What do you Want: Counting the Cost

One of the most consequential moments in a couple's life together is their discourse about children.  The arrival of a child is an irreversible commitment to a more complex and rewarding life.  This is not always a step that is taken after rational analysis as there are so many emotional variables to consider.  Even so, many serious couples will engage in an anxious search for information to help them cope with those uncertainties.  How many children can they support?  Who can they turn to for help with the emotional assessment?  What considerations should be made before making a decision about child birth?  These are private and sacred discourses that are enhanced by good information and guidance.

The concept of this paper arose from a discussion during an MBA class at the University of Nevada Reno in the summer of 2006.  A group or about 20 students were reviewing how to select relevant techniques for financial analysis.  MBA students focus on gaining a sound understanding of decisions in both the short and long run.  It is always a challenge to capture the implications of a financial decision without over or under simplifying the situation.  During break, a recently married student commented on the shortage of meaningful financial data upon which to assess the cost of having a child.  The following situation was typical of several students' situation.

The Bakers have been married for a few years and are now ready to embark on the journey of parenthood.  Their search for answers related to child care costs and related issues have frustrated them.  The materials often contradict each other and seem based on assumptions that do not apply to them. As a result, they feel more confusion and have even more questions.  In 1996, the Nevada economy was already experiencing the decline the entire country is now feeling.  Economic uncertainty has caused tension between the Bakers.  How can they commit to a child when they cannot sort out what the financial parameters are?  It was evident from the discussion in class that these MBA students were experiencing frustration due to a lack of meaningful information.  The positivist mind set of an MBA group led the group into a discussion seeking solutions.

This paper grew out of a desire to explore the extent of inadequate information problem these MBA were experiencing.  The specific goal of the paper is to gain a deeper insight into the quality information found on newsstands.  Do the popular media outlets that keen, expecting couples, might readily turn to for financial information provide what is needed to make thoughtful decisions?  A recurring criticism of the MBA group was that the popular media contained information that was superfluous.

The group felt information in popular magazines was structured to sell more copies rather than make a meaningful difference in the reader's life.  We live in a world where incredibly detailed information is made available, by law, to consumers of goods and investors in the stock market.  It would seem evident that information about financial commitments associated with a child would be on a higher priority than those items!

As a group, MBA students are trained to be highly analytical.  This can be a considerable difficulty when answering questions like "what is important for you and your family?"  Nobody in the group knew someone who had made a decision to make a baby on an analytical basis.  However, they all felt a need for more helpful information about how to process such a complex question.  In order to explore this topic the study was structured into 2 distinct steps.  The first step was to synthesize the discussion(s) about information needs into a testable set of information requirements.  The second step was to consider the popular literature to see if the information deemed desirable was readily available.  Obviously financial information is only one component of the decision-making process.  The purpose then is to consider if the information in the popular press helps these readers with the question "what is important for them and their families?"

The MBA's felt that the information in the popular media should be useful.  In this context usefulness meant providing a framework that would help a couple organize their discussions.  Usefulness would also mean that adequate financial information was provided so that the couple could understand the consequences of the child rearing decision.  While it is not an economic decision, a couple will be better prepared if the full range of economic consequences were considered.  The supposition was that such information would reduce the sense of uncertainly felt around this major decision.  They determined that the framework, as a decision criterion, would emphasize the financial implications of their answers to the question regarding what is important when raising a child.

A criterion was developed with reference to the analysis normally taught in MBA courses in the process of evaluating major commitments and investments.  A check list of things that might be good to consider while processing the deep feeling about bringing a baby into the world emerged.  The process resulted in 5 criterions.  Consideration of each criterion would deepen a couple's understanding of the decision and thereby improve their sense of satisfaction the decision they made as a couple.

Our first criterion is Lifestyle Choices.  We would examine each article to see if the concept of personal choice and responsibility was emphasized.  A child changes ones flexibility towards career and friends.  The early years are also capital intensive.  Does the article connect the dots for the reader that hard decisions have to be made-married with children is not the same as married and childless?  One must also consider the opportunities that they will make available for their children.  For example, will "junior" learn to speak four languages and play three instruments before the age of ten or will he come home from school only to watch re-runs of Petticoat Junction and eat Twinkies?  The range of choice is considerable and the financial affect will reflect that range of choice.  Some outcomes are outside of a couple's control.  It is natural to assume a "perfect" child will arrive.  The probability of "perfect" child with special needs may be low but this demanding outcome must be considered.

