The WSJ's "Numbers Guy":
Parents and would-be parents might be relieved to hear that last week's widely reported government figure estimating the cost of raising a child—around $300,000 over the first 17 years for middle-income, two-parent families—is, according to several economists, wide of the mark.
The bad news is it may be a severe underestimate. The U.S. Department of Agriculture's report leaves two things out of account. For a start, it doesn't reflect unpaid time spent on parenting, including income forgone by parents who cut back on work hours to care for their children.
Plus, the hit to parents' wallets doesn't end when the child turns 18, as the parents often still provide housing and food as well as pay for college. These could add up to hundreds of thousands of dollars in additional costs.
"The real costs of raising a child for a moderate-income family"—including forgone income, college for those who attend, and the so-called opportunity cost of not investing the money—"would be closer to $900,000 to age 22 than the reported $300,000 expenditures to age 18," says John Ward, an economist and the president of John Ward Economics, based in Prairie Village, Kan., which consults on legal disputes for plaintiffs and defendants.
(The $300,000 estimate takes into account expected inflation. In 2011 dollars, the price tag for a middle income family is $234,900.)
The rest of the article describes a bit about where the numbers come from (It is odd that they include expected inflation. It is best practice in benefit-cost analysis not to include inflation for future streams of money).
The end of the article speculates about the difficulties of measuring the benefits of kids. Another approach is measure benefits with revealed preference and some simple assumptions. Since we observe people having kids then the expected benefits must exceed the expected costs (my line is always that the costs of kids is high and the benefits are just a little bit higher :). Assuming that the benefits of additional kids are diminishing then the marginal benefit of the 2nd (or whatever the average currently is) kid is zero. If you assume a demand elasticity of 1 and linear demand then the consumer surplus benefit of two kids is equal to $234,900.
I'm sure I've destroyed some tenets of the most basic economics of the family. So, refinements/corrections to this number are most welcome!
