The economics of having kids...

Avatar for biancamami
iVillage Member
Registered: 03-25-2003
The economics of having kids...
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Mon, 08-11-2003 - 4:31pm
Interesting article in the New Yorker on the financial status of families in the US


"...You might, then, expect American families to be luxuriating in good fortune. But, compared with people who don’t have children, people who do are in worse economic shape than they’ve ever been in. The Harvard law professor Elizabeth Warren and her daughter Amelia Warren Tyagi demonstrate, in their forthcoming book “The Two-Income Trap,” that having a child is now the best indicator of whether someone will end up in “financial collapse.” Married couples with children are twice as likely as childless couples to file for bankruptcy. They’re seventy-five per cent more likely to be late paying their bills. And they’re also far more likely to face foreclosure on their homes. Most of these people are not, by the usual standards, poor. They’re middle-class couples who are in deep financial trouble in large part because they have kids.

In the past two decades or so, the cost of having children has risen much faster than the cost of being childless. Conventional wisdom aside, this has little to do with spoiled kids, acquisitive parents, or PlayStation 2. Instead, it’s the result of two things: housing and education. According to the Federal Reserve Board, between 1983 and 1998 the price of housing for married couples with children rose seventy-nine per cent in real terms, roughly three times as much as it did for childless people. One reason is that houses are bigger now. But, according to Warren and Tyagi, the real reason is that parents get into bidding wars for homes in safe neighborhoods with good public schools.

Then, there’s college. Thirty years ago, middle-class parents could feel they’d done a good job of raising a child if he or she made it through high school—decent jobs for unskilled and semi-skilled labor were readily available. Today, such jobs are much harder to find, and college is considered a necessity. Needless to say, it is also extremely expensive.

The solution seems simple enough: have fewer kids or none at all. This may seem coldhearted, but it’s a choice that many Americans, particularly in the middle class, already find themselves making. Between 1980 and 2000, the percentage of women between forty and forty-four who had no children doubled; the percentage of women who had only one child nearly did, too. Economists have long argued that a child is analogous to a “consumer durable,” like a refrigerator. Parents invest time, energy, and money in the child, and in exchange, as the child grows up, they get what the economist Gary Becker has called “psychic income”—as opposed to the real income that children in, say, an agrarian economy could bring in when they grew strong enough to help with the harvest. Becker observed a correlation in the United States between birth rates and the business cycle. When the economy is bad, people tend to have fewer kids. When it picks up, they have more. Although there are obvious limits to this point of view (we’re evolutionarily programmed to want children but not refrigerators), it does suggest that, as with most goods, if kids are more expensive, people will accumulate fewer of them.

The problem is that while it may be economically rational for a middle-class professional to forgo having kids, the effect of a baby embargo would be economically disastrous, and not just for the producers of SpongeBob SquarePants. Parents may have to bear the costs of rearing children, but it’s society as a whole that reaps the benefits. We all gain from having more people going to college and becoming productive workers. And all of us—even those who have no children—expect that we will be taken care of by others in our old age. The United States has $6.7 trillion in debt and forty trillion in potential obligations to the elderly or soon-to-be-elderly, and we’re sticking future workers with the bill. Even if the American birth rate stays where it is, we’re headed for serious trouble. If it drops, look out.

In a sense, children are what economists like to call a “public good,” like national defense or scientific research. The essential characteristic of a public good is that everyone benefits from it even if not everyone pays for it. Government usually plays a valuable role in making sure that a public good is paid for. This doesn’t mean that the state has to take over driving the kids to soccer practice—or, God forbid, require each couple to have 3.2 “Heroes for the Homeland”—but it should certainly help spread the financial burden of raising a family. There may be some sense after all in having those taxpayers who don’t have children subsidize those who do, and there’s little sense in cutting back on programs like Head Start. All of us, it turns out, have an interest in improving public schools. It may not take a village to raise a child, but these days it seems to take a village to pay for one."

