An Estimation Model of the Cost of Raising Children in Texas

CFRP Report | R.010.0416

April 2016  

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The Office of the Attorney General-Child Support Division (OAG) contracted with the Child and Family Research Partnership (CFRP) at the University of Texas at Austin to develop an estimation model for the cost of raising children in Texas (Texas CORC). Estimating the cost of raising children is a required element of the quadrennial child support guideline review process. The Texas CORC, presented in this report, provides the OAG with a Texas-specific estimate that, importantly, estimates the cost of raising children across two households, reflecting the reality of many children whose parents have a child support order.

Economists have developed and evaluated several models to estimate the costs of raising a child. Most states rely on either the Engel or Rothbarth methods, both of which estimate the marginal change in adult’s spending by comparing families that have a child to families with similar income levels who do not have children. Texas is one of only two states to use the U.S. Department of Agriculture (USDA)’s annual estimate of families’ expenditures on children in their child support guidelines review. Economists generally agree that the Engel method overestimates the costs of raising a child, the Rothbarth method underestimates the costs of raising a child, and the USDA estimate typically falls in between the Engel and Rothbarth estimates.

Similar to the Engel and Rothbarth methods, the USDA estimate relies on data from the Consumer Expenditure Survey (CES), which does not lend itself well to Texas-specific estimates. Further, the USDA does not estimate the cost of raising children across two households, which is critical for the purposes of child support. Additionally, the USDA makes several assumptions in their estimate that may not be applicable to families of all income levels, particularly those families served by the Child Support (IV-D) Program, who are more likely to be poor, never-married, younger, and less-educated than non IV-D families.

The Cost of Raising Children in Texas

CFRP developed the Texas CORC model, which provides estimates for raising children across two households. The two–household model is particularly important for determining the adequacy of states’ child support guidelines, because in most circumstances it is ideal for a child to spend time in both households. The Texas CORC is modeled after the USDA estimate of expenditures on children, but incorporates Texas-specific data for housing and child care costs, unavailable in the CES. Housing and child care costs are two of the most expensive costs related to raising children, which makes it important to have them be as specific to Texas as possible. The Texas CORC assumes there is a basic cost to raising children in order to provide them with the modest resources they need for healthy growth and development. The extent to which families meet (or exceed) that cost will vary widely and will depend largely on family income and preferences.

The Texas CORC provides three cost estimates: the cost of raising children in single-parent families, married-parent families, and across two households. Each model is presented in greater detail in the report. The Texas CORC across two households is the highest cost model of the three, driven mostly by the need for an additional bedroom in each home. We also present how the custodial and noncustodial parents share the costs, assuming they share physical custody and a Texas standard order of possession is in place. The cost of raising children estimated by the Texas CORC for single-parent families is less than the Texas CORC for married-parent families, but as a percentage of median income in Texas, the cost estimated by the single-parent Texas CORC is much higher.

How Families Meet the Cost of Raising Children

The Texas CORC assumes there is a basic cost to providing children with the basic necessities for healthy growth and development. Whether and how families meet these costs varies widely across income levels. Financial insecurity makes it difficult for low-income families to consistently meet the costs of raising children. In addition to programs like Medicaid and the State Children’s Health Insurance Program (SCHIP), which provide in-kind assistance, public assistance programs vary widely in the extent to which they help low-income parents meet the cost of raising children.

The spending habits data from low-income mothers surveyed by CFRP suggest that these mothers meet the cost of raising a child in ways that are contradictory to many of the assumptions in the USDA estimate of families’ expenditures on children. Generally, low-income mothers are not moving into larger residences or buying a larger car when they have an additional child. Most mothers are cooking at home instead of going out to eat, taking advantage of public assistance programs including the Supplemental Nutrition Assistance Program (SNAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and public health insurance programs, and relying on more affordable/informal forms of child care than center-based care. Additionally, mothers report spending less on themselves to help meet the costs associated with having a child.

Child support is a key part of the safety net of social services available to low-income parents to help meet the cost of raising children. When the noncustodial and custodial parents are both working and earning incomes equal to the median incomes in Texas, the transfer of child support from the non-custodial parent (NCP) to the custodial parent (CP) makes the cost to resources ratio more equitable. At those incomes, only the CP is eligible for the Earned Income Tax Credit (EITC), which further reduces her financial burden. When the noncustodial parent is working full-time and earning a wage equal to the federal minimum wage, and the custodial parent is not working, the transfer of child support from the NCP to CP accounts for over half of the cost of raising a child for the CP. Child support combined with the marginal increase in the CP’s monthly SNAP benefit associated with the child reduces the CP’s financial burden, but does not fully cover her share of the cost of raising a child.

Conclusions and Recommendations

Developing the Texas CORC illuminated several limitations to the current consideration of the cost of raising children in determining the adequacy of the child support guidelines in Texas. Based on the fully-developed Texas CORC model and associated research, we provide policy considerations for how the cost of raising children can be more effectively incorporated into the Texas Child Support Guidelines. We recommend that Texas: 1) specify what standard of living child support intends to replicate; 2) specify what each parent should contribute to the cost of raising a child and align the child support award with the decision; and 3) include child care costs in consideration of the costs of raising children.

Click here to read the full report.