I don’t have children, so take this with a big ol’ grain of salt as someone speaking as an outsider. Candidly, I want 10 kids myself one day (yes, really) so I’m not coming at this from an angle of “kids bad.”
I want to objectively understand how having children can affect wealth acquisition over time.
We’re going to look at four pieces:
- Historical Background
- Costs of having kids
- Taxes and tax advantages
- Long-term value
This will not be a sentimental review. This is not considering the spiritual, relational, emotional, or even health benefits of kids (of which there are several). This is strictly a review of economic considerations.
Kids didn’t always seem so high-cost. From the Agricultural Revolution (and probably earlier), kids became largely an asset. They could work the farm and therefore add value (after the initial years where they first needed to learn to walk, talk, and all that). Kids were a 3-year investment, not 20+ years.
The Industrial Revolution had kids enter two new routes: work or education. “Child labor” sounds like an industrial-revolution-era invention, but really it’s been around forever. We just have photos of kids in factories, and stories like those of Dickens to memorialize the time for us today (interestingly, Dickens himself only left education once his father died so he could take up work in a factory).
If you weren’t on the education track, you were a worker—and probably for life. No surprise this is when Marx laid down his ideas after witnessing this bifurcation. If you were educated, you had a prosperous life ahead of you, but only after years of investment. The high cost of this investment meant only the wealthy could afford it for their own offspring.
Widespread, mandatory education today is the cultural fruit of us wanting to pursue the lifestyle the wealthy lived for the past 200 years. The downside of this is a high investment cost and near-fruitless outcome. Off the top of your head, why does it make sense to force someone to go to school for 12 years to then make near-minimum wage? This is not me advocating for a higher minimum wage as much as it is an indictment of the wasteful way we educate kids today. But I digress.
Two Costs of Having Kids: Spending and Trade-Offs
There are two big costs of having kids:
- Cash & Spending: the explicit accounting costs
- Trade-offs (time and risk you give up)
Cash & Spending
Raising children costs money: hospital bills, education, feeding, constantly buying clothes for growing bodies, insurance, getting a car that’s safe and appropriate for them, school programs, vacations, babysitters, and so many more.
The average annual cost of raising a child is $17,000 (Investopedia). This goes down (per child) the more kids you have. It goes up when you include college or private school education. Keep in mind, a big chunk of the number of includes is mortgage, divvied up by persons in the household. So, more grains of salt.
Time and Opportunity Trade-offs
You immediately close off a lot of options once you have a child:
- You will not go to the same movies (unless you hire a babysitter a week ahead of time).
- Friends going on vacation on a whim? Tough, you can’t join.
- It’s harder to pull an all-nighter (and you can’t just plan to sleep it off the next morning)
- You will not work long hours and travel for two weeks at a time as a consultant—at least not sustainably.
The other day, I decided to visit family & friends in Ohio. I could book a ticket whenever I wanted, take a Lyft from the airport, and go to a two-day bachelor party in Red River Gorge in Kentucky. That entire process would be 5x more complicated if I had even one child to manage (car seats, travel times, schooling, babysitters, I can wait hours for a meal without much bother whereas a child cannot).
These are time, opportunity, and convenience costs. You can still travel with children, but the complexity (and therefore time and planning costs) increases.
The most obvious benefit is the Child Tax Credit. For couples making less than $400,000/year (halve that for singles) you can claim a $2,000 credit per child under 17. Are you spending more than $2,000 on your child per year? Almost guaranteed, but at least you’re making some money back.
If you had a child when the last few stimulus checks were handed out, you received extra. Again, not worth it, but I feel the need to mention it since this is the “taxes” section and your taxes are already paying for your “stimulus” so.
You will net some general benefits if you send your children to public school and you’re not directly paying property taxes yourself (which is what traditionally pays for schooling costs in most American districts).
Otherwise…not much to speak of here. Definitely no “game changers.”
How can children create value while they’re still growing up?
Unavoidably, for the first several years of their life, they will not create any economic value. The only exception I can think of is if your kid is exceptionally cute, and you want to subject them to the rigor of becoming a child star. Even then, you are going to be the one doing all the work contacting agents and running your child to auditions. But maybe that’s worth it to you.
