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The plasma myth: how parents of newborns spend their money


The Australian Government has announced that it intends to reduce the amount of Baby Bonus payable in respect of second or subsequent children from 1 July 2013. This is expected to result in savings of around $170 million per year ($504.9 million over the forward estimates).

According to the Government, this change recognises that costs associated with second or subsequent newborns are not as great as those associated with the first.

This post takes a look at what is known about the impact of newborns on household budgets, focusing in particular on any significant changes in spending on second or subsequent children.

Notably, the available evidence suggests that there is no significant increase in expenditure on electronic goods by families with newborns. This challenges the widespread view that couples spend their Baby Bonus on adult-focused consumer goods such as plasma televisions.
Baby Bonus is a means tested benefit paid to primary carers or their partners in order to assist with the extra costs arising from a new birth or adoption. It is paid per eligible child in 13 fortnightly instalments.

For further information on Baby Bonus, see this earlier FlagPost. The post makes the point that while it is widely thought that Baby Bonus was introduced as an incentive to increase Australia's birth rate, it is more likely that it was introduced in response to growing demands for paid maternity leave but in a way that would allow non-working mothers to access it.

Changes made to Baby Bonus following last year's Mid Year Economic and Fiscal Outlook (MYEFO) reduced the Baby Bonus to $5000 and froze indexation of the payment for three years.

The changes announced in this year's MYEFO reduce Baby Bonus for second or subsequent children to $3000. The full $5000 will continue to be available where the additional children are the result of a multiple birth.

According to the Government:
This change recognises that families buy the big ticket nursery items when their first child is born.
Most families don’t face the same upfront costs for a second or third child as they do for the first. Expensive items such as the cot, pram, change table and baby capsule are generally reused for younger siblings.
So, what do we know about how parents of newborns spend their money?

Until recently, most studies of the costs of children have looked at children in general, rather than focused on newborns. However, in 2011, the Australian Institute of Family Studies (AIFS) published FaHCSIA research examining how the arrival of newborns affects household budgets for stable couple families. The research was based on waves 6 to 8 of the Household, Income and Labour Dynamics of Australia (HILDA) survey.

The research reported on how spending by families in a birth year differed from prior years. The findings present a more complex picture than that presented by the Government.

For example, the study found that, as would be expected, there was a significant increase in children's clothing expenditure (an average of $435 in the birth year) associated with the arrival of a first-born baby. In contrast, there was no significant increase in spending on children's clothing for couples having second or subsequent children. The researchers suggested these children probably received 'hand-me-down' clothes from an elder sibling.

The study also found a reduction in child care expenditure associated with the birth year for second born children. The authors suggest this might reflect 'employed mothers taking up maternity leave or withdrawing from the workforce'.

However, an area of expenditure that increased significantly for each birth order was health care (ranging between $532 and $641 on average), most likely arising from increased out-of-pocket costs associated with pregnancy, birth and care of a newborn. There was also a significant increase in transport spending (averaging $4922 in thee birth year) associated with the arrival of third- and subsequent-born babies, likely to be due to the purchase of larger vehicles.

The study also found that, regardless of whether the newborn was a first or subsequent child, there was no significant change in expenditure across a large range of categories, including groceries; meals eaten out and takeaway; education; furniture and appliances; general insurance; electronic goods; and telephone and Internet. Unfortunately, no information was available on items specifically for newborn such as prams, cots and child car restraints.

The absence of significant changes in expenditure on electronic goods is of particular note. While an earlier version of the research found marginally significant results for expenditure on such goods, this became non-significant with increased sample size in the most recent study. The authors argued that this 'dispell[ed] media reports that couples spend their baby bonus on adult-focused consumer goods'.

In relation to the question of whether parents expenses are lower for second and subsequent children, the picture is mixed. As noted above, there is some evidence of recycling of items for later children, specifically clothing. There is also evidence of reduced expenditure on child care for second born babies. However, health care expenditure appears to be a 'big ticket item' that increases significantly for each additional child.