Monday, June 2, 2008

Having a Second Child May Be the Worst Thing You Can Do For Your First

Author: Nick
Category: Money
Topics: ,

comic 31 - financial time traveler

Good news for all you fans of eating food so you can live: short-term food prices are expected to finally ease following a period of soaring food prices. The bad news: food prices are expected to continue climbing faster than in past years for the foreseeable future.

Fingers continue to be pointed at various “root causes” of the skyrocketing food prices. If you put four different economic analysts in a room, you’d get a list of causes a mile long, and that list would certainly include things like currency devaluation, oil prices, food being converted to fuel, and obese Americans who like to eat anything that isn’t nailed down. And each of those economic analysts could probably provide a dozen reasons why each of those causes isn’t as important as the others.

But whether you’re an economic analyst, oil tycoon, or obese American, there’s little arguing against one important fact of life: the demand for everything is growing. The world population continues to grow, and with more people comes more demand for food, oil, gold, silver, copper, silicone, and dozens of other commodities. The last time I checked, the Earth itself is not growing proportionately to the increase in population; in fact, it isn’t growing at all! So more people end up fighting over a fixed set of resources, and you don’t need an economic analyst to remind you about the concept of supply and demand.

On a large scale, the rapidly growing world population will pose problems across the map for big countries like the United States and Russia as well as the smaller countries nobody really cares about. On a smaller scale, large families will feel the hurt much more as consumable goods become more and more expensive. Consider this example: A family of three (mom, dad, son) currently survives and thrives on just 70% of mom and dad’s income. Mom and dad do the math and decide to have a second child. Their reasoning is that, if each family member comes with a proportionate amount of expenses, another child would only take 20-25% of their current income to support—something they can clearly afford… right now. But what if the cost of living goes up much faster than the family income (say, twice as fast)? It might only take a few years before the family can no longer keep up with the same quality of life they had before. Here’s a graphic that illustrates this situation:

one- vs. two-child expense graph

In the table above, assume the family income grows by 3% per year but the cost of living jumps 6% annually. The family can raise one child to adulthood quite comfortably even with the inflation rate growing faster than the family income, but adding a second child to the mix could mean the family will hit money troubles before the second kid hits kindergarten.

Of course, this scenario makes a lot of assumptions. A hard-working family may be able to keep up with cost of living increases no matter how high prices go. And there are always cost-cutting measures families can take for those years when things get a little too pricey. But this situation is probably more common in today’s society than most people think. So what usually happens when that two-child family hits the point when their expenses exceed their income? Probably they cut costs, partially to the detriment of their firstborn. Sorry, Billy, you can’t have a book to read because your younger sister needs braces. The one-child family, in the meantime, just bought their eight-year-old a new Lexus.

I’m not going to tell you that you should only have one child. But I will tell you that you shouldn’t have two or more children. Otherwise you won’t be able to shower your firstborn with the total sum of your monetary love, so he or she will grow up to have eight children out of spite. Then food will cost $80 a pound, gas $30 a gallon, and gold $5,000 an ounce.

All just because you thought having two children wasn’t such a big deal.

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