Thursday, January 17, 2008

The Economics of Raising Children

Before the industrial revolution, children were largely seen as an economic asset. Although, they were extra mouths to feed, within 10 years children would be able to start working, either at home or in the fields. This would provide valuable income / produce for the family. The cost of raising children was low; children required no schooling, no fancy X boxes, they were an investment for a family. Having children had an economic incentive.

Another important factor about having children was that it provided the best hope for old age insurance. In an era of no government pensions and limited social welfare, who would look after you in old age? Hopefully your children. But, since death rates were quite high, children often had only a limited chance of reaching adult life and outliving their parents. Therefore parents felt it necessary to have several children to ensure there would be a at least some children who would survive to look after them in old age. This in part explains higher birth rates in developing countries.

However, in modern society the economics of bringing up children has completely changed.

Now children will be unlikely to start working before 18. And when they do start working they are unlikely to give any money to their parents.
Furthermore the cost of bringing up children has escalated with the development of consumer society.

Cost of Children

The cost of bringing up children in the US, has been documented in this study here cost of bringing up children

It is estimate that a low parent family with income of less than $40,000 will spend $124,800 on their children by the age of 18

For a family earning over $65,500 the estimated cost rises to $249,180

Furthermore, having children reduces the potential earning power of parents, especially women. The firm may pay maternity leave, but taking a break to have children leads to poorer career opportunities and less chance for promotion.

Given the economics of having children it is hardly surprising that we are witnessing a decline in birth rates. Indeed from the perspective of rational behaviour, there seems no economic incentive for having children at all. Maybe its a good job economics isn't everything after all.

This in itself could be a serious economic problem as many Western governments face a looming demographic timebomb - less workers to pay taxes, and more old people to receive pensions and health care treatment.

It is unlikely subsidies for children would alter social trends in having fewer children. With a cost of over $200,000, the subsidy would have to be pretty high to make any difference.

An easier option for government may be to actually encourage immigration, especially of young people.

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