— James Surowiecki

Ana

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iVillage Member
Registered: 05-24-2003
Mon, 08-11-2003 - 8:43pm
Janet, I'm sorry. But I'm not paying for anyone else's children. Nor do I feel obligated to do so.

Having children is a CHOICE. If you have children you are NOT a victim, you and you alone are responsible for feeding them, caring for them, and raising them. You are not "entitled" to get help from society; its nice if you do get help, of course, but no one is "obligated" to give you the best house or the best job or whatever, simply because you have children.

Avatar for biancamami
iVillage Member
Registered: 03-25-2003
Mon, 08-11-2003 - 9:19pm
Hmmm...sometimes you have to look at the big picture you know?

Do you know that Japan is facing economic collapse because of the low birth rate and their hostility towards immigration? Because of parents having so little financial incentives to have kids, their birth rate is not keeping up with the aging population.

I understand your "I'm not paying for anyone elses kids" attitude...I really do! However, as a member of society sometimes the welfare of the entire country takes precedence over an individual's desires. Its like people who say they want all the immigration to stop and all immigrants to "go back home." Little do they realize all the economic implications that that entails.

SO, when you say that you don't feel obligated to "pay for anyone elses kids" does that mean that you will refuse any social security or retirement benefits that are awarded to you in your old age that are made possible because someone else had children that could enter the workforce and create an economic output? Are you going to refuse to live in a country that is able to remain a major economic power because it has a birth rate to support its economy?

Sometimes the answers aren't that simple if you look at the forest instead of just the trees:


"According to the latest four-yearly survey by the National Institute of Population and Social Security Research, the number of Japanese will peak four years from now at 127.74 million before dropping.

Falling sperm rates for men and higher career aspirations for women have created a birth dearth that will chip 500,000 off of the population every year until 2050, when one in three will be of retirement age.

If the trend continues to 2100, the number of Japanese will have halved and many vibrant cities will be ghost towns haunted only by the elderly because the country has the longest life expectancy on the planet. This estimate is based on the 1997 fertility rate of 1.39 children per woman - well below the 2.1 replacement level that a country needs to keep the population from falling.

The shrinking pains are already being felt. Last week, the government revealed that deflation has worsened, while unemployment hit a new record high of 5.6 per cent. Over the past 12 years, stocks have fallen by 75 per cent and land prices have more than halved.

This decline, previously blamed on the bursting of the economic bubble, is now increasingly being tied to the demographic shift.

Italy, the only country in the world with a lower birth rate, makes up for the shortfall through immigration. But Japan prides itself on the racial 'purity' of a population in which foreigners account for only 1 per cent.

The United Nations says Japan needs 600,000 immigrants a year. But last year Japan accepted only 36 refugees and tightened its restrictions on entering the country.

Politicians, bureaucrats and businessmen have been wracking their brains about how to encourage domestic couples to go forth and multiply. Parliament is considering a budget that proposes a rise in childcare and maternity spending despite record cuts almost everywhere else.

Toymaker Bandai offers its workers a baby bounty of £6,000 on the birth of their third child. The federation of employers' associations has suggested the government encourage women to have children out of wedlock.

Along with these carrots have been sticks, including the stigmatisation of 'parasite singles', the recently coined term for 10 million unmarried men and women between the ages of 20 and 34 who live with their parents.

Hope was pinned last year on an imperial baby boost with the birth of a first child to Crown Princess Masako after eight years of marriage. But the only thing that rose, and only briefly - was shares in children's clothing manufacturers. The Health Ministry estimates the birth rate declined last year, the first year in which the number of people aged 70 exceeded the number of 10-year-olds.

Although the Japanese enjoy one of the highest average incomes in the world, most men cite financial constraints, especially the high cost of education, as the main disincentive for having a child.

Women say the biggest reason is the lack of support, from the government and spouses, for working mothers in a society in which women are traditionally expected to care for children, husbands and elderly parents-in-law.

Britain is among more than 60 countries, accounting for two-fifths of the world population, with a birth rate under the replacement level of 2.1 children per woman.

In 2006, Japan is set to be first to begin the descent, but others could easily follow."

