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The Australian Institute of Family Studies is frequently asked to provide figures on what it costs Australian families to raise their children. The answers we give can have a big impact on people's lives, for they feed into the formulation of social policies designed to support families with children, and they are also used by lawyers and Family Court judges to determine how much absent parents need to pay to help maintain their children.
The significance attaching to these figures means that there is a heavy responsibility on anybody calculating the costs of children to make sure they get it right. The problem, however, is that any set of calculations inevitably reflects a set of starting assumptions, and these assumptions are inherently debatable. In short, there can be no single, authoritative answer to the question of what it costs to raise children in Australia today.
Problems in calculating the costs of children
For some years, the Institute published in its magazine Family Matters two sets of figures, regularly updated, which were based on two different approaches to calculating the costs of children.
Over time there was probably a tendency for people using these figures to forget how they had initially been calculated, and to overlook the problems involved in each approach. The figures began to be accepted as 'facts', when they were in reality contestable. Furthermore, although a consistent formula was applied to adjust the two sets of figures for inflation, as time went by they inevitably became dated. For example, one set of figures was based on the cost of a typical 'basket of goods' back in 1983, and the other was based on a 1984 survey of household spending, but the kinds of things families buy have shifted quite significantly since the early eighties.
Because of these problems, the Institute decided in 1999 to stop updating and publishing costs of children figures. At the same time, however, we also invited researchers based at three eminent institutions to write fresh articles for Family Matters explaining how they thought the costs of children should be calculated, and setting out the estimates which followed from the approach they had adopted.
This Guide reproduces these three recent articles, as well as an earlier paper explaining the two original approaches, so that readers can make their own evaluations of the different approaches and can, if they wish, update the estimates contained in each.
The original 'basket of goods' and 'survey expenditure' approaches
The two approaches which underpinned the figures which appeared
regularly in Family Matters until 1999 are outlined and explained in the
article we reproduce here by Peter McDonald, which was originally
published in Family Matters in November 1990. This article distinguishes
the 'basket of goods' approach, developed by Kerry Lovering in 1983, and the
'expenditure survey' approach, developed by Donald Lee in 1989. We also
include an explanation of how each set of figures can be updated.
Lovering drew up two lists of what she thought parents needed to buy in order to raise children of varying ages, and she then worked out how much the items on each list would cost. One list was said to be 'basic' and was assumed to apply to low income families; the other was more generous and applied to middle income families. Neither list included items shared by the whole family, such as cars and housing, and both were inevitably arbitrary, for who is to judge what is necessary and what is not?
Lee's alternative approach was to use the Household Expenditure Survey to determine what parents in different income brackets, raising children of different ages, actually spent. His estimates were much higher than Lovering's (for example, at 1990 prices, Lovering calculated the weekly costs of a two year-old child to a middle income family as $40.91 while Lee put it at $136.06). This partly reflects the fact that Lee included factors like medical and educational costs omitted by Lovering.
Three later alternatives
This Guide also reproduces the three recent articles published in Family Matters, in August 1999 and December 1999.
The article by Peter Saunders, of the Social Policy Research Centre, at the
University of New South Wales, is essentially a revised basket-of-goods
approach (he calls it a 'budget standards' method) which takes account of the
cost of the children's imputed share of family-owned items, such as a car. His
estimates come out higher than Lovering's (but still lower than Lee's), and he
recommends that his calculations should replace the older Lovering figures.
The article by Rebecca Valenzuela, of the Melbourne Institute of Applied
Economic and Social Research, at the University of Melbourne, is, by
contrast, a revised 'expenditure survey' approach in which she calculates for
each additional child the percentage increase in spending which a family
must incur in order to maintain the standard of living it enjoyed before the
children were born. This approach produces relatively low estimates of
costs, particularly as regards the additional costs incurred as a result of
having a third, or subsequent, child.
Finally and most recently, the piece by Ann Harding and Richard Percival, of the National Centre for Social and Economic Modelling, at the University of Canberra, is also based on expenditure survey data, but it tries to compare the actual level of spending of families at the same standard of living but with different numbers of children. Their estimates come out higher than Valenzuela's, but are still considerably lower than those derived from basket-of-goods approaches.
Comparing approaches
The Australian Institute of Family Studies makes no judgement as between the relative merits of these different approaches and the calculations derived from them. These estimates vary widely from each other, and it is for readers to judge how useful or appropriate any one of these approaches might be.
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