Although equivalence scales provide a means of comparing estimates of the costs of children, the percentage costs of children they imply cannot be interpreted as the percent of family income which is spent on children. Equivalence scales show how much additional income is needed to maintain living standards as the number of children increase. This point can be illustrated by returning to the example of an equivalence scale of 1.00 for a childless couple and 1.20 for a couple with one child. If the childless couple has an income of $100 then the equivalence scale implies that the couple with one child needs $120 to achieve the same living standard as the childless couple. This implies an expenditure on children of $20. But the family would not spend $20 on children if they had an income of $100 – they would spend less. They only spend $20 on children at an income of $120. Therefore the proportion of family income spent on the child is $20/$120=16.7%. For the purposes of the expenditure costs of children the proportion of budget spent on children is perhaps the most intuitive presentation.
Table 6 presents the average equivalence scale estimates for Australia as the percentage of family income spent on children (derived from the equivalence scales presented in Table 3). The average Percival and Harding (2005) and Henman (2005) estimates are also shown in Table 6. The average of post-1985 Australian studies is 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%. This average exhibits economies of scale with the first child requiring an additional 16% of income, the second an additional 12%, the third an additional 9% and the fourth an additional 3%.
Table 6. Expenditure costs of children
| |
Number of children |
| |
1 |
2 |
3 |
4 |
| |
% of family income spent on children |
| Pre-1985 Australian studies |
14 |
23 |
32 |
- |
| Post-1985 Australian studies |
16 |
28 |
37 |
40 |
| Post-1985 Iso-prop and Rothbarth studies |
18 |
31 |
42 |
| Henman (2005) |
19 |
32 |
38 |
44 |
| Percival and Harding (2005) |
13 |
21 |
26 |
30 |
Notes: The expenditure costs of children are derived from the equivalence scales presented in Table 3. The formula for the calculation of the expenditure costs of children is the equivalence scale value minus 1 divided by the equivalence value scale. The equivalence scales are normalised to 1.0 for couples. For details of the construction of the underlying equivalence scales see the Table 3 Note.