The Trudeau government has made supporting the middle class and “those who want to join it” a central narrative of both its political strategy and its policy agenda. For example, in its platform document for the 2015 election, the Liberal Party said, “We will give families more money to help with the high cost of raising their kids.”
But how will the government know how much it is helping? And how will Canadians hold the Liberals to account for keeping their promise to support families’ economic security? All this and more depends on the adequacy of our estimates of the cost of raising children.
Why sound estimates are important
Canadians have a vital interest in how the cost of raising children is estimated, because this cost is relevant for many public policies that affect us all. Important examples are the income-tested Canada Child Benefit and the Manitoba Child Benefit, intended to partially compensate parents for the costs of raising children. Accurate estimates are necessary in order to understand the extent to which these benefits help families.
Accurate estimates of the cost of raising children are relevant for other public policy purposes too. Federal, provincial and territorial governments are currently developing a national child care policy framework with common principles such as affordability, so a realistic overall cost assessment is fundamental to determining what affordability means. When child and family service agencies place children in foster care, provincial and territorial governments must provide adequate funds to compensate foster parents for the costs of raising these children.
At first glance, estimating the cost of raising a child seems quite straightforward — even simple. In reality, however, there are so many complications that experts have been unable to agree on the best method. These complications occur for at least three reasons. First, there is disagreement about how to define a household’s level of well-being, and how much of which goods and services are needed for a child to be healthy and thriving. And how do we determine how much of a household’s expenditures are spent on goods and services actually consumed by a child?
The second complicating factor is that broadly representative data are often not available to inform good estimates that allow for variations based on where a household is located, differences in tastes and preferences and any special characteristics of the child.
The third complicating factor is that — as noted by economics scholar Martin Browning — the simple question “What is the cost of raising children?” can actually refer to four related but quite different questions: (1) How do children affect a family’s expenditure patterns? (2) How much do families need to spend on children? (3) How much do families actually spend on children? (4) And how much money do families with children need to be as well off as comparable families without children?
These complicating factors leave a lot of room for political and ideological preferences; therefore, it is important that those who produce estimates be transparent about their biases. We believe that the comprehensiveness and accuracy of the estimates of the cost of raising children indicate the value we place on children — not only as family members or future contributors to society but also as distinct citizens who need material and other supports to experience their full rights and potential.
There are three main approaches to estimating the costs of raising children: the expenditure survey approach, equivalence scales and the budget standard approach. Each has strengths and weaknesses and can answer different questions.
The expenditure survey approach uses data on household expenditures. Its main advantage is that it captures how real families at various income levels allocate their spending. However, it can be difficult to determine the proportion of expenditures that should be allocated to children in some budget categories, such as housing and transportation.
Equivalence scales are based on estimating the amount of additional income a household needs to be as well off as a similar household without children. The most useful type of equivalence scale is the “complete demand” system, which can account for spending in each category of goods and services. Its main drawback is that it requires a large amount of detailed data.
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In the budget standard approach, a basket of goods and services that can provide children with a particular standard of living is chosen and priced. Baskets need to be updated regularly, and having the appropriate expertise in setting the standard and selecting the content of the basket is important. For example, many different food combinations can meet the health and nutritional requirements of adults and children of various ages.
Canada has no official estimate of the cost of raising children like the estimate produced by the US Department of Agriculture. In fact, there are no Canadian estimates that are both current and applicable. We are not aware of any academic research on the topic since 1998, when Professor Shelley Phipps estimated the cost using a complete demand system and data from Statistics Canada’s Family Expenditure Survey (succeeded by the Survey of Household Spending, SHS).
The budget standard approach is used by the Montreal Diet Dispensary (MDD), a social agency that assists pregnant women, in its annual estimates of budgets that meet basic needs in Montreal. Specific estimates of the cost of raising children are not generated by the MDD, but estimates can be derived from the numbers in its annual budgeting report.
The highly influential budget standard estimates of the cost of raising a child that were generated by the Home Economics Section of Manitoba Agriculture have not been produced since 2004. Although these numbers are out of date, the Fraser Institute used them in 2013 for one of its two sets of estimates of the cost of raising a child. The Fraser Institute estimates removed housing and child care costs, two of the largest categories of spending on children, and then inflated the 2004 estimates by the consumer price index to reach 2010 dollars.
Finally, economist Roger Sauvé produced estimates of the cost of raising a child to age 18 for MoneySense magazine in 2011. These estimates were based on data from the SHS where available and from other data sources where SHS data were not suitable.
Setting the agenda for Canada
In recognition of the value and importance of high-quality estimates, we recommend that the federal government establish two official estimates of the cost of raising children. A comprehensive standard budget should be established for public policy purposes, based on the best available scientific, professional and experiential expertise. This estimate would answer the question “What is the cost of what children need?” in a transparent manner.
As well, an estimate based on the complete demand system should be produced for purposes that reflect market-based expenditure behaviour, such as fertility choices and financial planning by parents and prospective parents and child maintenance guidelines for divorcing families. This estimate would reflect the norms and standards of Canadian families. It should be based on improved expenditure data from Statistics Canada’s Survey of Household Spending, especially figures related to child care and housing.
Both estimates should reflect the diversity of geography, family structure and cultural context, as well as children’s special needs due to disability or health status. If the estimates diverge, the reasons for divergence should be analyzed and used to improve both methods.
Good estimates of the costs of raising children are absolutely necessary for developing evidence-based family policy and for understanding the outcomes of public policy and public expenditures, as well as helping Canadian families make financial plans. Are these objectives not worth the investment?
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