Updated Costs of Children Using Australian Budget Standards 

• 5.1. Costs of Children In Couple Households
  Costs for the first child (or one child households)
  Costs for two or more children
• 5.2. Costs of Children in Sole Parent Households
• 5.3. Costs of Contact

What follows are the annual costs of raising a child as estimated for each of Australian capital cities. These costs have been calculated for June quarter 2004. They have been derived by subtracting the budget standard for a couple only household from a couple with child household. Costs are presented at two living standard levels (rather than income levels) and for a range of household types, by varying the age of the child and the labour force status of the primary carer.

5.1. Costs of Children In Couple Households

Costs for the first child (or one child households)

Table 1 presents the costs of an only child (or first child) in couple households. It presents the total gross costs – that is, expenditure on children prior to relevant government payments to reduce any costs. For information purposes, the Table also presents the gross costs of childcare, which is included in the total costs. The costs are presented for each capital city and presents a weighted capital city average.

As can be seen by the Table, the costs of children generally increase with age. At the low cost level, the cheapest child is a three-year old, which costs, on average $4,910 per annum, whereas at the same living standard level, the 14 year old costs the most at $7,850 per annum.

Key: C=couple; FF=both parents in full-time employment; FP=one parent employed full-time, the other part-time; FN=one parent employed full-time, one a full-time carer and not in the labour force; MBA=Modest But Adequate living standard level; LC=Low Cost living standard level

Although the cost of a child tends to rise with age, the labour force status of the primary carer has a big impact on the cost of a pre-school age child. When there is a full-time carer of such a child, it is the cheapest child to raise. However, when the primary carer is working full-time, the pre-school child becomes the most expensive child to raise. This is illustrated by comparing the modest but adequate households, where it costs on average $17,620 per annum to raise the child when the mother works full-time, but only $6,500 per annum when the mother is a full-time carer.

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Table 1 also shows that there is some variation between the capital cities in the cost of a child. In particular, and somewhat surprisingly, Sydney is one of the cheapest cities in which to raise a child, whereas Melbourne and Canberra are often the most expensive cities to raise a child. For example, the cost of raising a 10 year old, low cost child is $6,320 in Sydney, $7,050 in Melbourne, $8,120 in Canberra and $6,230 in Adelaide (the cheapest). This unexpected result is mainly due to the relative costs of childcare and housing. In particular, although housing costs are most expensive for a household in Sydney, the marginal costs of housing in Sydney – that is, the difference in the cost of renting a one-bedroom and a two-bedroom unit – increases less than in most cities. This could be because there is a greater oversupply of units in Sydney than elsewhere, which results in less cost in upgrading dwelling size. This situation does not occur for larger households, as we will see.

Key: C=couple; FF=both parents in full-time employment; FP=one parent employed full-time, the other part-time; FN=one parent employed full-time, one a full-time carer and not in the labour force; MBA=Modest But Adequate living standard level; LC=Low Cost living standard level

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Table 2 presents the costs of raising children as a percentage of both household disposable and taxable income.¹ The percentages listed in the table have been obtained by averaging the weighted percentages for each capital city. To assess the effect and significance of childcare costs, data are presented for total costs of children, that is, including childcare costs, and without childcare costs. Tables A.17 to A.24 in the Appendix provide details about private income and government income support (along with government family benefits) required by parents to produce a disposable income equal to the household budget standard.

For example, Table 2 shows that the full costs of a three year old where both parents work full-time represents 35.8% of the family’s total expenditure (ie disposable income) and 38.5% of the family’s taxable income. However, when childcare costs are not considered, the costs of this child represent 12.1% and 13.1% of household disposable and taxable income respectively. Thus, childcare costs are a significant component of this household budget, particularly because the child is in full-day care five days a week. Furthermore, recall that these childcare costs are gross costs, that is, before receipt of the government Child Care Benefit and the new Child Care Rebate.

Looking at Table 2 as a whole, as a percentage of household income the average cost of the child across all ages is just over 20% of household income. These averages ranges from 24.6% of taxable income when childcare is included, to 20.1% of disposable income when childcare is not included. Of the individual entries, the highest percentage is for the scenario of a three year old where both parents work full-time. This is due to childcare costs. When childcare costs are not considered, this same scenario represents the lowest percentage of household income.

