Second Child May Bring Debt 'Breakpoint': Research

If you’re thinking of having a second child, consider this: your debt load could rise dramatically, according to new research released Wednesday from CareOne Services.

“For the last three years in a row, families moving from one dependent to two dependents saw around a 20% jump in outstanding debt,” says Mike Croxson, president of CareOne.The research analyzed the debt and family status of more than 120,000 Americans enrolled in debt management programs since 2009. In 2011, the average debt load jumped from $13,587 in one-child families to $16,046 in two-child families, but then leveled off as families grew beyond two children, the research found.

“The breakpoint really does occur when families go from one to two children,” says Croxson.Add in the fact that having a family isn’t cheap: The cost of raising a child born in 2009 will cost an estimated $286,050 for middle-income families, according to a report by the United States Department of Agriculture.

Though the research didn’t explore the reason for such a dramatic debt leap in two-children households, sizable expenses like a bigger home and a roomier car likely play a role — as does the presumed need for “more stuff,” Croxson says.

“People tend to let habit take over, and they purchase more whether they need it or not. Expenses creep in when there’s not a plan for how things are going to be done,” he says.Poor planning is also a factor in burgeoning debt levels. “With a second child, you naturally get lulled into thinking you don’t have to buy a new crib or buy a lot of new clothing…but the reality is that all the expenses associated with the first kid are going on along with the ones you’re now adding, like daycare,” says Croxson.

The good news is that family debt loads are creeping downwards: in 2011, two-children households carried an average debt of $16,046, down from $18,389 in 2009.

Still, Croxson emphasizes the need for creating a plan that targets all facets of your finances – not just the expenses that go along with a new child — regardless of the size of your family.“I can’t tell you how many people we counsel here who are lavishing their children with things and at the same time they’re worried about their kids’ college education, they don’t have an emergency savings plan and they haven’t started planning for retirement,” he says.

“If they don’t take care of themselves, nobody else is going to do it when their children are gone.”