Australian budget standards and the derived costs of children have been calculated for 10 subcomponents: housing, energy, food, clothing and footwear, household goods and services, childcare, health services and personal care. Below are some details of the elements that make up the costs of a children for each sub-component.
Housing. Estimating the cost of housing if fraught with difficulty. This is due to the great variability of housing and because most of a mortgage is property investment and therefore a form of wealth. The approach used here follows the SPRC (1998, ch. 3) in using median private rents as a guide. The cost of the child is based on whether an additional bedroom is required, according to the following housing standard. There are to be no more than two persons to a bedroom. Children under five years old may share a bedroom. Children of the same sex may share a bedroom until reaching high school age, whereupon a separate bedroom for privacy and study is required.
Energy. This estimate represents the additional electrical and gas costs associated with an additional child. The calculations are based on a model of energy use based on household composition and house size.
Food. The cost of food for an additional child is based on the cost to feed a child a healthy diet. Only a modest amount of take away meals are included, and there are no restaurant meals.
Clothing. The clothing and footwear estimate is based on the cost of a basic wardrobe of clothes, which includes school uniforms and an outfit for special occasions. The assumed lifetime of most items is one year.
Household goods and services (HGS). This budget includes over 400 items covering furniture and white goods, cutlery and crockery, linen, cleaning goods and stationery. The costs are spread across an assumed lifetime that is calculated to reduce with the presence of children. The costs of a child involve the additional cost, such as a portable sound system for older children and a wardrobe, plus increased depreciation of durable goods. Costs for public school fees, equipment and excursions are also included in this budget. Private school fees are not included.
Childcare. Childcare needs depend on parental employment status. When all parents work full-time long day care is required for a child 0 to 4 years old, a child of 5 attends long day care half time, and a child of 6 to 12 years old attends before and after school care and vacation care during school holidays. When one parent is not in the labour force as primary carer, only a small amount of occasional care is required for preschool children for respite, etc. The assumption made in this report is detailed below. Childcare costs are gross costs, that is, before government benefits are taken into account. The amount of benefits is dependent on household income.
Health. Health care costs for a child are based on a generally healthy child without specific health needs. They include annual dental trips, prescriptions and over the counter medications. Visits to the doctor are assumed to be bulk-billed (ie. free), and costs for specialists, orthodontists are opticians are not included. Health costs are net of government benefits provided through Medicare and the Pharmaceutical Benefits Scheme.
Transport. Where necessary, child travel costs include the marginal cost of upgrading the family car to account for increased family size. Only depreciation costs are included. Petrol costs refer to the additional trips made in dropping children to school and leisure activities. Child seats and booster seats are also included. There is no provision for air travel.
Leisure. The child’s leisure budget is based on the cost of toys, books and other leisure and sporting goods averaged over assumed lifetimes. Video hire, a small amount of attendance at the cinema, zoos, etc, and increased photographic usage are also included. Costs for an annual week-long family holiday is also part of this item.
Personal Care. This includes basic personal care items such as a toothbrush and shampoo. There is provision for professional haircuts for older children.
For further information on the components of cost of children estimates in general, see Henman (1998; 2001) or SPRC (1998).
Lost opportunity cost. The lost opportunity cost of having a child is the cost of lost wages resulting from a parent leaving the workforce to care for their child. Apart from direct salary loss, it also includes the career costs from such an absence from the workforce, such as delayed promotions and salary increments. These latter costs are considerable. Apart from direct salary loss, Breusch and Gray (2004) estimate that in 2001 having one child reduces a woman’s lifetime earnings by about 31 per cent, whilst the second child costs an additional 14 per cent and a third child an additional 9 per cent. Given that whether a parent leaves the workforce could be seen as a matter of personal choice, an alternative estimate of the cost of a child is the expenditure required to enable parents to remain in the workforce, namely the cost of childcare. Lost opportunity costs are not considered in this report.
Time costs of care. When childcare is provided by parents, childcare has no monetary cost. However, there is a time cost associated with such ‘gratuitous’ care. This is because the parent(s) is required to spend time caring for the child they would have otherwise used on other activities. Research into this time cost shows that it is usually considerable (see Craig 2002; Bradbury 2004). Time costs of care are not considered in this report.
Government benefits. The government provides cash benefits for households with children through both the social security and taxation system to assist in meeting the cost of raising children. Childcare benefits are also available to help meet childcare costs. These benefits are income tested. The public health system, Medicare, also provides considerable cost savings for medical costs. As eligibility and receipt of these benefits are often dependent on a household’s income, it is not readily possible to estimate government benefits that ameliorate expenditure on children. For example, childcare is presented in gross costs, that is, before receipt of Child Care Benefit or the new Child Care Rebate. Also, rental costs are gross and before possible receipt of Rent Assistance. However, some items are presented as net costs. Doctor’s fees are assumed to be free under bulk-billing provisions in Medicare, and pharmaceuticals are net of benefits from the Pharmaceutical Benefit Scheme.