Is it Becoming Too Expensive to Be a Parent?

The Cost of Parenting

By: Benjamin Gran

Everyone who has ever become a parent can testify to the financial challenges that go with raising kids. In fact, the average cost of raising a child to age 17 is over $150,000 per year.

Many parents struggle to make ends meet while they're bringing up kids. But is it possible that the actual act of parenting is becoming "too expensive" for our societies to bear?

Parenting is a victim of an economic principle known as "Baumol's Cost Disease," according to an article in Slate. Baumol's cost disease is an economic concept that certain activities do not become more productive over time and therefore become much more expensive. For example, while manufacturing and farming have become more productive with each passing year due to technological improvements, efficiencies and better practices, other professions like customer service and performing arts have not. A violinist can only perform one piece of music at a time - so the cost of watching classical music concerts has grown more expensive over time, compared to all the other products and services that we buy.

Parenting operates under the same principle. Parenting is a form of skilled labor, providing a "professional service," but it is impossible to become significantly "more productive" when you're a parent. Parents can only change one diaper at a time. They can only nurture one young mind at a time. It's very hard to be an active parent and still get work done - trust me, I work from home and I have two small kids, so I know this from experience.

Not only is parenting no more productive than it was 50 years ago, but it's also becoming more "expensive" to become a parent in terms of the opportunity costs of parenting. In the old days, most families had six or eight or 10 children. Parents wanted to have as many kids as possible so they would have help around the house and on the farm - and they wanted to have kids to help take care of them in their old age. (Plus there was no birth control, but that's another story.)

As the U.S. has grown richer over time, and as there have been better career opportunities available to women outside of the home, the "opportunity cost" of becoming a parent has grown bigger. You have to pay a price to have kids - not just in terms of the money you spend on diapers, cribs and clothes, but in terms of lost income and deferred opportunities. Women who leave the workforce to raise kids often have to go back at lower salaries, and those lost earnings can lead to significant losses in lifetime income and wealth.

For example, if you have a family of two college-educated parents who could each earn $50,000 a year or more in the workforce, it's hard to justify having one parent stay home with the kids. Time is money, and all the time you spend with your kids is time that you're not earning money. Parents have to make a conscious choice as to how much they're willing to sacrifice in terms of lifetime income and future standard of living. It's not always an easy choice, but it's something that's on every parent's mind: "How long do I want to be home with the kids? How many kids can we afford to have? How much are we willing to give up?"

I'm a parent myself so I can speak to this from experience. We made the choice to have my wife stay home full-time with our kids (and I'm home too, since I'm a work-at-home freelancer) and it's not always easy but we have chosen to pay the "opportunity costs" of parenting.

The question is, how long will people be able to keep making the same kind of choice? Will Baumol's cost disease and the opportunity costs of parenting ever make it "too expensive" for people to have kids at all? How will governments respond to the financial pressures on parents? Will there eventually be bigger tax breaks and financial benefits to encourage people to have kids? The United States is unusual compared to most other wealthy countries, because we still have a birthrate that is high enough to keep the population growing - many other wealthy countries like Germany and Japan have such low birthrates that their populations are actually starting to shrink.

If you're a parent raising kids on one income (or even two incomes), it often seems like the world is speeding up and becoming more expensive every day. We all have to do what we can to control our spending, live within our means and make the best possible life for our kids. But it's worth thinking about the long-term trends facing parenthood: as life becomes more expensive, will people keep having kids?

I hope so, because I love my kids and I think parenthood is worth it, despite the sacrifices and difficulties. But I'd like to see our society do more to help parents by reducing the costs of parenting - whether it's by bigger tax benefits for parents, or better workplace rules so that parents' careers don't suffer for taking a few years off to raise children.

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