The costs and benefits of having a baby – News Block

Having a baby changes everything: An economist’s perspective on having children

I’ve been pretty lazy lately with posting on byte size since our son was born last year, but I’m finally getting over that initial parenting hump and finding time to write. But unsurprisingly, this post is being written very quietly, in the dead of night, while he sleeps.

The new dad in me mixes with the economist in this post to consider the costs and benefits of having a baby.

To be clear, cost benefit analysis (CBA) alone is not a good way to decide whether to have a baby. There are much more humane ways to determine that kind of life-changing event. Also, it is exceptionally difficult to understand what costs and benefits will occur specifically for you and your child.

Furthermore, the costs/benefits that matter to parents who choose to have children would differ considerably. Historically, having many children might have been for religious/cultural reasons, or as part of an old age insurance policy. That sort of thing is not that relevant in modern economies.

As an economist who has spent a lot of time in the health sector, it’s fun to think about.

The cost per child was estimated at approximately ~$285,000 At the age of 18, that’s a lot of trips to Hawaii, so why not consider what would make it worth your while?

CBA is a standard tool for determining whether a decision or investment is a good idea. The decision/investment in this case is the baby. CBA is holistic, incorporating financial and non-financial factors and different stakeholders, such as my wife and I, grandparents, and broader communities. Typically, the CBA applies to something like building a new highway, but it’s also pretty good at evaluating abstract decisions.

The typical CBA returns a benefit cost ratio (BCR) to determine if the investment is worth it. A BCR of more than 1 theoretically means that the benefits are greater than the costs.

This CBA is quite flexible and only considers at a high level the main costs and benefits of raising a child from the perspective of a new parent.

Cost of raising the child, i.e. food, shelter, etc.

Parent Benefit Payments

Lost wages of spouse who was absent from work for a year and reduced work time

20 hours of free early childhood education per week for children from 3 to 5 years old

Public education – 13 years in New Zealand

Less time to spend on hobbies

Greater satisfaction with life

Reduced loneliness in old age

Some of these things are pretty easy to reverse.

On the cost side, existing estimates place the cost of raising a child at ~$16,000 per yearand the the value of lost income is approximately $62,000 per year based on New Zealand median income.

The benefits for parents in New Zealand are $661.12 per week for 26 weeks, so $17,189. 20 hours of early childhood education for 2 years is worth approximately $9,400 per year based on a $9 per hour rate for child care. Public spending on education was around $7,000 per student in 2019, though it is probably much more than that now.

The New Zealand government also provides healthcare to all citizens. Children receive free primary care up to age 13 (about $50 each), plus of course from birth and anytime in intensive care. New Zealand spent approx. $4,700 per person in medical care in fiscal year 22, although this is an average, it is higher for the very young and the very old.

In general, from a $$$ perspective, of course, the decision to have a child will not be fully offset by the gifts one may obtain. But in reality, I was surprised by the size of the financial benefits, particularly the free education and health care.

Of course, having a baby isn’t really a financial decision.

It goes without saying that the main reasons for or against having a child are not financial. Not to say that the financial aspect is not important, but it is a much more comprehensive decision.

The ‘non-financial’ aspects of love, time, satisfaction and how one feels about being a parent really drive the decision to start a family. We’ve certainly found that the benefits outweigh the costs, even at 3:30am when you’re wide awake and ready to play and we’d rather be asleep!

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