The second criterion is the presentation of the effect child could have on Foregone Earnings.  Historically this would mean the effect of lost wages when the mother stops work to be home full-time with the child(ren). Current data estimates this costs almost one million dollars if the mother does not go back to work (Longman).  If she does go back to work, studies show that on average she will earn 37.4% less than a woman who has not had children (Gray and Chapman).  An alternative effect is the shared cost of lost promotion.  In some skilled intellectual professions a shared commitment will mean a shared cost.  Failure to evaluate this cost is a source of potential stress in a marriage when the loss becomes real.  The absence of forethought is not fair to anyone involved.  We found there is a glaring lack of information about the career cost to stay at home fathers.

Our third criterion is the presentation of the range of Child Care options and associated costs.  Through choice or necessity some degree of child care is needed.  The social and economic impact of who spends the most time with a child(ren) becomes important.  A cheap choice may not represent the environment mom and dad expect.  Evaluating the trade-offs is not easy but it can be even harder to gain knowledge concerning the full range of options.  A good article would inform the reader of the range of options available and how to discover the local costs of each alternative.  It would be naïve to think that this information would not weigh heavily on some couple's minds during the decision making process.

A couples preferences for life style, career, and child care must all come together in a workable cash flow budget.  Our fourth criteria is, therefore the quality of information presented regarding long term Cash Flow Budgeting.  Corporations have elaborate systems for cash flow planning.  Budget season is often full of creative conflict necessary to explore a balance between competing priorities.  Most couples would not have knowledge of these processes.  An understanding of these processes will increase the chances of meaningful discussion.  Lacking the empowerment of a process a couple's relationship could be weakened by competitive advocating by one for a particular choice.  Successful cash flow budgeting over the eighteen or so years of a child's dependency will require a dynamic process grounded in good communication and thorough budgeting skills.

The fifth criterion is presentation of Incremental Costing.  Only some costs are additive.  For example a second child will add the same amount to a food budget as the first did.  In some cases there are no additional costs.  For example, 2 children might be able to watch the same television.  When a couple adds a child they go from one relationship in the family to 3.  A second child increases the number of relationships to 6.  Some costs grow exponentially in the same way.  Transportation costs will often behave in this manner.  An article should make a couple aware of these cost dynamics.  This information will help a couple work through decisions about subsequent children.  For most, the group felt, that simple multiplication would result in a flawed basis for discussion.

Two searches were done to locate "popular" media continuing this information.  The first was a visit to a large grocery chain in August 2006 to locate magazines with articles related to the cost of raising a child.  The second was a Google search for information relating to cost of children.  This process revealed the need for a more explicit definition of "popular media!"  Regardless, the 20 items cover a broad cross section of information a couple might reasonably come across when considering the financial impact of their decision about bringing a child into their lives.

Table A contains a summary of the 20 articles included in this study.  The content of each article was analyzed carefully and coded wherever material related to one of our financial criteria's explained above.  When the notation process for an article was complete a summary of the content for each criterion was prepared and then tabulated onto a grid.  We were then able to explore the overall coverage of specific criteria's by reading down the table.  The following findings were made for each criterion as a result of this process.

While some articles offer some form of disclaimer that their numbers do not include any sort of lifestyle expenses (soccer camp, piano lessons, etc), many do not make it clear to the reader that the total cost they are offering is a "naked" number (Longman, 1998).  Anything above that would be considered necessities (food, clothing, childcare, housing, etc) to most readers and would increase the cost of raising children for them.  The Consumer Report's article sums up the level of analysis that is offered by explaining that "you can spend as much money as you wish bringing up a baby-a stroller can cost $2,800 or $28."  Longman stated, "there's plenty we haven't counted: soccer camp, cello lessons, SAT prep., and other extra-cost options." (1998)

For the most part, foregone earnings were not mentioned.  A few articles mentioned that their numbers do not include any indirect costs (such as foregone earnings).  This is quite astonishing as the opportunity cost of one parent staying home is ever increasing with more women joining the workforce and climbing up the corporate ladder.  According to Longman, foregone earnings could add $996, 567 to the total cost of having a child, which doubles the total cost (1998).  Foregone earnings should be carefully considered when trying to determine how to weigh the costs and benefits of having children.  Gray and Chapman found that having one child reduces a women's earning potential by 37.4% compared to a working woman who does not have any children (2001).

