Is the variation in spending on children important?

Earlier this week the U.S. Department of Agriculture released a report on how much families spend on children and what they spend that money on. The headline number from the report and the most widely cited figure was that a middle-income family can expect to spend $245,340 on a child born in 2013 over the next 17 years. This headline figure is an important sign of the increasing cost of raising a child. But looking at other aspects of the data can shine some light on how this trend interacts with income inequality and economic mobility.

The first thing to be said about the headline figure is that it’s a cumulative total, but annually the total is a somewhat less daunting $12,800 to $14,970, depending upon the age of the child. This amount ends up being about 16 percent of pre-tax income.

But that figure is just for middle-income families. Lower-income families spend less on children, but those expenditures are a higher share of pre-tax income, 25 percent according to the Agriculture Department data. Higher-income families spend much more on an absolute basis ($21,330 to $25,700 a year), but expenditures are a lower share of income (12 percent). So while all families spend a large share of income on children, lower-income families spend a larger fraction of their incomes.

One particularly interesting and important difference across the income spectrum is the difference in the categories of spending on children. In absolute terms, higher-income families don’t spend much more on necessities for children, such as food and clothing. What they spend more on is discretionary items particularly in the category “miscellaneous expenditures.” That category includes spending on personal care items, entertainment, and non-school reading materials.

The last two categories can be included in what researchers call “enrichment expenditures.” Broadly these are goods or services parents buy for their children to further their development. Think of parents buying books for young children or entering them in youth sports leagues. These expenditures are more like investments in the future cognitive (reading, math) and noncognitive (social capabilities, grit) skills of the child.

Research shows that higher-income families have always spend more on enrichment expenditures, but that the difference has been increasing over time. This relationship is one way that income inequality and income mobility may be related. Richer households can spend more on their children’s development giving them a head start.

Of course, these expenditures are just one part of the story. Non-monetary factors in the successful upbringing of children, such as the amount and quality of time parents spend with their kids, also have significant effects. But variations in expenditures on children are an important consideration as we think about how families raise children and the development of future talent in our economy.