Having children is expensive no matter where in the world you live. But as America finds himself in the middle of the cost scale, China has become one of the most expensive places to raise children.
South Korea tops the list of the most expensive places to raise a child from birth to 18, measured as a percentage of gross domestic product per capita, according to research by Jefferies (JEF) which used data from Yuwa Population Research. GDP is the broadest measure of a country’s economic activity.
China comes second, followed by Italy. The United States is stuck in the middle of the top 14 most expensive places, between Germany and Japan.
However, in terms of the absolute amount of money spent, China is one of the cheapest places to have children. But it’s all relative: “If we then adjust this data to the percentage of average disposable income, China becomes the most expensive place to raise children,” the Jefferies researchers said.
So what makes raising children in the Far East so expensive?
A big part of this is the cost of education and the cost and availability of care when the child is in their younger years. Preschool services in China were mostly private until recently, according to Jefferies.
It takes more than $75,000 to raise a child to age 18 in China, and another $22,000 to allow him to go to college.
While this seems like a much cheaper tuition than US students might face, there is one key difference: “In many other Western countries, a state-provided student loan is more common, and the burden is removed from the parents and transferred to the children themselves,” Jefferies analysts said.
In America, for example, 55% of undergraduates graduated with debt in the 2019-2020 academic year, according to data from the College Board.
Lawmakers have many options to reduce the cost of having children, including subsidizing childcare to narrow the gap between people in different income categories.
Beijing is already taking action to make after-school tutoring more accessible. Next on the list could be the cost of nursery and kindergarten, think analysts at Jefferies.
“We understand that the government seeks either the state to provide these services and/or to regulate the price of private services,” they said.
The Chinese government has announced in its current five-year plan that it aims to increase the number of places in kindergartens for children under the age of three. of age to 4.5 per 1,000 people by 2025, two and a half times the current amount of 1.8 per 1,000. Currently, there are 42 million Chinese children under the age of three. Parents of a third of them want them to go to preschool, but only 5.5% can actually do so, according to the Jefferies report.
Birth rates in rich countries tend to be lower than those in developing countries. This is called a “demographic and economic paradox”, which means that those with more means choose to have fewer children than those with lower incomes.
“As China develops economically, it is quite possible that it will fall into the demographic and economic paradox, just like many other developed countries, and the birth rate could fall to a lower level than many thought,” Jefferies analysts said.
Even now, Chinese couples are hesitant to have more than one child due to the high cost of raising them. While couples in Western countries seem to want two to three children, the numbers are lower in the East.
On top of that, the number of marriages is down, also. But in Asian cultures, having children out of wedlock is much rarer than in the West.
Demographic trends such as birth rates affect a country’s businesses and economy. Aging populations struggle to keep up with their social protection systems, including social security and public pensions, as the working population declines. Over time, this can increase the need for things like automation to replace missing workers.
Demographic trends also affect companies and stocks, albeit many decades into the future, Jefferies analysts said.
“We expect to see a continued and significant push to reduce the cost of raising children globally and specifically in China,” they said.
This could include tax breaks, cash donations and grants.