Sunday, February 15, 2009

Family Planning Incentives

A couple of weeks ago, I heard someone on the radio talk about how depressing it was with this economy. He has lost his job and he was the sole provider of his family of 7 children and wife. He was angry that he was laid off and wanted the government to take some action against his former employer for firing him. As it is he was finding it very difficult to make ends meet even before he lost his job. I understand his frustration. I also understand that it would be difficult to find another job in this economy. What I fail to understand is how 7 children figured in his future plans. Children are expensive. Don't get me wrong, I love children, but they are just expensive. Baby food, diapers and supplies average about $8000 per kid for a year, or $56,000 for all 7 kids. Lets say the second year is half the expense of the first year, and that is about $28,000 for all 7 kids. Lets say after that their needs are pretty minimal; however once they finish high school even a most basic college education would cost them about $25000 (average four year private school) a year. That's about $700,000 for seven children. Lets even assume that these kids go to a public school at about $6500 a year. That is about $182,000 for seven kids. No offence meant to the guy who lost his job, but what made him not think about all these expenses? 

The median pre-tax adult male income in 2007 was about $50,000, and about $35000 for women. With seven kids I can reasonably assume that his wife is a homemaker. Lets say they pay no taxes, or that all their taxes are refunded. The monthly average income is about $4100, of which lets say they pay about $1600 towards their mortgage, about $1000 toward monthly food expenses (see here for estimates, I chose the thrifty plan and doubled the family size), and about $700 for Vehicle insurance, Gasoline expenses, electricity, and other utilities. This leaves about $800 every month to squirrel away towards retirement. This is a very conservative estimate and does not include other expenses on clothes etc. I still do not see how seven kids figure in this calculation. How do you ensure a quality life for them? With fewer children, you would have fewer basic expenses, which would mean you could live in a better neighbourhood and a better school district, have more quality time with each of them and maybe even have enough to pay for part of their college expenses. The wife would even have time to work and bring in more income to the family. The average salary lost due to a child for a woman is about $25,000 per year.

There is a simple question in intermediate micro texts: With rising incomes, individuals choose to have fewer children, does that mean children are inferior goods? The answer of course is no! They are normal goods but you choose to have better quality children. I still do not understand the logic of several children in the US. It makes some sense in rural India where more children means more hands in the family farm. Middle class urban Indian households have about 2 kids on an average. I refuse to believe that individuals are irrational either. There is some incentive to having more children in the US, and at this point I do not know what!!


Pramod Biligiri said...

7 is extreme. What's the average no. of kids in the US?

The reason more US parents have 3-4 kids is probably because it's possible to provide a good standard of living for that many children.

In India, parental resources start getting stretched after 2. A huge population and messed up capital structure means immense competition for the few high paying jobs.

harmindersingh said...

I think the main driver for people to have > 2 kids is religion. Catholics (and some other faiths, too, I guess) are quite strict about contraception. Like Monty Python said: "every sperm is sacred" :-)