How much does it cost to raise a child? An expert has analyzed the numbers

Australians have less Children More than ever. 1.5 children per woman, but fertility rate The record is at a low level. Many people attribute this to the cost of producing and raising children.

If this is true, it raises questions about intergenerational fairness and future planning for governments. What do we do about young prospective parents who are opting out because it’s too expensive?

The problem with this assumption is that while it may seem true that having children may have become more expensive over the past few decades, it is not that simple.

So what do parents have to do to raise children? How do we measure this, and are children really that much more expensive now than before?

Crunching the numbers

Calculating the costs of raising children is a complex task that raises many questions for academics to consider. Is the second child less expensive than the first child? Are older children more expensive than younger children? Do higher-income families spend more on children than lower-income families, and how much of that spending is necessary versus discretionary?

These are debates in the literature for which, despite much research, there are not necessarily clear answers.

Researchers also debate whether we should only talk about direct costs, or whether we should also consider indirect costs, such as effects on paid work hours or loss of leisure time for busy parents. We focus on direct costs here and in our paper for the Economic Inclusion Advisory Committee.

One way, and perhaps more intuitive, is the “budget standard” approach. It puts a price on the cost of a basket of goods and services for families with and without children. The difference is the cost of the children.

It sounds simple until it’s not. For example, do you need a fourth bedroom for a third child? Do you need a bigger car? A big fridge? Private or government school? Child care or home care? What about hand-held clothing and toys?

Another approach, on which we focus, is a survey-based statistical method (or “iso-welfare” in technical terms) that compares the living standards of different households. We ask how much more income (or expenditure) is needed to ensure the same standard of living between a family with children and a family without children.

Standard of living is measured by how much of total household income or expenditure is spent on basic goods such as food or utilities.

The logic here is that a family which spends (on average) a lower share on basic goods has a higher standard of living than a family which spends a higher share on basic goods.

About the author

The latest high-quality surveys on expenditure in Australia Now ten years old, we have taken a new approach in our latest research. Instead we use financial strain as a measure of standard of living.

Using Housing Income and Labor Dynamics in Australia (HILDA) data, we model financial stress against income and other household variables and estimate how much additional disposable income a household with children needs to maintain the same standard of living as a couple without children. That extra income is considered the cost of the children.

Although there are many advantages to using this method, one major drawback is that it does not give you an estimate of how many people are in a household. requirements to spend, rather than how much they to do spend. Families may spend more than they need.

So, how much do families spend on children?

We estimate that families spend about 13% of their disposable income on the first child and ten percentage points on each child thereafter.

Earning typical after-tax income (about A$130,000 per year) for a working-age couple, which equates to about $17,000 per year for the first child and about $13,000 per year for each subsequent child.

This means that to raise the eldest child to adulthood, the couple will spend about $300,000 in today’s dollars over 18 years. The cost for each child would then be around $230,000.

Low-income families spend a greater share of their income on children, about 17% on the first child and 13% on subsequent children. But these families spend less absolute amount on children.

Does the cost change with the age of the child? There is uncertainty about this, but our latest research suggests that younger children and older children are slightly more expensive than middle-aged children (six to 12).

This finding contradicts previous research and conventional wisdom that older children are the most expensive.

These estimates are not set in stone. There are different ways to estimate such numbers and they may vary depending on the definitions you adopt and the methods you use to analyze the data.

Well, are children worth more now?

The HILDA dataset is collected over several years, so we can compare the costs of having children through time, even if not perfectly.

Single-year samples are relatively small and prone to error, but the analysis shows that child care costs have not changed much since 2001.

Our research does not provide clues as to why fertility rates have fallen in Australia (as in most developed countries). Other data, such as Australian Bureau of Statistics income surveys and financial stress data, suggest that real incomes for couples with children have increased over the long term (although not by much, if at all, in recent years).

The lack of evidence here probably points to other factors reducing fertility rates. Families may be delaying the birth of children to focus on other activities such as employment or education. It is more acceptable for couples, and especially women, to decide not to have children.

Another possible reason is that people are being discouraged by the perception of high costs rather than the actual costs. Or perhaps people want to spend their money elsewhere.

Calculating the costs of children is complex and vague, but it is fair to say that the evidence does not show that the direct costs of children are becoming more expensive over time. Younger generations not having children, or having fewer children, is probably related to many factors, but we cannot discount intergenerational affordances.