McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 31 The Economics of Children

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Outline TAXPAYER SPENDING ON CHILDREN PARENTAL SPENDING ON CHILDREN WHOS HAVING CHILDREN OTHER SOCIAL CHARACTERISTICS OF CHILDREN

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Taxpayer Spending on Children $389 Billion on K-12 education $146 to $197 Billion on Welfare (for many programs you do not qualify unless you have children) –TANF –SSI/EITC* –Food Stamps –Housing Subsidies –Medicaid* *These are the exceptions. It is somewhat difficult separate adult from child eligibility for SSI and EITC. Many elderly qualify for Medicaid on their own.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Parental Spending on Children Between $6,080 and $13,800 is spent by parents per child depending on family living standards. Using the concept of present value, the total cost of raising a child to age 18, (excluding birth, daycare, and college) is between $88,000 and $175,000. Other costs –Birth Costs –Opportunity Costs –Daycare –College

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Opportunity Costs When families have children they lose earning potential. This happens more often and to a greater degree with women. Economists count as a cost of having children the income that would have been earned by parents that stay-at-home. Taking opportunity costs into account can double the cost per child.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Saving for College Present Value: the amount you would have to set aside today to pay for college for a child 18 years from their birth. Savings: How much do you have to save per year to have enough to put a child through college 18 years from now?

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Hypothetical Example Suppose there are two alternatives –State U currently costs $10,000 per year –Private U currently costs $25,000 per year Assume tuition is rising at 4% annually. Assume you have a mutual fund that nets 8% annually. In 19 years State U will cost $20,000 and Private U will cost $50,000. If you start at the childs birth you will need to save $1,850 per year to pay for State U and $4,625 to pay for Private U.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Who Has Children Birth rates among the poor and among minorities is substantially higher than it is for the middle class or wealthy or for whites. 70% of all children live with both parents while for African-Americans the figure is 33%.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Poverty Among Families With Children The Poverty Rate for children (around 20% depending on year) is nearly twice the national average (around 11% depending on year). The Poverty Gap for female-headed households with children is $2,151 vs $1,615 for married households with children.

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Other Social Statistics for Children Children 12 to 19 are 15% of the population and nearly 30% of crime victims. 15% of children have no health insurance 25% are improperly immunized

McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. Divorce and Child Support There are 8 million non-custodial fathers (NCFs) that have 15 million children. NCFs are ordered to pay on average $3,400 per child, and less than half of that is paid. Married fathers typically contribute 19% to 39% of their income to the support of their children while NCFs that pay support typically pay less than 15%.