Economic Costs of Children

Here’s another installment of  my economic analysis of marriage. This time we’re calculating the cost of children.

Conveniently,the USDA has done a study, and it costs $235,000 to raise a child (in a family of two) through age 17 for a middle-income family, about the price of a 2012 Ferrari.

So the question is, over time, which do you think would bring you more utility, a Ferrari or Junior (or a medium sized house, or 4 years off work if you make $60k, etc.)?

That’s that.

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But that doesn’t really make much of a blog post, so more in-depth analysis of the study.

annual expenses ranged from $8,760 to $9,970 for families with a before-tax income less than $59,410, from $12,290 to $14,320 for families with a before-tax income between $59,410 and $102,870, and from $20,420 to $24,510 for families with a before-tax income more than $102,870. (p. 10)
….
As can be seen, total family expenses on a child through age 17 would be $212,370 for households in the lowest income group, $295,560 for those in the middle, and $490,830 for those in the highest income group. In 2011 dollar values, these figures would be $169,080, $234,900, and $389,670, respectively. (p. 20-21)

Here we can see that a lot of the cost of child rearing is likely optional. Low income people can do it for $170,000, so they could only get a 2008 Lexus instead.

If we look at page 26, there’s a complete breakdown of the numbers. Low income people made on average $38k, medium made $80k, and high made $180k. So, we can calculate that, low income people spent about 1/4 of their yearly income on a child, medium income spent about 1/6, and high income spent about 1/9. Because this number is based on having two children, it means you average poor 2-child family would spend half their income on a child, medium would spent a third, and high would spend about a quarter. So, as you get money, you spent a smaller proportion of it on children.

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housing accounted for the largest share across income groups, comprising 30 to 32 percent of total expenses on a child in a two-child, husband-wife family. For families in the middle-income group, child care/education (for those with the expense) and food were the next largest average expenditures on a child. (p. iv)

Food was the second largest expense on a child for families in the lowest income group, accounting for 18 percent of total expenditures. Food was the third largest expense on a child for families in the middle income group, accounting for 16 percent of total expenditures. Transportation made up 13 to 15 percent of total child-rearing expenses over the income groups. (p. 11)

Housing is the biggest expense. The study calculated housing by the cost of adding extra bedrooms to the price of a house. You could save money by buying cheaper real estate or jamming or making your kids share rooms or change the basement into the room (both strategies my family used at various times).

If we look at page 26, you can see that costs vary a lost, although, food, clothing, and healthcare vary less, while child care, miscellaneous, transportation, and housing vary by a much larger proportion. This suggests you can only save (or overspend) so much on eating, clothes, and health, but a lot of housing, transportation, and miscellaneous costs are optional. Child care varied the most, so this could either be optional, or simply be that higher income people used proportionately more of it to gain those higher incomes.

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Overall annual child-rearing expenses were highest for husband-wife families in the urban Northeast, followed by families in the urban West and urban Midwest; families in the urban South and rural areas had the lowest child-rearing expenses. (p. iv)

So, choose where you live when you want a family to save on housing costs. If you live in a lower cost area, it costs less. Pretty self-explanatory. Steve Sailer wrote an interesting article on this kind of thing before, give it a check.

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For all three income groups, food, transportation, clothing, and health care expenses on a child generally increased as the child grew older. As children age, they have greater nutritional needs so consume more food. Transportation expenses were highest for a child age 15 to 17, when he or she would start driving. Child care and education expenses were generally highest for a child under age 6. (p. 12)

Interesting, I though babies would be more expensive. Kids eat more as they age and young children use more child care. Makes sense. Learning to drive increases transportation expenses, probably due to buying your kid a car, so tell your kid to get a job and buy his own car.

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Compared with expenditures for each child in a husband-wife, two-child family, husband-wife households with one child spend an average of 25 percent more on the single child, and those with three or more children spend an average of 22 percent less on each child. (p. 17).

So, as Bryan Caplan pointed out, children get cheaper the more  you have of them. For the middle income family, a single child would cost $294k, 2 children would cost $470k ($235k each), and 3 would cost $550k ($183k each). For a lower income family, one would cost $211k, 2 would cost you $338k,  and 3 would cost $395k.

For a middle income family: the first child costs you $294k, the second costs you $176k (60% of the cost of the first), while the third costs you only $80k (27% of the first).

For a lower income family: the first child costs you $211k, the second costs you $127k (60% of the cost of the first), while the third costs you only $57k (27% of the first).

So if you decide to have children, have three or more. Your third child has a 73% discount on the cost of the first, a steal. You can also save a lot by adopting a lower income lifestyle.

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Conclusion:

Kids cost a lot, about as much as a Ferrari, but which would add more value to your life?

A lot of child rearing expenses are optional as evinced by the fact low income families can raise kids on less costs than other families. Housing is the biggest expense and a lot of the costs are optional. Children can be a lot cheaper if you buy less house, squeeze the kids in, and buy in a cheaper area.

Your first kid costs a lot of money, your second costs a fair amount, but your third kid and beyond cost very little, so, if you do have children have a lot. The marginal costs of the additional children after the second are very low.

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7 responses to “Economic Costs of Children

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