Having a baby changes everything – an economist’s perspective on having children
I’ve been pretty lazy lately with posting Byte size since our son was born last year, but I finally got over that initial parenting hump and found time to write. But as expected, this post was written quietly, late at night, while he slept.
The new dad in me is a mix of economists in this post to weigh the costs and benefits of having a baby.
To be clear – cost-benefit analysis (CBA) alone is not a good way to decide whether to have a baby. There are more human ways to define life-changing events. In addition, it is very difficult to understand what the costs and benefits will be for you and your child.
Also what costs/benefits are important to parents who choose to have children will be very different. Historically, having many children may have been for religious/cultural reasons, or as part of an insurance policy for old age. These things are not compatible with the modern economy.
As an economist who has spent a lot of time in the health sector, it’s interesting to think about.
The cost per child is estimated at around ~$285,000 for the age of 18, who travel a lot to Hawaii, so why not consider whether it will make it useful?
CBA is a standard tool for determining whether a decision or investment is a good idea. The decision/investment in this case is the baby. CBA is holistic, incorporating financial and non-financial factors, and different stakeholders such as my wife and I, my grandparents and the wider community. Usually CBA is applied to things like building new roads, but it is also good for evaluating abstract decisions.
A typical CBA calculates a benefit-cost ratio (BCR) to determine whether the investment is worthwhile. A BCR greater than 1 in theory means that the benefits outweigh the costs.
This CBA is quite loose and only considers at a high level the main costs and benefits of raising children from the perspective of new parents.
|
The cost of raising a child ie food, housing etc. |
Payment of parental allowance |
|
Lost wages from spouses who take time off work for a year and reduce work time |
20 hours of free early childhood education per week for ages 3-5 |
|
Public school – 13 years in NZ |
|
|
Less time to spend on hobbies |
|
|
Greater life satisfaction |
|
|
Reducing loneliness in old age |
Some of these things are quite easy to put down a dollar.
On the cost side, there is an estimate of the cost of raising a child ~$16,000 per yearwith the cost of lost income is approximately $62,000 per year based on NZ median income.
Parental Benefits in NZ are $661.12 per week for 26 weeks, to $17,189. 20 hours of early childhood education for 2 years costs about ~$9,400 per year based on the $9 hourly rate for daycare. Public spending on education is about $7,000 per student in 2019, although it is more than it is now.
Health care is also provided by the government in NZ for all citizens. Children get free primary care up to age 13 (about $50 a pop), plus of course birth and any time in intensive care. NZ spent about $4,700 per head on health in FY22, although this is an average, it is higher for the very young and the very old.
Overall from a $$$ perspective of course the decision to have a child will not be compensated by the freebies one can get. But actually, I was surprised by the scale of the financial benefits – especially the free education and healthcare.
Of course, having a baby is not a financial decision
It goes without saying that the main reason for not having children is non-financial. Not saying the financial side isn’t important, but it’s a more comprehensive decision.
The ‘non-financial’ aspects of love, time, satisfaction and how it feels to be a parent really make the decision to have a family. We’ve always found that the benefits far outweigh the costs – even at 3.30am when he’s up and ready to play and would rather be in bed!
▼▼ Thanks for reading. Share using the link below. ▼▼