Generally, the cost of a child as a percentage of household income increases as the child ages. This is evident when looking at the columns without childcare. However, the impact of the labour force status of the primary carer and the need for childcare creates a large variation in these costs, particularly for young children, and no variation for teenage children. Also, low cost households tend to spend a higher percentage of household income on their children when compared to equivalent households at a modest but adequate income.

When examining the table in detail there are number of things to note. Firstly, in the above example of a three year old where both parents work full-time, the cost of the child as a percentage of household disposable income is higher than the percentage of taxable income. This may seem counter-intuitive. Typically, a household’s taxable income is higher than a household’s disposable income as a result of taxation. Accordingly, the cost of a child as a percentage of disposable income would be normally greater than the percentage of taxable income. However, given that this household type has a modest taxable income (of approximately $46,000 per annum), then that household is entitled to receive significant family-related nontaxable benefits (on average, approximately $10,000²). As a result, their disposable income is greater than their taxable income.

Another thing to note about this table is that for the 14 year-old child (and for some situations for other aged children), the exclusion of childcare costs does not change the percentage. This is due to the fact that in these household types, childcare services are not purchased.

A further note of caution must be observed when analysing this Table. Household incomes are not the same, even for households with the same living standard. This is due to the fact that although households may have the same living standard level, they have different needs due to variations in the age of the child and the labour force status of parents. Accordingly the amount of money they need to spend (ie the budget standard) differs, and as a result, their private and household incomes required to meet these differing expenditure levels.

Costs for two or more children

Table 3 presents the costs of for couple adult households in raising two or more children. Given the great range of combinations of children of different ages, those presented in Table 3 represent only an example. When the primary carer is working full-time, varying the age of the children will have a significant impact on these estimated costs, due to the high costs of child care. Another important factor in these costs are the costs of housing. When two children can share a bedroom, there is no additional housing cost for the second child. This is the case of ‘2 children – minimum’ in Table 3. However, when the two children require a separate bedroom (due to age and gender)³, a dwelling with an extra bedroom needs to be rented. This is illustrated in the ‘2 children – maximum’ examples. Thus, the average cost of raising two children (ages 6 and 14) at the modest but adequate level when both parents work full-time ranges from $17,890 to $20,420 per annum.

Although the marginal cost of a second child is not presented here, it can be calculated by subtracting from the cost of the two children, the cost of either a 6 year old or a 14 year old (keeping the household labour force and living standard level constant). This will give a cost for a second child of age 14 and age 6 respectively. Unlike other research methods, the budget standards methodology is not readily able to calculate an average cost of a second (or subsequent) child. This is due to the fact that budget standards are defined for specific household types that take into account the age of each child, whereas other methods average across all ages.

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Key: C=couple; FF=both parents in full-time employment; FP=one parent employed full-time, the other part-time; FN=one parent employed full-time, one a full-time carer and not in the labour force; MBA=Modest But Adequate living standard level; LC=Low Cost living standard level

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Table 4 presents the costs of two, three and four children in couple adult households as a percentage of household income. As would be expected, the percentage of household income increases with the number of children, from approximately 35% of disposable income for two children, approximately 44% for three children and 50% for four children. As with one child households, the presence of childcare increases the percentage of household income spent on children.

Households living at the low cost living standard spend a greater proportion of their household income on children than modest but adequate families. Indeed, four child families at the low cost level spend 47% of their disposable income and 71% of the taxable income on children. This is because such households supplement a small private income (on average, approximately $30,000 per annum) with significant government benefits (on average, approximately $21,000 per annum).

Key: C=couple; FF=both parents in full-time employment; FP=one parent employed full-time, the other part-time; FN=one parent employed full-time, one a full-time carer and not in the labour force; MBA=Modest But Adequate living standard level; LC=Low Cost living standard level

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5.2. Costs of Children in Sole Parent Households

Table 5 provides details of the costs of raising a first (or only) child in sole parent households. The estimates are for the case when the sole parent has 100 per cent contact with their child. This enables comparison of costs with costs in couple adult households.

