Sunday, October 18, 2009

The Economics of Babies - 2

Babies cost money! But does anyone care?

It appears that the world (wide web) is devoid of real economics on the economic impact of a baby entering the world. I may have to do some if I ever go back to Uni. In the mean time, I’ve done some ‘back of the envelope’ calculations on the impacts of a baby in the first year, and have been quite surprised by the outcomes.

I’ve found various websites stating the costs of having a baby. These costs ranged from $125,000
to around $400,000 for the first 18 years. With the first year anywhere up to $20,000.

I was astounded when I used the Babycentre cost calculator
. I estimate that our baby will cost in the order of $8,000 over the first 12 months (inclusive of birthing and prenatal care). And that’s assuming zero food costs (breast feeding), no day care (saving thousands) and using re-useable nappies (saving around $1,000).

By applying the ABS methodology for Industry Value Added (IVA)
, I estimate the Baby Value Added impacts for our baby at some -60,000 to our family in the first year. The majority of these are due to loss of income.

The impacts on the economy as a whole are very different. Using the ABS IVA methodology again, I estimate the net impacts at $33,000. The difference is driven by the transfer of my the wife’s income to another employee and the boosts received in the retail, health and service sectors.

Not rigorous, but interesting all the same.

I was surprised by the outcomes of the calculations. I wonder at what financial cost I would stop having kids? What about you?

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