Tuesday, 4 November 2014

The Kid Handicap

How much does having children affect net wealth?
"You're so lucky you don't have to pay for childcare."
"I bet you're glad you don't have to pay for [baby car seats] [nappies] [gynecologists]."
"I could retire like you if it weren't for the kids."
Yours truly is tired of the assumption that his wealth is due to being child-free. Although children imply expense, they do not as such prevent saving. And yet, the sheer weight behind the 'children are expensive' narrative stifles me.

The latest beat-up on spiraling costs is this News Corp piece in which the authors bemoan breaking proof that child-rearing in Australia is costlier than in even America. Parenting dreams shattered. Children out of reach. Oh boo hoo.

Notice the mistake? The Australian study tracks costs from birth to age 24. The American study cuts off at 18. Six years of living costs and uni fees would surely make a difference.

But I'm not here to pick on shoddy reasoning. Let he who is without sin throw the first stone, say I.

First, some perspective.

The sticker shock of AUD$400,000 per middle-class child has to be spread across 24 years. Adjusting for inflation at 2.7%, that's about $230 per week; the cost of two smoking habits. For a single working parent, it would be tight but do-able. For a couple with one and a half incomes, a breeze.

Besides, government subsidies would kick in about $40 a week. Even more for low-income families. Thankfully, this ABC article lends a broader - though still alarmist - perspective.

That said, the idea that children are financially crippling had to come from somewhere. Perhaps it was America. Figures from the US' Survey of Consumer Finances 2007-2010 seem to confirm the grim outlook for parents.
Table 4 – Thousands of US DollarsCouple with child(ren)Couple, no child
Mean net worth555.7864.8
Median net worth86.7205.7
Median gross annual income67.761.8
Mean gross annual income109.4101.7
(Source: Federal Reserve Bulletin June 2012)

But this is misleading without age data. As we know, net wealth tends to increase with the years. That's why our parents generally have more than we do. 'Couple, no child' may skew older because it includes households whose children have left home. Age would explain the higher net worth as well as the lower income (retirement). Sadly, the publication did not come with a glossary.

Indeed, if we look at singles, we see not much difference in wealth or income.
Table 4 – Thousands of US DollarsSingle with child(ren)Single, no child, age less than 55
Mean net worth143.7117.5
Median net worth15.514.6
Median gross annual income29.530.5
Mean gross annual income39.442.5
Lest we start thinking that the kid handicap is in fact an advantage, please remember the power of age. 'Single with children' may skew older by way of its members having to be at least childbearing age, as well as being able to be over 55. (Though I know few acquaintances still living with aged parents, even in Japan.) Although it is troubling that single parents tend to be paid slightly lower than childless singles - and far lower per person than couples - they seem to do just as well as their single counterparts in the long run. Besides, childless singles also do far worse in income terms than the coupled. Perhaps 'childless' includes parents not living with their children, and it is this that keeps them on a similar footing with single parents.

Thankfully Australian selected life-cycle statistics includes age data, which we can factor in with the Stanley-Danko wealth index.
Australian Household Wealth 2013Couple onlyCouple with Dependent Children Only
Table 21 – 22reference person aged under 35Eldest child under 5
Mean net worth$259,175$459,001
Median net worth$155,258$313,013
Gross mean weekly income$2,543$2,314
Gross median weekly income$2,213$1,994
Average age2834
Wealth Index (Mean Values)0.701.12
Wealth Index (Median Values)0.480.89
(Source: Australian Bureau of Statistics 6554.0)

It is telling that even with a lower income, young nuclear families have almost twice the wealth of young child-free ones. Again, 'young' is vague. Time and age have not been totally controlled for. I would have liked two groups of an average age that was older, to give the impact of childrens' costs time to show. That said, this is the smallest age gap in the publication.

Do children turn couples into super savers? Not necessarily. Even though those with children are doing better, they are not doing prodigiously well. The mean and median wealth index for 25-34 year olds is 0.76 and 0.5 respectively. For all households, it is 1.52 and 1.16. The net wealth of those with and without children remain unremarkably normal. Furthermore, correlation can go both ways: financially established couples could be turning into parents, and not the other way around.

The best I can say is that children have little effect on net wealth. Although they are expensive, the money seems to come from somewhere else (overtime and/or grandparents, maybe). This inequality actually seems fair to me. As well as all the 'benefits' of having children, it would be a shame if parents could also lay claim to financial martyrdom.


  1. Good post, especially the fault you picked up in the News Corp. report.
    I reposted at my place: http://zacalstin.com/2014/11/11/the-kid-handicap/

    These critiques of prevailing narratives are valuable. It helps a lot to break down some of the assumptions and conventions that shape our choices.

  2. Adding to the picture (or illustrating it more clearly,) see Table 5
    Couple family with dependent children, reference person aged 15-44: $590K (mean) $372K (median).
    Couple only, reference person aged 15-44: $385K (mean) $214K (median).
    It would be safe to assume from other tables (including table 25) that the couples with children are older on average.