The cost of children
"The cost of children" - overview and summary
Categories of expenditure on children
Results from the "Small Fortunes" research
Results from the Family Budget Unit
Results from "The Costs of Children and the Welfare State"
Results from "Measuring the Cost of Children: Estimates for Britain"
Results from "1999-2000 Family Expenditure Survey"
Results from "Pregnancy & birth" magazine, March 2001
What the government is prepared to pay for children in benefits & tax credits
The "cost of children" references
The cost of children in other nations
A related topic - sharing the wealth of the parents
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Results from "The Costs of Children and the Welfare State"

"Overall, there are indications that the cost of a child represents between 20 per cent and 30 per cent of the budget of a family with one child". (CSA Reform Green Paper referring to The Costs of Children and the Welfare State, Dickens, Fry and Pashardes, 1996).

The Costs of Children and the Welfare State research indicated no such thing!

References to The Costs of Children and the Welfare State

The CSA Reform Green Paper (consultation paper) was issued about 6th July 1998. This was the first "official" announcement of the 15% / 20% / 25% formula. (There has been leaks before then). One of the 2 pieces of research it cited (the other was Small Fortunes) was as follows:

"Overall, there are indications that the cost of a child represents between 20 per cent and 30 per cent of the budget of a family with one child.
‘The Costs of Children and the Welfare State’ Dickens, Fry and Pashardes, 1996"

The CSA Reform White Paper (policy paper) was issued about 1st July 1999. It didn't refer to The Costs of Children and the Welfare State, only to Small Fortunes.

It says "The proposed base rate of 15 per cent of their income is roughly half the average that an intact two-parent family spends on a child".

But Small Fortunes never identified a formula for expenditure based on percentages on income! The suspicion has to be that the policy drew incorrect conclusions from The Costs of Children and the Welfare State (which actually appears to say that the average is 10% - 15%) then wrongly attributed them to Small Fortunes. Frankly it doesn't matter who they cited - none of the quoted research leads to a formula about the costs of children based on income.

Quick summary of "The Costs of Children and the Welfare State"

The Costs of Children and the Welfare State research is based upon published surveys (the Family Expenditure Surveys of 1970 - 1986). It tries to identify how much children cost compared with adults, hence the proportion of household spending on children.

What the government wants is to know how much, in an intact family, the person who will become the non-resident parent typically contributes. In other words, it wants a figure such as "in an intact family the father spends X% of his income on a child, therefore he should do the same if he becomes a non-resident parent".

A key result is Table 3.1, which identifies what each additional person, whether an adult or child, costs relative to the cost of a single adult.

  Single adult Two adults
Children Extra cost of child Total cost relative to single adult Extra cost of child Total cost relative to single adult
No children   1.00 (this is the baseline for the table)   1.63 (the extra adult costs about 39% of total)
1 child (under 11) 0.33 1.33 (the child costs about 25% of total) 0.19 1.82 (the child costs about 10% of total)
1 child (11-18) 0.51 1.51 (the child costs about 34% of total) 0.28 1.91 (the child costs about 15% of total)

The single adult baseline is in pink. In a lone parent household, a single child does indeed cost quite a large proportion of the total expenditure - about one-quarter to one-third, depending on the age of the child. But that is nothing to do with the non-resident parent's income, which is what the government needs to know to set a child support formula based on income.

In an intact family, a single child costs more like 10% to 15% of the total expenditure, depending on age. These are the green cells. This still doesn't say that a child costs 10% to 15% of income - it says it costs that proportion of expenditure. Now if (big if) the expenditure is equal to the income, an only-child costs 10% to 15% of the total income of both parents, depending on age.

Table 3.1 is extended in Table 3.2, which simply adds more children of various ages. (The table below is derived from their Table 3.2 for simplicity).