Most articles mentioned child care as a child rearing expense.  Child care was estimated anywhere from 7 to 12% of total child rearing costs (Weaver, 1999).  In the California Budget Project, child care was actually rated as the second biggest expense, behind housing, when raising a child (2003). In fact, Gary and Chapman stated that women with children are more likely to go back to work now because childcare is more common now (2001).  However, in most studies child care was not given priority over other child rearing costs, such as, food costs (Lino, 1998).

A few articles give the prospective parents different ideas (some humorous) on how to save money when raising children.  The article that gave prospective parents the best information regarding budgeting concerns was the California Budget Project paper (2003).  This paper gave parents a rough idea of what parents of different income levels could afford to provide for their children.  The University of Arkansas paper provides a budget for newborns that includes items, such as, strollers, highchairs and diapers (2006). Overall, the attention to budgeting concerns was very weak. 

Less than half of the articles touched on incremental costing-while your first child is most expensive, subsequent children will cost less. The number of children decreases the cost per child as things such as housing and transportation can be shared (Alhabeeb, 1995).  The National Child Care Information Center states the obvious - if childcare is expensive for one child, it costs twice as much with two children (2006). The Consumer Reports article estimates that the second child costs only 20% less than the first child (2005).

The abundant supply of articles in the popular press is evidence of the public demand for financial information.  Our findings indicate the supply of primary research that popular media writers are drawing upon for their manuscripts is surprisingly limited.  A commonly cited source is the USDA.  The Family Economics Research Group of the U.S. Department of Agriculture (USDA) has provided estimates on the cost of raising a child for several decades now.  Estimated costs are based on a family with two children on a per-child basis (Dual-Parent & Single-Parent families).  The data comes from the 1990 - 92 Consumer Expenditure Survey (Interview Portion) conducted by the U.S. Department of Labor (USDA, 2007).

The most recent figures have been updated to 2007 dollars using the Consumer Price Index.  Families with more than two children that use the USDA estimates to calculate costs are instructed to multiply total expenses for each appropriate age category by 0.77 for each child.  Further, the USDA has also created its own baby calculator to assist families in calculating the annual cost of raising a child. It allows families to compare their overall annual estimated costs with National costs.  The USDA baby calculator allows families to calculate costs based on information provided on number & age of children, income levels and region.  Costs are provided on basic necessities, such as, food, housing, clothing, health care, transportation etc.  Each year, the USDA publishes an annual report estimating expenditures on children by families (USDA, 2007).

A deep concern we have with the information provided in the USDA reports is the basis of their preparation.  The USDA figures on various child-related expenses were developed for a macro-economic purpose.  Applying macro-economic data to individual circumstances is confusing and potentially misleading.  As a child ages these issues magnify.  The existing data does not estimate costs when a child legally becomes an adult at age 18.  Further, no figures are provided on costs related to a child's college education and there are no cost estimates if the child becomes a dependent at home after the age of 18.  Finally, each year, the USDA updates the initial 1990 - 92 survey data to the relevant year dollars by using the Consumer Price Index.  The CPI does not reflect the specific cost adjustments that exceed general information that apply to many items a parent would be considering, such as health and education.  All of these factors limit the usefulness of the data and introduce the possibility of serious decision-making errors.

In the context of this discussion we note that there are a very narrow range of ideas that are presented in the popular literature. The rich possibilities for discussion around each criterion are rarely suggested.  Our findings point to the following narrow field of discussion in terms of the criterion.

While 60% of the articles suggested that future parents should think about what type of youth experience they will encourage for their kids, none of the articles gave readers a tool that they could use to analyze how these choices could affect the total cost of a child (Table A, Appendix).

25% of the articles that discussed foregone earnings reveal a superficial consideration.  Career progression is impacted and should be strategically considered to avoid one or both parents from feeling resentful down the years.  There are also several dimensions to the cost.  Research shows that a mother that has one child will make 37.4% less (Gary and Chapman, 2001).  This affects the intrinsic cost of a child.  Also, it doesn't increase the cash outlay a child demands, rather it decreases the amount of money a family can bring in.  Since this cost can be directly attributed to the act of having a child, it should be considered by potential parents.  Surprisingly, most articles did not mention this as a cost.  Also, we found no articles with information about the salary cost associated with stay at home fathers.  There are some novelty stories about the increasing incidence of this but no substantial facts.  Perhaps this is a reflection of our method-literature available in a major grocery store.

