U.S. Economy: The Broken Brady Bunch

In the United States, the Department of Agriculture estimates that in our current state of economy, it’ll cost $245,000 to raise a child born this year. For those parents out there wondering what you get for a quarter of a million bucks, keep in mind that this doesn’t include college. That’s extra.

While the number might be mind-boggling, the idea that children are expensive isn’t new, at least not in the Western world. We’ve long since succumbed to the reality that our kids are giant suction machines, intent on removing every last nickel we have in our pockets. The interesting part is, most of the time, we are willing participants.

We sign them up for soccer, SAT tutoring, drama classes, and send them off to adventure/science camps every summer. We make sure that they stay involved with travel sports when their regular sport season is over. Add to this the latest set of gadgets and gizmos, and you have a great recipe for overspending on junior. And that’s once the kid reaches school age.

When a two-income family takes the step into parenthood, they get a terrible reality check…

They find out that one of the biggest costs associated with kids is daycare. The going rate is roughly $200/week, or $10,400 per year.

Americans look at these figures and shake their heads, knowing that many young people simply can’t afford to have more children, not if they want to keep them at a high standard of living.

It appears that a fair number of Asian countries have come to the same conclusion.

According to the CIA Factbook, the estimate of the fertility rate of women in the U.S. this year is 2.01, which means women of child-bearing age are expected to have 2.01 children, on average. This is slightly below the rate of 2.10 that is needed to replace our population (one for each parent, plus a little for mortality and those that don’t have kids).

This might sound low, but we’re ahead of just about every other developed nation on the planet, and light years ahead of some major Asian nations. The same source shows that the five countries with the lowest fertility rates are South Korea (1.25), Hong Kong (1.17), Taiwan (1.11), Macau (0.93), and Singapore (0.80). This is very interesting because the list doesn’t include the poster child of declining populations, Japan (1.42) or the best-known forced family planning country, China (1.55).

The bottom five countries have all experienced incredible growth over the last 50 years and the standard of living in each nation has risen dramatically. Along with it, the pressures of raising children to exacting standards so that they can attend the best schools and have all that life has to offer has increased as well. So parents self-regulate, choosing to have fewer children so that they can focus their spending on one child, or maybe two.

This works for a little while. The standard of living increases because there are more productive workers and fewer mouths to feed. But eventually the tables turn. There are more retirees than new workers, reflecting the falling number of children entering the workforce. At this point, governments are like deer in headlights, not sure which way to go.

How do you fill in the gaps of missing populations? No one knows. This is exactly the situation faced by each of the five bottom countries, which have been running state-sponsored dating services, offering tax incentives and any other program they think will lead to matrimony and parenthood.

This is also what led China to ease its one-child policy last fall, hoping to create a wave of births this year. So far, the program has fallen flat. Of the 11 million families eligible to file for permission to have a second child, less than 3% have done so. This probably has something to do with the fact that raising a child is estimated to cost over 40% of the average income in China.

Not having kids in a small country like South Korea can be a problem. A lack of kids in a medium-sized nation like Japan is cause for concern. The small number of births in China might be devastating.

The normal structure of a society is to have a larger number of children in successive generations or, at worst, to have roughly the same number of kids in the next generation. This way, there will be enough workers and consumers not only to help the country grow, but also to care for the aging members of the population.

Over the last 25 years, the world has watched Japan and witnessed what occurs when there are fewer children. The economy stagnates. Consumers hold tightly to their assets. Property prices fall. Aging citizens begin to determine the direction of the country and there are few opportunities for the young.

In a nation like Japan, which had achieved a high level of wealth before it began to age, many of the ill effects are being mitigated by government spending. What happens when a country the size of China, which has grown dramatically in the last 20 years but is still not rich, starts to grey? Who’ll care for the elderly? Who’ll buy the internal assets of the country to keep their domestic economy not just afloat, but growing?

Having children is certainly expensive, but not having them can be the death of a nation. These trends take years to develop, and can’t be undone quickly. When choosing areas for your investment dollars, consider how a country might grow — or contract — demographically. This could enable you to avoid the next Japan.

Rodney

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.