Introduction

The costs of children are of immense importance in a wide range of social and economic policy areas. Studies of income distribution and poverty, for example, usually incorporate assumptions about the estimated costs of children by applying equivalence scales to the incomes of families. The likely costs of children are one critical factor affecting the level of payments or rebates for children in the social security and the income tax systems. The estimated costs of children also have implications for the legal system, affecting awards for child support or child maintenance after accidents or medical problems. As Saunders notes: “there is thus an ongoing need to ensure that the best possible estimates of the costs of children are available so as to inform public debate and policy formulation on these important issues” (1999, p 63).

There is not, however, any consensus about the best way to measure the costs of children. Recent Australian studies have used the budget standards approach (Saunders, 1999) and the extended linear expenditure system approach (Valenzuela, 1999). This study uses a variant of the approach originally developed by Engels and since used by Espenshade (1984) and others to estimate how much children actually cost their parents.

The purpose of this study is to estimate the private costs of children in Australian two-parent families and to compare them to selected public costs. In the study, the private costs of children were taken to be money expenditures – that is, the amounts that parents actually spent on their children. Thus, the indirect costs of children – caused, for example, by mothers reducing their hours of paid labour-force participation – were not taken into account in any way.

Estimating the costs of children is inherently difficult, as many items of family expenditure are often shared among all family members or incurred indirectly by parents. In practice, it is also likely that there are wide variations in the amounts that parents spend on their children, both as family incomes vary and as the sense of what it is proper to spend varies. Not surprisingly, discussion of the costs of children is often directed towards what should be spent, as much as to what is spent.