The USDA survey, of which many of the articles in our sample pull their information from, states that their childcare costs are dramatically underestimated because 50% of families reported no childcare costs (USDA, 2005).  The articles that base their costs on the USDA survey do not point this out to the reader.  This means that many of the articles underestimate the cost of childcare (should the family need it) by as much as half.  A recent nationwide survey of day care costs published by the Children's Defense Fund found that childcare can easily run up to $4,000 per year (Dunleavy, 2005).  This could be a major cost to a family that needs child care.

A meager 40% of the papers gave their audience any consideration on how costs will shift over time.  A discussion of financial shifts from preschool to elementary to high school to college is imperative.  However, the articles did not provide potential parents with any data on these shifts in cost or offer any tools for their consideration (Table A, Appendix).

Incremental costing is crucial to the child rearing decision.  The second child does not cost as much as the first child because items such as housing and transportation can be shared.  However, 65% of the articles did not mention incremental costing (Table A, Appendix).  This would leave the reader to infer that each child would cost the same. 

Many of the popular parental outlets are supporting parents with web-enhanced tools.  One such tool is a "baby calculator."  This software prompts parents through a limited number of questions and then they display suggested financial costs.  The resulting figures are a direct reflection of how much a parent is willing to spend on each aspect of a child's life (academic, sports, arts, entertainment etc.)  A range of costs are associated with each category that can be selected or entered fluctuates in response to the indicated income levels, standard of living, cultural, and region (BabyCenter, 2009).  In other words, a couple or parent that is making a six-figure salary annually in one part of the world is more than willing to spend more money each month on basic amenities vs. a couple or parent that is making half that money each year in another part of the world.

The baby calculator is deterministic.  The variability of estimates it gives reflects a big picture that accommodates many different situations.  It is not really much use to state that a family with more income will spend more on childcare.  Most families already know this and a "calculator" is not really going to change this reality.  It might however, fool potential parents into a false sense of budget security.  At the heart of the problem is the USDA research paradigm. Future parents would be aided by a more reflective approach that is imbedded in our criteria. Such an approach would cause parents to reflect on key decisions regarding their child in advance with knowledge of the cost consequences. Parents do need to consider the experience they would like to give their children in the long run. A more reflective process would assure parents they are not forgetting something important. Guidance is more valuable than a general cost number that fits everyone in a particular economic category and applies specifically to no one.

There are several ways popular literature may have utility and help a couple.  First, it might prompt them to consider cost items and options that did not initially occur to them.  A secondary benefit is the resources or processes it points them too.  Each case will enrich their discussion about having a child as they gain a fuller understanding of the choices, with financial consequences, they will subsequently have to process.  Many of the decisions are laden with assumptions as therefore maybe a source of conflict if a couple has not processed them in advance.  We presume a couple would benefit whenever a new concrete insight is derived from reading an article.  It all helps address the question what is important for me and my family?

We found that the financial commentary provided in the popular press we reviewed is superfluous.  Consider, by analogy, the information available to car buyers.  A typical automotive magazine will highlight many aspect of owning each specific car model.  They detail the purchase cost, performance consideration, long-term service costs, and the secondary market.  Our findings indicate that far less information is available in the parenting literature.  We are proposing that the shallow nature of the literature can be eliminated if articles focused on a criterion the helps couples process their feelings in the decision making process by increasing the number of considerations taken into account.

The irony of this situation is that we live in a world were incredibly detailed information is made available by law to consumers and investors.  Why then, is this same level of information not encouraged to those considering the life changing decision of having a child?  If this type of information was available, would potential parents be able to make better decisions in regards to how many children they can "afford"?  Regardless of income we found a dreadful tendency to under estimate the commitment involved.

Deciding to make a child is a serious undertaking.  We do not doubt that many couples take the matter very seriously.  The popularity of parenting magazines is most likely a reflection of the desire these couple have for information.  We do not think it would be hard for respected scholars to make more meaningful resources available.  There is glaring need to close the gap that has opened up between macro-economic resources and the needs of young people facing a serious decision.  Finances are probability not the first rational for having a child but the financial considerations reflect the depth of discussion that has been undertaken-in other words, the financial decisions will reveal what is important.

Our work suggests that more research is needed.  A detailed ethnographic study of a number of young couples would result in a deeper exploration of an effective criterion.  A survey of family practice physicians might also strengthen this understanding.  Men need some real case studies or other substantive data to demystify the impact of staying home on their careers.  The USDA survey is geared to public policy makers.  We are convinced there is a need and opportunity to create a new base of data that is suited to the decision-support young couple's need.