Mrs. P is writing a wonderful series of posts about the real vs. imaginary costs of child-raising. Read the first part here, and the second part, which is about housing, here.
I have written numerous posts on this subject as well, and I'll say this: living simply is not so much about skimping in whatever way you can (though that, too, can be a necessity if you're working towards getting out of debt or for other reasons), but more about re-evaluating your whole mode of thinking, what you really want, and what really is important to you.
Not long ago, I heard a heated radio discussion about how overpriced chocolate bars and breakfast cereals are in Israel. Militant moms urged a customers' boycott until prices are lowered. I laughed and observed to my husband that yes, we should definitely boycott such products - and not go back to buying them even if prices would plummet. Often, what is simpler and cheaper is also healthier and better for us overall.
Consider, for instance, how much some spend on vacations. After a weekend of visiting family in the city, I more than understand why people dream of a nature getaway, and are willing to pay an arm and a leg for overpriced cabins.
We, on the other hand, enjoy the quiet solitude of our home so much that we feel no need to go elsewhere to be well-rested. I estimate we pay as much per month as people pay per night in "nature retreats". An added bonus of living in the middle of nowhere is that you have no shops with window displays to make you restless and discontent with what you have. I'm not saying everyone can or should live the same way - you can make the choice to live simple anywhere, at any stage of life - but it's an example.
As for children, when they are young a large chunk of their "cost" is essentially daycare - paying someone else to shepherd your children. If you do it yourself, you save this cost and reap other, far more lasting benefits. The possibility of having a yard for safe outdoor play is better than the most expensive toys. Children are entertained and educated alike by sun, wind, grass, earth, insects, birds, clouds... they run about, play, climb and explore. They say a thousand entertaining things a minute, and you marvel at how sharp they are (3-year-olds do have fascinating logic. :-))
All in all, it seems to me that those who speak of the "impossible costs" of children come from a point of view of not wanting to have children in the first place, and are mostly making excuses. For when there's a will, there's sure to be a way to think outside the box of stuffy, overpriced daycare and the mad rush someone decided we are all supposed to be engaged in.