More traditionally, talk to 100 immigrants who run a business, and I would confidently bet 90 of them had their kids do some kind of work for them, whether that’s manning the bodega, interning in the office over the summer, or even being groomed to take over the family business one day. Some families pass on houses and photo albums, and others pass on businesses.
Immigrants tend to understand the value of hard work. They move nations and uproot their entire life essentially for their kids. Therefore it only makes sense for their kids to also work and learn what it takes to make it in a new country.
The Ancient Tradition of Family Business
Back in Ohio, I met a man who runs a contracting business with his son. At the time I met him, his son was 12. They both worked on the roof patching holes, hanging drywall, and doing all kinds of home repair. They both work as contractors and manage the family’s property they rent out. All the property is on the same block, so the children don’t need to drive anywhere to work, but can just walk next door.
The son gets to spend meaningful time with his father (which is 90% of what any boy wants) while learning skills and probably getting some money. His dad probably paid him less than minimum wage (if he paid him at all) as a way to teach his son stewardship from an early age, or maybe saved up the money for education costs later. Their family homeschooled their children, which is what gave them the flexibility to include their children in their day-to-day work. (Read their interview here. This links to an external site of some friends of mine).
You may not be interested in homeschooling your children. I was homeschooled for a couple years when my family lived abroad, and while it takes effort, it is not as hard you might think. Homeschooling also opens up more opportunities for your family, like a family business or traveling abroad.
Kids Make You Focus
This one might be cheating, but I don’t care because it’s real. Kids give you focus.
I have a friend who bounces low-paying jobs without much career potential. Part of me wanted to kick and just say pick something, but the other part knew he just hated every single job so no amount of cajoling would get him to like it. I think part of him gave up on finding something he liked, so he begrudgingly accepted that he would just do half-ass jobs to make ends meet.
Then he got someone pregnant.
He changed then—for the better. I think the fact that he wasn’t married to the mother honestly gave him a little more edge to his focus because culturally there was even more pressure on him to provide. It’s better to be a poor but loving father than a deadbeat dad, and he is determined to be neither. He seems more content with his life and direction now that he has someone to truly work for. And he loves his child.
As one brother-in-law said to me: “If you’re having trouble finding meaning in your life, have a kid. Boom. Found your meaning.”
Some people are able to find their internal locus of control and steer the ship of their life with confidence. Others require a push. I do not recommend having kids as a way to find that focus, but I definitely don’t fear it.
One thing family can offer that very few outsiders can even come close to is trust. Family matters because they are supposed to be the first and last people you trust.
I realize not everyone has an excellent family. Some friends I know are literally moving across the country to separate from toxic family environments. Nevertheless I firmly believe if you can invest a loving and trusting environment among your kids, you can have an economic return far beyond that of a contract roofing business (not even the benefit of having a loving relationship lmao).
Old school, old money families understand this.
The Medici family of Renaissance-era Florence invested in generation after generation—sending sons to become priests, daughters to marry foreign royalty, all to support the name and legacy of the family.
The Rothschilds understood what trust and diversification meant when Meyer sent his sons across Europe to establish banking centers. This wise and long-term move positioned this German family to become premier bankers in Britain, Europe and even America for generations since.
And while I would love to tell you about the old money “American royalty” clan I happen to know about, in the name of discretion I will only say that this family, which you have definitely heard of, still votes on and makes decisions as a family about the decisions of other family members. Not everyone would like that system, but it’s the reason the family name and legacy perseveres to this day.
Kids: Lots of Costs, Lots of Benefits
Kids cost a lot. A lot. The average ways of raising and “investing” in kids are drastically sub-par, but we’re all so used to it that we think it’s culturally okay.
Kids can provide a meaningful monetary return, even beginning to “pay off” their costs long before they turn 18. The trust and mutual respect you build over a lifetime can also open doors for your entire family years from now.
If you think ordinarily, you’ll get ordinary returns. AKA your kids will be investment projects at least until they’re 18. If you want to have kids, get creative about how they can provide value to your entire family’s life monetarily now. Bring them into your work, invest in their business future (more than just sending them off to “a good school”). It isn’t the purpose of having a child, but it’s one of the oldest and forgotten benefits.