16902_iStock_000006078219XSmall

Marginal Children

by Elaine Schwartz    •    Feb 1, 2012    •    TIME TO READ: 1 minute

By Mira Korber, guest blogger.

American births are on the decline; the number per year has fallen from 4.3 million (2007) to 4 million (2010), perhaps due to a shaky economic situation.

However…

Why is raising more kids less expensive (in some ways, anyway) than having the infamous “only?”

Diminishing marginal costs are the answer.

To begin, here’s the cost of raising one child before adding in the marginal family members.

Now, after this marginal child is born (and then another!), the cost of raising each consecutive sibling decreases substantially. For example, the figures cited in this TIME Moneyland article run thus: an “only” 11 year old might cost $15,830 per year, but add in a 16 year old sibling and you only spend $10,660 more, and finally, add a third kid and you are spending merely an additional $4,580.

A lot of necessary child raising equipment and expenses — from high chairs to cribs to clothes — can be passed from one child to the next as the time comes. And, with many family and parent-child health insurance plans, the monthly cost remains the same regardless of how many kids you have. Simple math shows the price per person then goes down. Who isn’t looking to run the house as an economy of scale?

A final point:

Although college tuitions are more expensive than ever, (and it’s not exactly possible to get an “enroll one, enroll another one free” financial aid package) many schools offer increased economic support for families with more than one child. And this fascinating article shows  freshman year for ten kids at universities abroad could cost less than freshman year for one kid in the US.

The Economic Lesson

Everything revolves around the margin. If a family has one child, its second is the marginal child. If a family already has two, the third is the marginal child.

The bottom line: Having more kids demonstrates a diminishing marginal cost of production.

Check out these graphs, which show how marginal cost at first decreases, but will eventually increase again due to the law of diminishing returns. For a different take on studying the margin, look at this recent Econlife post.

An Economic Question: What decisions do you make at the margin in your everyday life?

« »