Key: S=sole parent; F=parent in full-time employment; P=parent employed part-time; N=parent full-time carer and not in the labour force; MBA=Modest But Adequate living standard level; LC=Low Cost living standard level

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As with a child/ren in a couple household, the cost of one child in a sole parent household generally increases with age, but this varies depending on the requirement for childcare services (which depend on the labour market status of the parent and the child’s age). For example, for a sole parent of a three year old at the modest but adequate living standard level, the cost of the child ranges from an average of $17,860 per annum when the parent is in full-time employment to $5,740 when the parent is not in the labour force as a result of being a full-time carer. This is a significant difference, due entirely to childcare costs of $12,630 per annum.

Sole parents at the low cost level face annum costs of a lower bound of $3,500 for raising a 3 year old to $6,850 for a 14 year old. For a similar modest but adequate sole parent (ie a full-time carer), the costs are from $5,740 per annum to $9,540 respectively.

Compared with couple adult households, sole parents face a range of different circumstances and expenditure concerns. Much previous research tends to find that sole parents face greater expenditure costs when raising their children, relative to couple adult households (Whiteford 1991). This results from greater needs for childcare and respite, and the purchase of household services to help manage the juggling of raising children with only one adult. The Australian budget standards research found that while this occurs for modest but adequate households (where the parent is assumed to be employed), this is not the case in low cost households (where the parent is assumed to be a full-time carer). This is due to the fact that low-income sole parents are able to access a large range of substantial savings using their pension card attached to receipt of Parenting Payment Partnered. This saving is worth about $1,500 per annum.

For example, the cost of a three-year child at the low cost living standard for a couple (one parent working full-time the other not in the labour force) is $4,910 per annum, whereas for the low cost sole parent (not in the labour force) is $3,500.

Table 5 also shows that at the modest but adequate level the cost of a child decreases when the parent moves from part-time employment to no employment. For example, the 6 year old child costs $8,280 per annum for the former parent, but $7,390 per annum for the latter. While childcare costs of $560 explain some of the difference, the rest results from access to pensioner concession cards accompanying receipt of Parenting Payment Single.

5.3. Costs of Contact

The above consideration of costs of children in separated families only relates to the situation when one parent has 100 per cent contact. However, in many situations both parents have contact with the child, even if the level of contact is significantly uneven.

Previous research has shown that non-resident parents who exercise regular contact of 15 to 30% of contact with the child face considerable costs for caring for the child, well in excess of the proportion of care exercised (Henman and Mitchell 2001). In particular, a non-resident parent with 20% contact faces more than 20% of the costs of the child when they are cared for 100% of the time by either in a sole parent or a couple parent household. This disproportionate cost results from infrastructure costs in providing basic infrastructure for the child (such as a bedroom, some clothes and toys) as well as communication and transportation costs in coordinating and undertaking contact.

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The research reported in this paper both updates and extends this previous research to calculate the cost for the resident parent when s/he has 80% contact and the non-resident parent has 20% contact. This report also provides data on costs in the shared care situation, that is, when both parents exercise 50% contact. Table 6 reports these results for the situation of a 6 year old child who (a) spends 100% of time with the resident parent; (b) spends 80% of time with the resident parent and 20% with the non-resident parent; and (c) spends 50% of time in both parents’ households.

The assumption is that when the child spends 20% of their time with their non-resident parent, it is on weekends and during school holidays coinciding with that parent’s annual holidays. Thus, the non-resident parent is assumed to not incur any childcare costs, whereas travel costs for transporting the child between households is assumed to be equally shared between the two parents. Everyday costs, such as food, were allocated at 20% of the normal cost. Whereas for other items, such as clothing and footwear, toys and personal care items, a cut-down wardrobe or toy-box from that maintained in single home was derived. This meant that some items were available in both households without transporting it every time. A more complete description of how costs have been distributed and calculated can be found in Henman and Mitchell (2001).

The costs for caring for a child for resident parents with 80 per cent contact were derived relative to both a resident parent with 100 per cent contact and a non-resident parent with 80 per cent contact. Housing, energy, clothing and footwear, childcare, leisure and personal care were taken to be equal to the costs a resident parent incurs with 100% contact. Food was assumed to be 80 per cent of the costs a resident parent incurs with 100% contact. Household goods and services, which includes hundreds of items from furniture to dish washing detergent, was taken to be 90 per cent of these normal costs. Health care costs (and also food) were the difference between a resident parent with 100% contact, and a non-resident parent with 80% contact. Transport costs were 100% of the costs of a resident parent with 100% contact plus the cost non-resident parents face for 20% contact. This recognises the increased costs of transportation between households.

