The True Cost of Raising a Child
While nearly everyone agrees that children are expensive, the true cost of raising a child is a subject of much debate.
The United States Department of Agriculture (USDA) puts out a report on a yearly basis to set the government’s estimate on the cost. Usually, around the same time, you’ll start to see news articles abound quoting the new numbers. It’s no wonder that the results are newsworthy considering the extremely high numbers that are reported. The most recent report, released in April, estimates that a child born in 2006 will cost $197,700 through the age of 17, for a family earning an average of $59,300.
While that number is staggering, critics remind readers that the number can be misleading. In his article on the subject dated July 20, 2007, Texas A&M finance professor H. Swint Friday discussed some of the reasons why the number is probably much lower than that reported by the USDA. While some of his arguments are subject to your opinion, such as his claim that the USDA is politically motivated to overestimate the number to pad its own budget, other points are more quantitative.
As an example, consider the method that is used to determine the housing cost for a child: The family’s housing cost is divided by the number of family members. So if a family of 5 lives in a house that costs $15,000 per year (not counting principal towards the mortgage) to maintain, then the housing cost for the child would be estimated at $3,000 for the year. What this estimate fails to consider is that the family would have had the same, or a similar, housing cost regardless of whether the child lived there or not.
Obviously, other costs, such as food, clothing, and healthcare do tend to increase with each additional child in the house. But even that is open to some interpretation. As an example, your health insurance premiums may increase to add your children, but won’t necessarily increase on a per-child basis. So the first child may cause a bump in premium cost, but additional children may not. It’s also interesting to note that the cost of raising a child increases with increasing family income.
As Professor Friday points out, even the USDA’s own report has dissenting authors who estimate the true cost of raising a child to be much less than the reported estimate using varying methods of calculation. One method, the Barten-Gorman method, estimated housing expenses to be 44%, and miscellaneous expenses to be 28%, below the USDA estimate. While using these reductions brings the cost per child down to $162,829, that is still a number that may seem daunting to parents.
Tuesday, August 28th, 2007 at 6:56 am