Expenditures on children by families, 2003

Family Economics and Nutrition Review,  Wntr, 2004  by Mark Lino

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Child rearing is a costly endeavor. Since 1960, the U.S. Department of Agriculture (USDA) has provided annual estimates of family expenditures on children from their birth through age 17. USDA's annual child-rearing expense estimates are used in four major ways:

* To determine State child support guidelines. The economic well-being of millions of children is affected by child support. Under the Family Support Act of 1988, States are required to have numeric child support guidelines and to consider the economic costs of raising a child when establishing these guidelines.

* To determine State foster care payments. Many States use the estimates to determine how much to reimburse people with foster children. In 2001, about 542,000 children were in foster care (U.S. Department of Health and Human Services, 2003).

* To appraise damages arising from personal injury or wrongful death cases. For example, if a person with children is hurt on a job such that he or she cannot work, the courts use the child-rearing expense figures to determine compensation for the family.

* To educate anyone who is considering when or whether to have children. Knowing how much it costs to raise a child until that child reaches the age of maturity may encourage teens to wait until adulthood and be more prepared financially to have children.

USDA Method for Estimating Expenditures on Children by Families (1)

USDA provides annual estimates of expenditures on children from their birth through age 17. These expenditures on children, by husband-wife and single-parent families, are estimated for the major budgetary components: housing, food, transportation, clothing, health care, child care/education, and miscellaneous goods and services (see box).

The most recently calculated childrearing expenses are based on 1990-92 Consumer Expenditure Survey (CE) data, which are updated to 2003 dollars by using the Consumer Price Index (CPI). The CE, administered by the Bureau of Labor Statistics, U.S. Department of Labor, is the only Federal survey of household expenditures collected nationwide. It contains information on sociodemographic characteristics, income, and expenditures of a nationally representative sample of households. The sample used to determine child-rearing expenses consisted of 12,850 husband-wife and 3,395 single-parent households, weighted to reflect the U.S. population of interest.

In determining child-rearing expenses, USDA examines the intrahousehold distribution of expenditures by using data for each budgetary component.

In the CE, the data on these budgetary components are child specific (clothing, child care, and education) and household specific (housing, food, transportation, health care, and miscellaneous goods and services). Multivariate analysis, used to estimate household-and child-specific expenditures, controlled for income level, family size, age of the child, and region of residence (when appropriate) so that expenses could be determined for families with these varying characteristics.

Estimates of child-rearing expenses are provided for three income levels, which were determined by dividing the sample of husband-wife families in the overall United States into equal thirds. For each income level, the estimates are for the younger child in families with two children. These younger children were grouped in one of six age categories: 0-2, 3-5, 6-8, 9-11, 12-14, or 15-17. Households with two children were selected as the standard because this was the average household size in 1990-92. The focus is on the younger child because the older child may be over age 17.

Child-rearing estimates provided by the USDA are based on CE interviews of households with and without specific expenses. For some families, expenditures may be higher or lower than the mean estimates, depending on whether or not they incur a particular expense. Calculation of child care and education expenditures are examples, because about 50 percent of husband-wife families in the study spent no money on these goods and services. Also, the estimates cover only out-of-pocket expenditures on children made by the parents and not by others, such as grandparents or friends.

After estimating the various overall household and child-specific expenditures, USDA allocated these total amounts among family members (i.e., in a married-couple, two-child family, the total amounts were allocated to the husband, wife, older child, and younger child). Because the expenditures for clothing, child care, and education are child specific--and apply only to children--allocations of these expenses were made by dividing them equally among the children. The CE does not collect child-specific expenditures on food and health care. Thus, to apportion these budgetary components to a child based on his or her age, USDA used data from other Federal studies, which show the shares of the household budget spent on children's food and health care.

Unlike what is the case for food and health care, no authoritative source exists for allocating among family members the amount the household spends on housing, transportation, and other miscellaneous goods and services. The marginal cost and the per capita methods are, however, two common approaches used to allocate these expenses.