However, when shared care occurs, that is when the child spends 50% in each parent’s household, then childcare costs and many other costs are assumed to be shared equally. This included food, childcare and health care. This, of course, was not the case for replicated and infrastructure costs, which had to be spent in both households. So, clothing and footwear, and leisure costs were 75% of the costs for 100% contact, for each household, household goods and services, and personal care costs were 60%. For each parent, transport costs were derived as splitting the normal costs for 100% contact, and then adding in the costs for a non-resident parent with 20% contact (ie to transport co-ordination costs of the child).

The top half of Table 6 presents the results for households living at a modest but adequate living standard, where both parents work full-time. Thus the weighted capital city average cost of care for the 6 year old child for sole parent with 100% contact is $10,360 per annum. This figure was also presented in Table 5. However, when that parent has 80% contact, the average cost to the resident parent in caring for that child drops slightly $10,210. Thus, a 20% decrease in contact does not result in a 20% decrease in the cost to the resident parent. Indeed, a resident parent with 80% contact incurs, on average, 99% of the the costs faced by a resident parent with 100% contact (see Table 7).

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Looking at the other side of the equation, the non-resident parent (at modest but adequate living standard level, working full-time) with 20% contact with a 6 year old child has average costs of $3,950 per annum. While this is significantly less than the costs the resident parent faces, it is still disproportionate to the time (ie 20%) spent with the child. Thus, Table 7 shows that this nonresident parent faces 38% of the cost of the child in 100% care with a sole parent. All up, in this separated household, the total costs of this child are, on average, $14,170 per annum (see Table 6), or 37% more than the total costs of raising the child completely in a single household.

Looking at the equivalent low cost household, the resident parent with 100% contact incurs substantially less costs (due to a lower living standard and no childcare costs) of $5,490 per annum. When regular contact occurs, the resident parent’s costs again decline by 1% to $5,460 per annum and the non-resident parent faces average costs of $3,320 per annum, or an astonishing 60% of the cost of raising a child in one household. All up the total cost across the two households is $8,780 per annum and 59% greater than the cost of raising the child in one household.

These results dramatically demonstrate that when contact occurs, the total costs of raising the child significantly increases. This is no zero-sum gain. This situation occurs because of the need to duplicate household infrastructure – such as bedrooms, furniture, clothing and toys – to support the care of the child in two, rather than one, households.

This is also evident in the case of shared care, where Table 6 shows that the costs are relatively equally distributed between both parents, but the costs borne by each parent with 50% contact represents around 71% of the cost borne when 100% contact is exercised for modest but adequate households, and 87% in low cost households. Thus, when equal contact occurs, the overall costs increase by 43% for modest but adequate households and 75% for low cost households, relative to raising a child 100% in one household.

Finally, it is helpful to consider how these extra costs are distributed among the two parents. Table 8 presents this data. It shows that although a resident parent with 80% contact faces a similar cost to 100% contact, that parent only incurs between 62% and 72% of the total costs, depending on their living standard level. Accordingly, the non-resident parent with 20% contact faces between 28% to 38% of the total costs of raising the child in both households.

As would be expected when contact is evenly split, both parents face 50% of the total costs of raising the child in both households.

1. To obtain these percentages, the household budget standard was regarded as the household disposable income. That is, the household has just sufficient disposable income to meet the budget standard, no more or no less. In other words, that household has no surplus income for savings. To obtain a household’s taxable income, each parent’s private income was determined under government policy settings (as of 1 July 2004) so that the combination of private income, any government income support and government family benefits, less tax payable, would produce a disposable income sufficient to just meet the household budget standard. While almost all government tax and welfare policies were taken into account in these calculations, the recently announced Child Care Rebate was not included. For time efficiency purposes, these calculations were only undertaken for households in Sydney, Melbourne and Adelaide. These cities were chosen as representative of the range of variations in costs of children and budget standards. Support for these complex calculations was provided by the Department of Family and Community Services.
2. Made up of Family Tax Benefit A, Rent Assistance and Child Care Benefit.
3. The housing requirements on which the Australian budget standards have been constructed has adopted the Canadian housing standard. This states that children of 5 years and under may share a bedroom, and only children of the same sex may share a bedroom when older than 5 years of age. Furthermore, there must be no more than two persons to a bedroom.