What is a New Life Worth?

When I was teaching in Sweden recently, I learned there was a baby boom going on. Strollers and kids were everywhere in Stockholm. Every girl I met between 18 and 40 either had a baby, was having one or planned to. It was nice.

Sweden’s birth rate at 1.98 children per female is one of the highest in Europe (second only actually to France at 2.03). National polices that have been in place for decades not only make it easier for Swedish women to have a baby, but also find affordable childcare, good healthcare (for both mother and child) and keep her job.

Financial support is available not only for expectant mothers but also for her partner and both can stay home with a new baby for a year after birth.

Let’s make a few assumptions. Say it costs Sweden 80,000 euros to support mother and partner in this adventure* and this investment produces one additional child. Imagine going to PM Stephen Harper in Canada and asking him to support bringing the Swedish model to this nation. Hmm.

(* The average wage in Sweden is about 28,800 SEK, Swedish Krona, per month. This is around $4,608 CAD or 3,168 euros. If a mother and her partner are out of the workforce for a year, this amounts to a GDP “loss” of 76,032 euros. I have used 80,000 in this example.)

According to Stats Can, there were 383,822 births in Canada in 2012/13 which means an 80,000 euro per child program would cost the national treasury almost 31 billion euros (about $43 billion CAD). Not likely to happen.

There were 115,641 babies born in Sweden in 2010 (a nation of 9.42 million) which means that their national government spent about $13 billion CAD on child and mother (and partner) welfare if our assumption of 80,000 euros is right. That buys a lot of Swedish meatballs.

Is it worth it?

Since I have five great kids, I would answer “yes!” but then an economist has to provide something more substantive.

In November 2013, the SEB fixed deposit 1-year rate was 1.27% p.a. So when the little Swedish girl shown above grows up and makes an average annual salary, she will add 38,016 euros annually to Sweden’s GDP which has  a capital value* of 2,993,385.83 euros (this is 38,016 divided by 1.27%).

(* I am using the capitalization rate here which is probably right for this type of calculation since the residual value of a life is zero for most of us. For entertainers, artists and persons of historical importance who can make more money after they are dead, the equation would be different.)

Look at it this way– Sweden would need to deposit 2,993,385.83 euros in SEB fixed deposits for every child NOT born to equal the productivity of each new Swede who is born. So if Sweden’s objective was to maintain its GDP even if there were no Swedes at all, it would need to come up with 346,158,130,393.70 euros EVERY YEAR to compensate for a society that produces no kids. Not only would a country without children be a horrible place to live, it would go broke.

So investing in kids should be a national priority and, in Sweden, it is.

Prof Bruce

ps. still another way to look at it is that a JOB is very valuable. If you earn 3,168 euros a month, it is worth 2,993,385.83 euros to you. If you don’t have a defined benefit pension plan that is fully indexed and don’t feel you can rely on government pension plans to support you as an elder, you will need to have 2,993,385.83 euros saved up to have the same lifestyle after you retire as before. That is hard to do. So stay at work as long as you can and plan on alternative forms of investing to provide for you after you do retire like real estate investing.

The numbers in Canada are even more stark. The average hourly wage for men in October 2013 was $26.14; for women it was $22.58 (Stats Can). For a 2,000 hour work-year, that implies an average salary of $48,720. Taking the 17 highest institutional deposit accounts in Canada and averaging their 1-year GIC (Guaranteed Investment Certificate) rates give us a 0.0823% return*. This means you would need to have $5,521,600 saved up to maintain your lifestyle after you retire in Canada. Gulp.

(* https://canada.deposits.org/)