The Cost of Raising Children

The annual cost of raising a child is important information-for its own sake and also for public policy purposes. Such estimates can be helpful to parents or prospective parents. It can also inform policies related to child benefits and possible parental child support obligations. This paper reviews prevailing approaches to the measurement of child costs and proposes budget based alternatives. The paper argues that there is no methodology or formula that can determine how much parents need to spend to raise children or, even, how much they actually do spend. What we do know is that parents at all income levels have successfully raised children. The objective of this paper is to find, at least, a base level of annual child costs that would need to be covered for the healthy development of the child.

The cost of raising a child is defined as the cash outlay ?marginal? costs that parents spend when they add a child to their household. These costs specifically exclude any costs that were already in place prior to the child and would still be in place if the child leaves the household. The cost of raising a child is usefully distinguished from the costs involved in the decision to ?have? a child, which necessarily includes the full opportunity cost of such a decision.

There are two broad strands of estimates of child costs. One strand is that group of estimates produced for popular consumption. The other strand includes estimates produced by academic economists and statisticians. While there is some overlap between the two strands, the former tends to be less technical and less reliant on economic theory. However, at the core, both strands attempt to extract relevant information from actual household expenditure data. This paper critically reviews both strands and finds that both rely heavily on heroic assumptions about how to extract the child?s portion of actual family expenditures.

Prevailing estimates of the cost of a child for Canada and the United States, currently, tend to be in the range of $10,000 to $15,000 per annum. These cost estimates have a distinct middle class bias and do not reflect the reality of raising children in lower income and newer immigrant households.  There is a concern that such estimates send a clear message to lower income families that they really cannot afford children and, perhaps, shouldn?t have any.

Examining the basic marginal costs necessary for the healthy development of a child, this paper finds that an annual outlay of $3,000 to $4,500 (depending on the community or region and the age of the child) would be sufficient. These cost estimates exclude any savings strategies such as home gardens, sewing and knitting clothing, couponing and taking advantage of sales, own repair and maintenance work in the home, etc. This cost range is for Canada in 2010 and is drawn from budget standard estimates by social agencies and experts with experience in this area. It can serve as a useful benchmark for child costs. Beyond this basic needs benchmark, however, parents will spend more on their child depending on such factors as after-tax income, perception of economic security, additional obligations, parenting style, marital situation, and time preference.