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Chapter 31

Chapter 31. The Economics of Children. Chapter Outline. TAXPAYER SPENDING ON CHILDREN PARENTAL SPENDING ON CHILDREN WHO’S HAVING CHILDREN OTHER SOCIAL CHARACTERISTICS OF CHILDREN. Taxpayer Spending on Children. $389 Billion on K-12 education

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Chapter 31

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  1. Chapter 31 The Economics of Children

  2. Chapter Outline • TAXPAYER SPENDING ON CHILDREN • PARENTAL SPENDING ON CHILDREN • WHO’S HAVING CHILDREN • OTHER SOCIAL CHARACTERISTICS OF CHILDREN

  3. Taxpayer Spending on Children • $389 Billion on K-12 education • $146 to $197 Billion on Welfare (for many programs you do not qualify unless you have children) • TANF • SSI/EITC* • Food Stamps • Housing Subsidies • Medicaid* *These are the exceptions. It is somewhat difficult separate adult from child eligibility for SSI and EITC. Many elderly qualify for Medicaid on their own.

  4. Parental Spending on Children • Between $6,080 and $13,800 is spent by parents per child depending on family living standards. • Using the concept of present value, the total cost of raising a child to age 18, (excluding birth, daycare, and college) is between $88,000 and $175,000. • Other costs • Birth Costs • Opportunity Costs • Daycare • College

  5. Opportunity Costs • When families have children they lose earning potential. • This happens more often and to a greater degree with women. • Economists count as a cost of having children the income that would have been earned by parents that stay-at-home. • Taking opportunity costs into account can double the cost per child.

  6. Saving for College • Present Value: the amount you would have to set aside today to pay for college for a child 18 years from their birth. • Savings: How much do you have to save per year to have enough to put a child through college 18 years from now?

  7. Hypothetical Example • Suppose there are two alternatives • State U currently costs $10,000 per year • Private U currently costs $25,000 per year • Assume tuition is rising at 4% annually. • Assume you have a mutual fund that nets 8% annually. • In 19 years State U will cost $20,000 and Private U will cost $50,000. • If you start at the child’s birth you will need to save $1,850 per year to pay for State U and $4,625 to pay for Private U.

  8. Who Has Children • Birth rates among the poor and among minorities is substantially higher than it is for the middle class or wealthy or for whites. • 70% of all children live with both parents while for African-Americans the figure is 33%.

  9. Poverty Among Families With Children • The Poverty Rate for children (around 20% depending on year) is nearly twice the national average (around 11% depending on year). • The Poverty Gap for female-headed households with children is $2,151 vs $1,615 for married households with children.

  10. Other Social Statistics for Children • Children 12 to 19 are 15% of the population and nearly 30% of crime victims. • 15% of children have no health insurance • 25% are improperly immunized

  11. Divorce and Child Support • There are 8 million non-custodial fathers (NCFs) that have 15 million children. • NCFs are ordered to pay on average $3,400 per child, and less than half of that is paid. • Married fathers typically contribute 19% to 39% of their income to the support of their children while NCFs that pay support typically pay less than 15%.

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