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December 09, 2019

How much do children cost?

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Many government transfer payments are based on the costs of child-rearing. For example, most tax systems include tax deductions, sometimes quite large, for families with children, with greater benefits accruing if more children are present. Family policies also include targeted transfers that are intended to assist with specific child-related expenses, such as tuition fees. As well as being important for the above, measures of the cost of children are also indispensable in calculating changes in poverty and inequality over time, for comparing poverty and inequality across countries, and for calculating amounts of child-support payments.

In the most recent OECD publications, the cost of one child is assumed to equal 18% of parents’ total expenditure in a couple with a single child, and it decreases with each additional child. The cost is calculated as dropping to 14.5% if there are two children and 12.3% if there are three children. But, such evaluations contain a large degree of arbitrariness. In fact, measuring the cost of children for parents is a surprisingly complex task, and economists have had a difficult time making these calculations. While the question of how much children cost could be answered directly by investigating “who gets what” in the family, doing that would ignore a serious problem, because many purchases (think about natural gas or fuel oil used to heat a home) benefit both parents and children—the entire family—making it difficult to assess how much each family member consumes and thus how to apportion costs across the family.  

To evaluate the cost of children, economists therefore use sophisticated models to disentangle the parts of family expenditure that can be apportioned to children, as reported by traditional surveys. What do they find? Actually, the estimates they obtain are not in fact very different from the ad hoc measures produced by the OECD. Focusing on some recent studies, the cost of a child in a single-child family is measured at between 15% and 25% of parents’ total expenditure. But, why do researchers obtain such a broad range in their estimates? The answer is that empirical studies use different methods and a large variety of data sets from poor as well as rich countries. It is worth noting, however, that evaluations do not change much with the wealth of parents: the percentage is almost the same in low- and high-income families. It also does not depend much on the sex of the children (although the literature concerning this point is a little ambiguous). It is, however, often observed that expenditures on older children are slightly larger than those on younger children.

Parents thus keep for themselves about 80% of the total expenditure of the family. Yet, the presence of children certainly constrains these expenses and forces parents to spend differently, particularly on how they use their time. For instance, parents may no longer have the time to practice the hobbies they had before they had children, and if they continue to do so, they will no longer do those hobbies together. Indeed, it is generally observed that parents spend less time together than childless couples, especially if they have a pre-school child. These disruptions represent a cost that is difficult to quantify. 

More important may be the long-term costs associated with a parent’s withdrawal from the labor market because of the arrival of a child in the family. They consist of a direct loss of earnings, which is mainly borne by women. This encourages economists to think that even though the share received by children may only be around 20% of total family expenditure, the actual cost borne by parents is certainly much higher. It is fair to say that we do not have a good estimate of this total cost.

© Olivier Donni

Read Olivier Donni’s IZA World of Labor article “Measuring the cost of children.

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