The economics of becoming a parent

In the UK, it’s Mother’s Day tomorrow. The shops are filled with pink and flowery trinkets. The proliferation of all these pretty presents dedicated to mothers may make any rational utility maximising person wonder: is it time I became a mother? (Or possibly father. Although Father’s Day presents tend to be less pretty. It depends on what you look for in presents.)

The traditional economic tool to aid decision-making is the cost-benefit analysis (CBA). As you might expect, this involves costs, benefits, and some analysis. You add up all the costs, you add up all the benefits. You obtain net benefits by subtracting costs from benefits. You make a decision. Of course, sometimes it’s hard to turn some costs and benefits into actual numbers. In which case, more analysis is required, in weighing up whether one fluffy benefit might be bigger than one fluffy cost. No one said this was easy. Sometimes you just have to use your biased judgement. This is definitely not that lesser regarded decision-making tool, the “list of pros and cons scribbled on the back of a shopping receipt”.

So here we go – how to conduct a “parenthood CBA”. Should you, or should you not become a parent? Remember, every good CBA needs a well-defined counter-factual (what would happen if you didn’t go ahead and have a child). Any costs and benefits need to be measured relative to this. For example: children like gardens to play in. But perhaps you would buy a house with a garden even if you didn’t have children, because you like gardens too. In this case, the additional cost of a house with a garden should not be included as a cost in the CBA (it’s part of the counter-factual). Or, suppose you now earn £25,000. If things carry on as they are, you can expect to be earning £30,000 next year. If you have a child, you become so harried that you forget to attend your pay review meeting and don’t get a rise at all. The change in income due to having a child is minus 5000, which should be entered as a cost in the CBA.

Costs

Legoland: a reason to have children, or a painful cost?

So many costs, both financial and non-financial. Financial costs include nappies, schooling, food, clothes, days out at Legoland (could be a benefit, if you want to visit Legoland but need a child to go with to avoid looking suspicious), toys (could also be a benefit if you like toys, but want a child to buy them for to avoid being thought weird), not being able to take advantage of cheap off-peak holidays.

A recent estimate of the cost of bringing up a child to 21 years old is £210,000 in the UK. Not an amount to be sniffed at. But of course the cost will vary from child to child (and this estimate includes university fees, which as the UK media keeps seeming to forget, can be borrowed on favourable loan terms and repaid years later. By the child.)

Non-financial costs include the messy business of potty-training, trying to survive the teenage years, and having your sleep patterns disrupted.  

Benefits

Possible benefits include easier access to toys and Legoland (see above), the potential for receiving exciting Mother’s or Father’s Day presents, such as a plastic soap-dish from the local newsagents (true story), and the possibility that you might have someone to keep an eye on you when you’re old. As you can see, some of these benefits are rather uncertain, and your CBA may benefit from some scenario analysis. You need to take particular care with the latter benefit, as the likelihood that you will be looked after in old age is likely to depend on the costs you are willing to bear in earlier years (investment in education may lead to higher earnings).

Analysis

 Sometimes even a CBA can’t give you a clear answer. In these cases, it may be instructive to examine “natural experiments”. I.e. the happiness of people who have taken the weighty decision to have a child. According to a study by Professor Daniel Gilbert, having children makes you less happy overall. But perhaps it’s worth it for the happiness highs of seeing the first steps, educational achievements, and going to Legoland. Think of it like climbing a mountain: utterly miserable, but worth it for the sense of fulfillment once you get to the top. (Or so I hear. The abject misery I have always felt when engaging in physical exercise has never been followed by anything other than relief that it is over).

Happy Mother’s Day.

Five Minute Economist

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One Response to The economics of becoming a parent

  1. A late addition to the list of possible benefits: people with children are more likely to be healthier in their old age http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1791837

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