  Two adults
Children Extra cost of children Total cost relative to single adult
No children   1.63 (the extra adult costs about 39% of total)
1st child (under 11) 0.19 1.82 (the child costs about 10% of total)
2 children (under 11) 0.35 1.98 (the children cost about 18% of total)
3 children (under 11) 0.50 2.13 (the children cost about 23% of total)
1st child (11-18) 0.28 1.91 (the child costs about 15% of total)
2 children (11-18) 0.50 2.13 (the children cost about 23% of total)
3 children (11-18) 0.65 2.28 (the children cost about 29% of total)
1 child under 11 & 1 child 11-18 0.45 2.08 (the children cost about 22% of total)

In an intact family, the costs of 1 / 2 / 3 young children is about 10% / 18% / 23% of expenditure. The costs of 1 / 2 / 3 older children is about 15% / 23% / 29% of expenditure. The cost of 2 children where one is young and the other older is about 22% of expenditure.

Implications

The percentages of total expenditure on 1 / 2 / 3 children in an intact family straddle the 15% / 20% / 25% of the reformed scheme. They are lower for young children, and about the same or higher for older children. If expenditure = income, then these represent a starting point for setting the formula.

But ... the Green Paper says "Overall, there are indications that the cost of a child represents between 20 per cent and 30 per cent of the budget of a family with one child". The White Paper says "The proposed base rate of 15 per cent of their income is roughly half the average that an intact two-parent family spends on a child". Those statements are massively wrong for 1 child!

Why did the percentages come close to the expenditures even though the Green & White Papers were massively wrong?

The erroneous statements appear to have been matched by a serious error of arithmetic. The thinking appears to have been that if a child costs (say) 30% of the income of both parents, the rate should be 15% of the income of one of the parents. This accounts for the statement "The proposed base rate of 15 per cent of their income is roughly half the average that an intact two-parent family spends on a child", and also accounts for the evidence of Baroness Hollis "On average about a third of a couple's income tends to go on the support of their children, so 15 per cent from one parent in a separated family seemed about right".

But remember: (30% of X) + (30% of Y) = 30% of (X + Y). So if the intact family spent 30% of their joint income, why shouldn't each of the separated parents also spend 30% of their net income? You don't just go and halve the number. It appears that the Green & White Papers erroneous started with figures that were twice what they should be for 1 child, then erroneously halved the amounts, ending up in the right ball park!

Conclusions

There are reasons for giving less weight here to The Costs of Children and the Welfare State than to Small Fortunes.

The Costs of Children and the Welfare State Small Fortunes
Up to date? Uses surveys of 1970-1986. Uses a survey of 1995
Focused? Uses general purpose surveys. Uses an original focused survey
Relevance to child support? Fairly indirect - it derives the proportion of expenditure on children in an intact family. Direct - it identifies how much people spend on the children, and on what.

This web site treats Small Fortunes as the better source of child support costs, but recognises that the way that children benefit from wealthier parents has to be added to the basic amounts of Small Fortunes.

References

[1] The Costs of Children and the Welfare State: An Empirical Analysis based on Consumer Behaviour
Richard Dickens, Vanessa Fry, Panos Pashardes
Discussion paper series no 466, December 1996
Department of Economics, University of Essex

[2] Small Fortunes: Spending on children, childhood poverty and parental sacrifice.
Sue Middleton, Karl Ashworth and Ian Braithwaite
Published by the Joseph Rowntree Foundation.
ISBN 1 85935 032 1

[3] Children First: a new approach to child support
(CSA reform Green Paper)
Command paper Cm 3992 July 1998

[4] A new contract for welfare: children's rights and parents responsibilities
(CSA reform White Paper)
Command paper Cm 4349 July 1999

[5] Baroness Hollis
Evidence about the Green Paper to the Social Security Select Committee
Wednesday 22nd July 1998, soon after the Green Paper was issued
"On average about a third of a couple's income tends to go on the support of their children, so 15 per cent from one parent in a separated family seemed about right"

Page last updated: 5 July, 2004 © Copyright Barry Pearson 2003