Chapter 31 The Economics of Children


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Chapter 31The Economics of ChildrenChapter OutlineTAXPAYER SPENDING ON CHILDRENPARENTAL SPENDING ON CHILDRENWHO’S HAVING CHILDRENOTHER SOCIAL CHARACTERISTICS OF CHILDRENTaxpayer 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)TANFSSI/EITC*Food StampsHousing SubsidiesMedicaid**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.Parental Spending on ChildrenBetween $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 costsBirth CostsOpportunity Costs DaycareCollegeOpportunity CostsWhen 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.Saving for CollegePresent 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?Hypothetical ExampleSuppose there are two alternativesState U currently costs $10,000 per yearPrivate U currently costs $25,000 per yearAssume 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 child’s birth you will need to save $1,850 per year to pay for State U and $4,625 to pay for Private U.Who Has ChildrenBirth 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%.Poverty Among Families With ChildrenThe 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.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 insurance25% are improperly immunizedDivorce and Child SupportThere 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%.