Ana
iVillage Member
Registered: 03-27-2003
Mon, 08-11-2003 - 11:26pm
I don't know if I believe this completely. I don't think it is so black and white. Perhaps because I have my own theory about children and money.

I think it depends on what age you have your children. I see families who have children very young, perhaps in their teens and early 20s, have the worst problems with finances. I think it changes somewhere. Older parents seem to do better financially than their peers who never had children. I don't know if this is because they are more motivated to earn, are more conservative with their spending/lifestyle, or if employers look more favorably upon the "family man." I think sometimes a man with a family is seen as more stable and the company is more willing to invest in his career.

Jill

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Registered: 03-26-2003
Tue, 08-12-2003 - 1:10pm
I'll just address one point here. I thought this paragraph made some big leaps in logic:

>>Instead, it’s the result of two things: housing and education. According to the Federal Reserve Board, between 1983 and 1998 the price of housing for married couples with children rose seventy-nine per cent in real terms, roughly three times as much as it did for childless people. One reason is that houses are bigger now. But, according to Warren and Tyagi, the real reason is that parents get into bidding wars for homes in safe neighborhoods with good public schools.>>

It makes sense that a couple with children would want a bigger house than a childless couple, but it's still bad financial planning to buy a house you can't afford. Sure, houses are bigger now, but a family could still choose a smaller, older house. A room of one's own is not a child's birthright.

And, while childless couples might not care about the schools in their neighborhoods, don't they want to live in safe neighborhoods too? Doesn't everyone, if they have a choice?

The article makes the obvious point that it is more expensive to have children than to not have children, but I didn't agree with the author's attempt to blame society for the financial woes of families rather than considering the families' financial choices.

iVillage Member
Registered: 03-26-2003
Wed, 08-13-2003 - 12:24pm
I think older parents have had more time to establish their careers and bank some investments so the expense of 2 children is not as much an impact as children born to younger parents.

On the flip side, it may be easier to be a young parent becuase you are used to the financial difficulty. As your child grows so does you time in the work force and your career.

iVillage Member
Registered: 03-26-2003
Wed, 08-13-2003 - 12:31pm
Actually one of the reasons we are NOT having another child is housing. We own a SMALL 3bd/1 ba house. If we had another child we would have to move. Housing is astronomical in CA. Even if we rolled our equity over we would be paying as much in property taxes monthly as our current house payment. We could move out to the valley but then DH would have a 4 hr round trip commute, believe me lots of people do that here. We are in a great neighborhood and a fantastic school system.

I know the mortgage companies say you can spend 1/3 of your income on housing but I don't like that idea. 1/4 - 1/5 and bank the rest just in case you get downsized, or rightsized as companies are calling layoffs these days.

iVillage Member
Registered: 05-28-2003
Wed, 08-13-2003 - 2:10pm
LOL! I'm not sure you were talking about So CA, but we're one of those people who moved to the valley to get "more house for the buck" and commute hours to work!
iVillage Member
Registered: 03-26-2003
Wed, 08-13-2003 - 2:18pm
I am from So Cal but I am now in Nor Cal, the bay area, housing OUCH!!!
iVillage Member
Registered: 03-21-2001
Wed, 08-13-2003 - 2:19pm
I have a couple of comments here...

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Oh my goodness! We already have too many people. Our birth rate NEEDS to drop. Our cities and roads are crowded, we are using up our natural resources. One needs to only look to California to see what overpopulation can cause. (I live here.)

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Screw that. I don't have kids. I have chosen not to (thus far), and I'm saving up money for when I do. I don't want to pay for anyone else's decision to have them. That's just idiotic. I have no problem with general programs such as health care or perhaps public education that apply to all PEOPLE. But the burden of paying for children should certainly fall on those who choose to have children.

iVillage Member
Registered: 03-21-2001
Wed, 08-13-2003 - 2:22pm
"Have kids so we can all enjoy social security"? I don't think so. SS should be only for those who desparately need it. That was its original purpose.

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