It Costs To Raise A Child! Kids, Thank Mom and Dad!
Parents and would-be parents might be relieved to hear that last week's widely reported government figure estimating the cost of raising a child—around $300,000 over the first 17 years for middle-income, two-parent families—is, according to several economists, wide of the mark.
The bad news is it may be a severe underestimate. The U.S. Department of Agriculture's report leaves two things out of account. For a start, it doesn't reflect unpaid time spent on parenting, including income forgone by parents who cut back on work hours to care for their children.
Plus, the hit to parents' wallets doesn't end when the child turns 18, as the parents often still provide housing and food as well as pay for college. These could add up to hundreds of thousands of dollars in additional costs. "The real costs of raising a child for a moderate-income family"—including forgone income, college for those who attend, and the so-called opportunity cost of not investing the money—"would be closer to $900,000 to age 22 than the reported $300,000 expenditures to age 18," says John Ward, an economist and the president of John Ward Economics, based in Prairie Village, Kan., which consults on legal disputes for plaintiffs and defendants.
(The $300,000 estimate takes into account expected inflation. In 2011 dollars, the price tag for a middle income family is $234,900.)
USDA economist Mark Lino, chief author of the annual study, acknowledges the report excludes college and forgone income. These expenses and others after a child turns 18, he says, typically aren't included in calculating state guidelines for child-support and foster-care payments—a principal use of the report.
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The USDA numbers represent how much parents spend on their children, and not necessarily how much they should spend, which Dr. Lino says would be "very subjective." His staff derives its spending data from the federal Consumer Expenditure Survey, produced by the Bureau of Labor Statistics, assigning child expenses in various categories to households including children.
Since the first USDA report, in 1960, the data and approach have evolved. As the nation's farming population has declined, the report no longer breaks out spending on farms, though it includes separate estimates for rural areas and urban areas in different parts of the country.
In 2008, Dr. Lino's staff made two broader shifts that pulled the estimate in different directions. Pushing the figure higher, the USDA began including in its estimate of child-care and education costs only households that bore such costs. Previously, it averaged in households without direct expenses for child care and education as zeros. The change led to an increase in the cost estimate of 33% for the category.
A change in calculating housing expenses had the opposite effect. Before 2008, each child was assigned the same share of housing costs as any other member of the household. Since then, the cost per child has been set at the marginal cost of an additional bedroom, lowering the housing cost by between 22% and 45%, depending on the region.
The education cost would be far higher if college were included, even accounting for children who don't attend college, pay for it themselves or attend low-priced institutions. Several economists, including Jane Venohr, a research associate at the Denver-based Center for Policy Research think tank who studies child support, say the USDA's approach, by cutting off at age 18, is consistent with most states' child-support guidelines. She adds, however, that guideline details vary widely across the country, and that most states don't base their guidelines entirely on the USDA estimate.
Lonnie Berger, associate professor of social work at the University of Wisconsin, Madison, says post-18 expenditures matter in adding up all costs to parents. Given the prolonged dependency of many adult children in the current economy, "ideally, such an accounting would extend at least through the early to mid 30s," Prof. Berger says.
Nancy Folbre, an economist at the University of Massachusetts, Amherst, argued in her 2008 book "Valuing Children" that forgone wages should be included in the cost of raising children. She found that parents' time cost is larger, on average, than direct spending, at least until children reach age 12. The best explanation of why time cost hasn't been included, she says, is that "we still don't have the data we need to provide really accurate estimates."
Even the federal American Time Use Survey, from the Bureau of Labor Statistics, doesn't directly measure how much time all adults in a household are spending caring for their children.
Lest this all sound like a dismal accounting of child-rearing by the dismal science, Prof. Berger says the cost approach excludes the many benefits of having children, not all of them quantifiable, such as happiness and personal satisfaction. Cost estimates such as the USDA's exclude "any intrinsic benefit that parents realize from child rearing, which would be extremely difficult to monetize," Prof. Berger says.
It should be remembered that parents may also get tangible returns from their adult children in time, such as financial resources and caregiving, Prof. Berger adds.