Tuesday, March 25, 2008

The Cost of Raising Children

How much does it cost to raise kids in today's dollars? Every year I see estimates in the hundreds of thousands of dollars, and it makes me scratch my head. It seems to that the people putting together these statistics pull these numbers out of their ass thin air. Today I went and read some of the actual FDA report upon which these news articles are based (pdf warning).

I still don't get it. If this is true (and that in my mind is a big if), then Americans pay a hell of alot of money to raise (on average) relatively stupid kids compared to the rest of the first world, a significant portion of whom (nearly 30%) don't even graduate from high school.

According to this survey, the cost of raising a kid through age 18 (note that this does not include college expenditures) for a middle income bracket family is $197,700. This is about $11,000/year/child. According to this report, the cost of raising my 2 kids is more than double the cost of my home in today's dollars.

Below are two figures from the 2006 FDA report. My apologies for how small they are. You can pull them up in a separate browser tab or just look in the pdf report to find them if you want to look at them closely.

From my perspective, the only way to come up with a number close to this is to consider lost opportunity costs for working wives who are staying at home. If one does that, the numbers don't come close. A woman missing out on 20 years of work at $30k/year is losing $600,000 in today's money. Give her a college degree and a family is easily passing up a cool million dollars by having a mom stay at home.

But the FDA doesn't consider lost opportunity costs. They are solely interested in how much a family pays for housing, food, transportation, clothing, healthcare, education, child care and miscellaneous items like personal care and entertainment expenses.

So what goes into these bigger numbers? What percent of parents vs. non parents pay more to live in a nice school district? That can be a big expense, but can it explain an average cost/kid of $66k ($132K for two child families). That sure doesn't apply to me. Some people might get a slightly larger house, but how many people would get a 1 or 2 bedroom house vs. a 3 or 4 bedroom house if they didn't have kids? For me a 3 bedroom home is probably the smallest I would go, even without kids. The total education costs are high for public schooling and home schooling, but they are low for private school. The food costs for children in the 0-2 age range are ridiculous in my opinion, but then again my family didn't buy formula or baby food. A average teenage boy can certainly put the food away, so maybe $50/week/kid is justified. The clothing costs seem ridiculous to me, but then again with few exceptions I don't shop for new clothes for my kids (or for myself for that matter). Overall, to me these numbers look greatly inflated.

Looking at the big picture, according to this study a family which grosses $59,600/year will spend $197,700/kid. Multiplying this by the family size factor and taking it out to eight kids, one can see that large families are quite expensive. The biggest question this raises for me is this: are families with 8 or more kids all con artists with drug/forgery businesses on the side?
# Kids: % Income Spent on Kids
1 Kid: 23% of gross income (124%)
2 Kids: 37% of gross income (100%)
3 Kids: 43% of gross income (77%)
4 Kids: 57% of gross income (77%)
5 Kids: 71% of gross income (77%)
6 Kids: 86% of gross income (77%)
7 Kids: 100% of gross income (77%)
8 Kids: 114% of gross income

Clearly, this equation breaks down soon after 3 kids, so why do the report authors even bother saying the numbers should be multiplied by 0.77 for when the family has "three or more" children. Did I miss the disclaimer for families with more than 3 kids? I certainly don't believe 0.77 is the correct factor for 4 kids, because there is no way on earth that a middle income family spends 60% of their gross income on their 4 children.

The only way these numbers make any sense to me is if I imagine that two working parent families have very extravagant lifestyles compared to my own. I didn't see anywhere in the report where two working parent families were broken out from two parent families with only one person in the workforce. Even then, though, the results seem rather dubious.

So, what's wrong with my analysis? Did I miss the fine print by only skimming the report over my lunch break? Am I just a whacked out cheapskate who can't relate to the average Joe? Does anybody think that on average a middle class family spends 37% of pre-tax income to raise 3 kids? Enlighten me, please!


Friday, March 14, 2008

CO2 to Gasoline

While I still have some lingering doubts regarding the certainty and extent of anthropogenic Global Warming and its implications, I found this NY Times article to be interesting: Scientists Would Turn Greenhouse Gas Into Gasoline.

Essentially, they extract CO2 from the air and use it to create hydrocarbon chains from methane to gasoline and jet fuel. In a sense, they seem to be making a case for a sustainable hydrocarbon fuel economy that would be compatible with the existing infrastructure.

While this is not a new idea, Martin and Kubic claim to have made significant progress in making the process more efficient such that the consumer cost may be $4.60/gal or even $3.40/gal with some (presumably foreseeable) technological advances. Their Green Freedom (pdf) system proposes the use of a nuclear reactor to provide the energy required for this conversion, though any source would do.

The question seems to be, how efficient is the energy conversion to gasoline as compared to other similarly feasible and safe fuels or storage? Relatedly, is gasoline inherently unhealthy (e.g. cancer, respiratory diseases)? If so, what alternatives are safer, healthier, and feasible?

It seems to me that this would also have significant implications for our foreign dependence upon oil and create a sort of upper limit on the price of oil world wide.

This development is also notable as an alternative to present solutions to removing CO2 from the atmosphere, such as burying it (Michigan well gets carbon dioxide out of air, into ground).

Hat tip to Jonathan Adler at Volokh Conspiracy.


Tuesday, March 11, 2008

Time Zones and Other Questions

Sunday I was sick and forgot to change the time on our clocks. I was reminded about how on my 5th trip outside of the two states I grew up in (at age 25), I was driving through Indiana and asked a lady at a gas station what time zone I was in so that I would know whether or not I needed to change the time on my watch. The lady said she didn't now what time zone she was in and just gave me the time. As I walked out of there, I thought to myself, "Boy, is that lady stupid."

While perhaps she should have known what time zone she was in from a geographic sense, at a practical level, I was the one being stupid. Since Indiana is one of only two states to not use daylight savings time and effectively changes time zones relative to the rest of the country, it was unimportant and probably unknown by most folks in Indiana. I was being the stupid one by asking what I thought in my ignorance was an obvious question.

This story always reminds me about how I go often through life asking what I think are obvious questions to get at answers to questions and forget that my underlying assumptions and ignorance may be blinding me a better way to approach the subject. With that in mind, thanks to all the bloggers and "real world folks" out there who challenge me to think about things differently and to reevaluate my unquestioned assumptions.