Friday 27 April 2007

The Investment Angle of Children

A comment by Steve on my previous post Key Decisions that Affect Future Wealth to the effect that I had missed the major one of children set me thinking and investigating. Now, I have not worked out the Net Present Value of a child but here are some thoughts for everyone's fun.

There is no doubt that it costs a lot in dollars - about $167,000 in 2004 - to raise a child as this seemingly serious attempt to quantify presents. One could quibble about whether a child has truly been raised at 18 years old ;-) - e.g. what about post-secondary education, which I know from experience costs the proverbial arm and leg. Macleans magazine gives a rough estimate of $18,800 per year. The biggest cost of all is the time, worry and effort that the average parent devotes to raising children. Connected to that is the opportunity cost of not doing other things - maybe so many people wouldn't get sucked into poor mutual fund investing (though a poor investment is better than no investment at all) if they had the time and energy to devote to minimal financial management.

The revenue / income side is a bit thinner and less tangible. It used to be the case that children, until they left home, would bring their pay to their parents, but that stopped before my time in Canada (apparently it stopped only more recently in Scotland as my wife for a short while handed her pay packet to her mom after she started her full time job!).

Perhaps one could consider children as a kind of insurance policy for old age. The kids come and help physically when we get too infirm or sick, avoiding having to pay someone to do jobs like household tasks, or even financial management.

But more than that by far is the real investment return of children - the satisfaction and pleasure of seeing them grow and succeed is worth huge sums and far exceeds all the costs! I think of it this way - when I invest in stocks and bonds, the payoff is down the road when I get to consume the profits later, like going on holidays (Rome was great in February), drinking nice wines (looking forward to my first taste of Cloudy Bay sauvignon blanc) and so on. It's the same with children, they are a pleasure in themselves. There's a kind of compounding interest phenomenon when the grandchildren come along to increase the fun.

(Oh, and referring back to the other post, marriage for me brings similar rewards!)

Update June 3 ...
Just finished reading and reviewing Peter Bernstein's Capital Ideas book and discovered therein a pertinent reference from no less an authority than Aristotle himself. The Greek word for earnings from interest is apparently "tokos", which literally means offspring. Bernstein cites Aristotle, ",,, interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent." I'm glad to learn that I'm on the same page as Aristotle :-)


Anonymous said...

Lol, the idea that compounding produces grandchildren is quite funny.

I'm only 9 months into the parenting thing and although we haven't really spent a lot of $$ so far, the "dividends" received so far via smiles & laughs prove to me that having a kid has been my best investment ever.

the money diva said...

Can you please contact me at if you are interested in participating in the second Canadian Tour of Personal Finance Blogs?
Thanks so much!

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