Research Findings

The costs of raising children and the consequences for parental wealth and inequality


July 3, 2019

Children are expensive. Almost any parent will attest to this. For 2015, the U.S. Department of Agriculture (USDA) estimated that raising a child into adulthood cost approximately $234,000 in total for a middle-income family.

Families face many similar expenses with childrearing, which vary over the child’s lifetime. Upon the birth of a child, there are immediate costs. Parents must purchase food, clothes, and many other items to support their children on a day-to-day basis. Children bring long-term costs, too, as parents often have to save money for their children’s futures, particularly for education.

Although the costs of childrearing may be similar, families have very different resources available to attend to these costs. As a result, higher-income families tend to spend more on their children in absolute dollars, but lower-income families spend a greater proportion of their income on their children, often at a cost to their own financial wellbeing. 

Regardless of whether parents are buying Pampers or expensive cloth diapers with a diaper service, they are going to need something to cover their child’s behind. Children also need food, clothing, and somewhere to live. Beyond the cost of diapers, however, the two largest expenses for parents are actually childcare and education and these costs have dramatically increased over time.

What do these current and future expenses mean for parental wealth? Well, the answer actually depends on parents’ current wealth levels.

My research using data from the 1979 cohort of the National Longitudinal Survey of Youth (NLSY), a U.S. longitudinal survey of late baby boomers born after WWII between 1946 and 1964, looks at how people’s wealth changes after they become parents. The birth of a child influences both parents’ motivations for saving and their day-to-day consumption patterns. Both changes can directly affect parental wealth in different ways. One the one hand, children can encourage wealth accumulation among parents by motivating them to save. They provide a reason to buy homes and invest for the future. On the other hand, children can also limit wealth building via the consumption costs associated with childrearing. Taking care of children is an expensive endeavor that can leave families with less money to put aside.

In analyses that examine the relationship between children and wealth throughout the wealth distribution, I find that the effects of parenthood on wealth actually depend on parents’ levels of wealth. Low-wealth parents saw their wealth decline by 38% in the years after childbirth, but those at the median experienced smaller decreases of 21%. However, compared to the years before becoming parents, high-wealth families reported greater wealth in the years after childbirth. Parents at the 75th percentile experienced an increase of 52% in wealth after their children were born, and parents at the 90th percentile held approximately 2.24 times as much wealth after having children.

Wealth effects also vary over the child’s lifetime. Children tend to be most expensive when they are very young and when they are much older, which fits with the growing costs of childcare and education. Nevertheless, my research shows that less wealthy households experienced consistent negative wealth effects as their children grew. Instead of saving and investing, these families saw their wealth decline, resulting in a constant costs model with the transition to parenthood. 

The situation for high-wealth households, however, looked a bit different. For these households, the positive wealth effects of parenthood were greatest when their eldest child was between 6 and 17 years old and the effects, although still positive, weakened as the child reached adulthood. These families were generally able to increase their wealth while their children were young (saving) and then transfer that wealth to their children when they reached young adulthood (spending).

Importantly, this research also shows that the costs and potential wealth effects of raising children do not end when children reach adulthood. Parents continue to assist young adult children well into adulthood, making young adults today heavily reliant on parental wealth for their economic wellbeing. Many continue to live in their parents’ homes, which also decreases parental wealth. Those who move out often rely on parents for down payments in order to buy their own homes. Young adults also rely on parents to help finance higher education so as not to become saddled with student loans. Again, though, not all parents are able to provide this help to their children and many parents often sacrifice their own wellbeing to do so.

As my research and other studies show, the wealth effects of parenthood are not felt equally across all households. Those with greater resources are able to pass on more to their children and these investments often offer benefits for parents later on. This situation leads to widening inequality between low- and high-wealth households with children. As a result, wealth inequality is higher among households with children than those without and has risen faster since the 1990s. It also means that wealthier households have more resources to then pass on to their children, furthering intergenerational inequality.

Read more

Michelle Moroto, “Sharing, Saving, or Spending? The Wealth Effects of Raising Children,Demography 2018.

Image:  Kevin Sablan via Flickr (CC by SA 2.0)

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