and equipment: $1,754.38
Activities (including swimming lessons): $1,360
Food and nappies: $2,400
Medical costs: $372.14
Travel: $2,783.25
Childcare: $13,495.82

TOTAL: $22,165.59

So our toddlers cost us just over $22,000 per year on average.

Remember, your costs will likely look completely different from ours, and this breakdown does not include invisible costs like loss of income or housing. Childcare alone can cost upwards of $45,000 annually if you use an expensive centre, work full-time and don’t qualify for a CCS rebate (you can use this excellent CCS calculator you can use to estimate your childcare costs).

Toddlers vs Financial Independence

The same principles I wrote about in the baby cost article apply here: saving for FIRE gets harder when kids are on the scene.

Sure, you can go back to work full-time and try to out-save the childcare fees and higher cost of living in general, but it’s definitely a drag. Plus, the toddler years are e x h a u s t i n g. Saving for retirement is probably the last thing parents with young kids want to think about.

I actually think that having a baby is the perfect moment to exit the rat race. No one will question you for taking time off or working part-time as a young parent, so you avoid many awkward conversations. We semi-retired just after our second child was born, and I am so grateful we don’t have to worry about saving and investing anymore. Working 3-4 days per week (I love the portfolio career approach) works perfectly for our family.

I speak to many young parents who are desperate to find a way to avoid having to go back to work or to at least be able to work part-time. It’s not an easy situation to be in if you don’t have financial buffers to fall back on. I firmly believe everyone should try to get to a level of financial independence before having kids. Front-loading savings and investments before the first baby arrives is much easier and more efficient than getting it done later.

If you can get to Flamingo FI (or even just Coast FI) before having a baby you have options. You could take an extended break and eventually semi-retire and only cover your living expenses moving forward. Another option is Barista FI. With Barista FI (also known BabyFIRE!) you have the option to cover your expenses with a mix of part-time work and investment income while your kids are young. You could then always go back to work to top up your retirement savings when the kids are a little older. I covered this particular strategy in this article.

Conclusion

Toddlers are not cheap, and there are many “invisible” costs to consider when making a financial plan for your young family. The costs vary considerably from family to family, depending on your unique circumstances and care arrangements.

Achieving a certain level of financial freedom before having kids is always a good idea. Options like Coast FI, Flamingo FI and Barista FI are great options for parents with young kids as they take the pressure off financially and allow you to work less and spend more time with your family.

Experienced parents – is there anything you’d add to the list? And those of you who are thinking about starting a family, did the above costs surprise you?