Economists have long attempted to define and estimate the costs of children. There have also been attempts to estimate how the costs of children vary by family income and the age of the child. These estimates have been used for a range of purposes, including the measurement of poverty, the design of income support systems and the design of child support schemes.
While it may seem simple to define the costs of children, the reality is that several different approaches have been used and there is no agreement as to the most appropriate definition. Even where there is agreement as to the concept that is being used, there is no consensus as to the appropriate method for estimating the cost. The problem from a policy perspective is that the different approaches and estimation methods can result in very different estimates of the cost of a child.
Empirically, the fundamental problem that must be solved in order to measure expenditures made on behalf of children is that a method is needed to divide a family’s expenditure on shared goods into two components: the portion that should be attributed to the family’s children and the portion that should be attributed to the family’s adults. A further difficulty is that existing data sets for Australia (and many other countries) do not identify the consumption of individual members of the household and so a similar method is also needed to divide a family’s expenditure on privately consumed goods (such as food).
The existence of goods and services that are jointly consumed leads to economies of scale in consumption. For example, the addition of a child to a family involves extra food consumption but due to sharing of housing services, little extra spending on housing may be required to maintain the previous standard of living of the household.
2 Economies of scale in consumption may also be generated from purchasing produce in bulk, which might be cheaper. An important feature of estimates of the costs of children is the extent to which they exhibit economies of scale.
A clear definition of the costs of children is provided by Bradbury (2004: 1):
‘a measure of the actual resources committed to child-raising. Ignoring public goods and household public goods, we can think of this as the expenditure of time and money on children. Taking household public goods into account, the cost to the parents can be defined as the additional income needed by a household in order to maintain parental living standards when they have an additional child.’
This paper provides an overview of the different ways in which the costs of children have been conceptualised and defined in the literature and discusses the methodological issues involved in estimating the costs of children. The scope of this paper is limited to considering the direct financial costs of children to their parents.
3 The main conclusion, which many other authors have also reached, is that there is no ‘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 existing empirical estimates (e.g. Citro and Michael 1995; Nelson 1993; Stanton 1973; Whiteford 1985).
The costs of children can also be expressed as equivalence scales. For example, an ‘equivalence scale’ may show how much income a household with two adults and one child needs, in relation to a childless couple, to enjoy the same level of ‘welfare’ as the childless couple.
The
National Academy of Sciences Panel on Poverty and Family Assistance in the United States of America (USA) undertook a major study on how to measure poverty (Citro and Michael 1995). David Betson, a member of the panel undertaking this study concludes that:
‘their estimation require assumptions that can never be independently verified. … equivalence scales are inherently arbitrary and as such are in reality subjective judgements masquerading as science’ (Betson 2004: 1).
The main report of the National Academy of Sciences panel expresses a similar view, albeit in more considered language, ‘Although the empirical evidence helps determine the limits of what makes sense, there is no objective procedure for measuring the different needs for different family types’ (Citro and Michael 1995).
There have been a number of Australian estimates of the costs of children using a wide range of methods. This paper discusses the majority of Australian studies published in the last twenty-years. The estimates exhibit considerable variability and given, as will be discussed in this paper, no single method is entirely satisfactory, one approach to produce estimates of the costs of children which can be used for policy purposes is to take the average of a range of studies. This approach to estimating the cost of children was used by Whiteford (1985) and is the approach used in this paper. The average of the majority of post-1985 Australian studies is calculated and thus this paper updates the work of Whiteford (1985). This exercise provides one method of combining the different estimates of the costs of children into a single ‘consensus’ estimate.4
The remainder of this paper is structured as follows. In Section 2 the approaches which have been taken to defining and estimating the costs of children are discussed. In Section 3 the Australian estimates of the costs of children are summarised. In Section 4 the evidence on the extent to which the costs of children vary with family income and the age of children is discussed. The results of selected international studies are discussed. How the costs of children research can be related to expenditures on children is discussed in Section 5 and the final section concludes.