Lecture Issues in economics today - Chapter 31

Chapter 31
The Economics of Children

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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
–
–
–
–
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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%.

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