Wednesday, August 26, 2009

The Cost of Raising a Kid

Nancy Gibbs has a pretty bad essay in the back of the August 24 2009 issue of Time. She starts with the claim that kids cost over $220,000 to raise, which she bases off of a commercial website's (selling baby products) reference to an annual USDA report that she didn't understand. She seems to confuse in a couple places what parents decided to spend with what kids have to cost. Perhaps a better estimator of a child's cost is what the lower-income group spent instead of the middle-income group, since they are likely to spend less on non-necessities. She also uses the 2008 dollars total without explaination. Assuming an average inflation rate of 3.05%, the cost will be about $60,000 more, which is useful information to people who do not automatically think about inflation.

What the report really shows is that rich people spend more money on their kids than poor people, but smaller percentages of their pre-tax incomes. Also, it costs more to get a bigger home when you live in an area in which homes are expensive. Parents with more money buy more unnecessary stuff for their kids. Big kids eat more than little kids, and are more able to get themselves to where they need to go.

There are a lot of problems with the assumptions made, but the researchers did what they could with what they had. It's really hard to collect so much information from thousands of families over time. The report does not take into account money spent by non-custodial parents, which applies to a large portion of families these days. The housing assumptions are shakey, but probably better than alternatives. These numbers are definitely not hard and fast, and there is variance.

Nancy also says that parents with more kids "get a bulk discount". Sure, there are economies of scale for things like food and transportation, but this does not tell the whole story, based on the USDA's methods. What we are also seeing is that parents like spending some discretionary amount of money on their kids beyond necessities, and it gets split up among the children they have. A single child gets all the unnecessary money, but siblings have to share. When that second kids comes along, maybe you'll switch to store-brand products instead of name-brand, Target instead of the Gap. We don't know what people are buying, just what they're spending.

Nancy also says that children are recession-resistant, even though the April 13th issue of Time reported that unit sales of "Baby needs" were down 10.7% compared to the same 8-week period in 2008. Contraception unit sales are only up 1.5%, so I'd be surprised if the drop in baby products was largely due to a drop in the birth rate.

Probably what is most annoying to me is upper-class Gibbs's materialism. From her Ivy League, award-winning tower, she preaches for the unnecessary consumption typical of the high-income bracket, widening that divide between the mandatory cost of having children (useful information) and what people with money decide to spend (not as useful). Her Barbie-like comments that "SpongeBob is so last season", $60 per month is not enough for clothes, "the bureaucrats have not been to a mall lately", and the report should include the cost of sedatives are grating. The bureaucrats in this case are a couple of people with Ph.D.s who wrote a very transparent research report.

Nancy spends half the essay trying to convey the benefits of having children in one's life, even though studies show that having kids is stressful, and reduces quality of life on average. People should really think and plan more before having kids, and maybe the information in the USDA report will be helpful. Children can be a great addition to one's life, if there is relational, emotional, and financial stability, and a foundation of realistic expectations.

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