This paper provides a review of the different approaches that have been used to define the costs of a child and the methods used to estimate the costs of children. An overview of the strengths and weaknesses of the various approaches is provided. The most important conclusion is that there is no unambiguous ‘true cost’ of a child and that, in the end it is a matter for judgment, but that this judgment needs to be informed by the available empirical estimates.
No single method for estimating the costs of children is entirely satisfactory. The approach taken in this paper is to produce a consensus figure for the costs of children by taking the average of all available credible estimates of the costs of children. Calculating the costs of children as the proportion of family income spent on children for the average of Australian studies published in the last twenty-years, it is estimated that couples with one child spend 16% of their income on that child. Couples with two children are estimated to spend 28% of their income on their children, three children 37% and four children 40%.
The recent Australian research has found that, while in dollar terms the costs of children increase with income, as a proportion of income expenditure on children decreases as income increases. The available evidence also suggests that the costs of children increase with the age the child. This paper has focused on the costs of children in intact couple families. It is clear that the total costs of children will be higher to separated families because of duplicated fixed living costs and the costs associated with contact. There appears to be few estimates of the additional costs of children in separated families as compared to intact families. In US States where the child support system is based upon a ‘cost share’ model the costs of children in couple families are increased by 150% in order to arrive at a cost of children in separated families. Henman has produced estimates of the costs of contact for Australian families and duplicated infrastructure costs in separated families and these are discussed in Henman and Mitchell (2001) and Henman (2005).
The bottom line is that divorce increases living costs and is sometimes associated with a reduction in labour market earnings of fathers. The combination of these factors means that on average there is less money available to separated parents to spend on their children than they would have had if they never separated. This means continuity of expenditure on children will be unaffordable for many low and medium income families.