McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter 31

The Economics of Children

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Outline

• TAXPAYER SPENDING ON CHILDREN

• PARENTAL SPENDING ON CHILDREN

• WHO’S HAVING CHILDREN

• OTHER SOCIAL CHARACTERISTICS OF CHILDREN

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Taxpayer Spending on Children

• $389 Billion on K-12 education• $146 to $197 Billion on Welfare (for many programs

you do not qualify unless you have children)– TANF– SSI/EITC*– Food Stamps– Housing Subsidies– Medicaid**These are the exceptions. It is somewhat difficult separate

adult from child eligibility for SSI and EITC. Many elderly qualify for Medicaid on their own.

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Parental Spending on Children

• Between $6,080 and $13,800 is spent by parents per child depending on family living standards.

• Using the concept of present value, the total cost of raising a child to age 18, (excluding birth, daycare, and college) is between $88,000 and $175,000.

• Other costs– Birth Costs– Opportunity Costs – Daycare– College

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Opportunity Costs

• When families have children they lose earning potential.

• This happens more often and to a greater degree with women.

• Economists count as a cost of having children the income that would have been earned by parents that stay-at-home.

• Taking opportunity costs into account can double the cost per child.

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Saving for College

• Present Value: the amount you would have to set aside today to pay for college for a child 18 years from their birth.

• Savings: How much do you have to save per year to have enough to put a child through college 18 years from now?

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Hypothetical Example• Suppose there are two alternatives

– State U currently costs $10,000 per year– Private U currently costs $25,000 per year

• Assume tuition is rising at 4% annually.• Assume you have a mutual fund that nets 8%

annually.• In 19 years State U will cost $20,000 and Private U

will cost $50,000.• If you start at the child’s birth you will need to save

$1,850 per year to pay for State U and $4,625 to pay for Private U.

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Who Has Children

• Birth rates among the poor and among minorities is substantially higher than it is for the middle class or wealthy or for whites.

• 70% of all children live with both parents while for African-Americans the figure is 33%.

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Poverty Among Families With Children

• The Poverty Rate for children (around 20% depending on year) is nearly twice the national average (around 11% depending on year).

• The Poverty Gap for female-headed households with children is $2,151 vs $1,615 for married households with children.

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Other Social Statistics for Children

• Children 12 to 19 are 15% of the population and nearly 30% of crime victims.

• 15% of children have no health insurance

• 25% are improperly immunized

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Divorce and Child Support

• There are 8 million non-custodial fathers (NCFs) that have 15 million children.

• NCFs are ordered to pay on average $3,400 per child, and less than half of that is paid.

• Married fathers typically contribute 19% to 39% of their income to the support of their children while NCFs that pay support typically pay less than 15%.