An “eye” for Investment

“Ang kabataan ay ang pag-asa ng bayan.” Dr. Jose P. Rizal

(“The youth is the hope of our future.” Dr Jose P. Rizal)

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Disclaimer: The views presented in Situation A and Situation B are based on discussions during the author’s college years on how child-rearing is considered in poor and rich countries. They do not reflect the author’s opinion. 

Have you ever wondered how families would decide whether to have kids if they used economic tools for making up their minds?

Economic discussion offers a very simplistic analysis of such a transcending decision, but I believe it could be interesting to present it as a way of reflection. Research studies have observed how poor people in underdeveloped countries treat child-rearing as an investment: have you noticed how the poorer the family, the more children they have? The idea is that the more members there are in the family, more labor is available to bring bread and butter on the table. In contrast, rich families living in developed countries consider children as an additional expense not only financially but also in terms of time, effort and let’s not forget the opportunity cost it would entail.

Experience tells us that at the end of the day, all families from both poor and rich countries invest on their children. What could differ is perhaps the expected RETURN ON INVESTMENT (ROI) . This post will be focused in using this tool to meditate on what child-rearing means for families in rich/poor contexts.

Of course, this doesn’t mean that couples from all over the world get their Excel sheets and construct a cost-benefit analysis of having a child (although I can attest to some people who are capable of doing so). However, in this case it helps to use measuring concepts to get a notion of the decision-making factors of families even though we can not measure love, sacrifice or the satisfcation that comes when one becomes a parent.

To further facilitate this presentation, I have also considered that most poor families live in underdeveloped or developing countries while most rich families live in developed nations.

Situation A: Families from underdeveloped/developing countries

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While I was living in the Philippines, it was fairly easy to be aware of the dire situation dirt-poor families are experiencing and how having children seem to relieve the strain of tight household economics. They do this by bringing additional income or by covering the chores adults would otherwise be responsible of. It’s interesting to note that the source of income and the type of chores differ according to the context: urban or rural.

Within the urban context, some kids would directly skip school and find a “job” may it be as a street vendor (garlands, snacks, newspaper, rags, etc…) while others would stay home and take care of the house and their smaller siblings (children beggars are also commonly seen in the cities).

In rural areas, children often help in farming chores (tending to animals, for example)  and also help in their homes (fetching water, gathering wood for fuel, cooking and caring for the younger ones to name a few). Some parents also count on the elder ones to help sell their harvest/livestock in markets.

For both cases, those who are lucky enough to attend school would get creative and sell anything from writing papers (the ones with red and blue lines) to candies to fruits (small-sized guava trees grow almost anywhere and their fruits the size of marbles are very convenient to be carried).

More often than not, some families would absolutely invest in one child. This child would be sent to school up to college, and would be in charge to later on help the rest of the family. Usually, this child ends up migrating in search for greener pastures.

Thus, applying the simplistic concept from the begining of this post: the expected ROI in this scenario is positive, represented by a more pleasant and more comfortable life for the whole family.

Situation B: Families from developed countries*

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Children born in developed countries, in principle, are strongly protected from any type of child labor and any type of negligence from their families. This eliminates the element of a child helping bring income in their homes. And given this premise, citizens really think twice before moving towards parenthood, greatly taking into account all types of costs in which they would incur.

Raising one child would mean the following costs: feeding, health, shelter (kids take up a lot of space, even babies as small as 57 cms!), clothing, training and formation (good public schools abound in Europe but parents also enroll their kids to extra-curricular activities such as languages, sports, musical instruments, etc… not to mention the foreign exchange programs, to be able to form a well-rounded individual), amusement, postive reinforcement … the list would go on and on and on…

One could argue that one day children will grow up and eventually emancipate themselves. No doubt about that. However, given some recent evidence, economic downturns are making the “emancipation age” much later than what it was a generation ago. Due to the high unemployment rates, fresh graduates aren’t able to find jobs. Those that do find jobs start as interns earning very low salaries, not even enough to pay a month’s rent for a room. There are others who manage to move out of the family dwelling but are still supported by their parents even with their new, “independent” lives.

Once again if we look at the expected ROI for parents in rich countries who want to raise a kid: this would be equivalent to zero or negative, even. So why would they even bother? Evidently, because there’s something more…

Social Return On Investment (SROI)

Analyzing my own reasons for wanting children, it could actually be summarized to: I want to have children because I believe the benefits outweigh the costs and the outcome could be very useful to society as a whole.

In this case, I believe the concept of Social Return On Investment could very well replace the traditional ROI. It is an analytic tool for measuring and accounting while taking into account social, economic and environmental factors. When we consider other aspects that are not traditionally measured in terms of money, we acknowledge a whole set of factors that could influence decision-making processes.

Take the case of Situation A, for instance: families may not know it but when they decide to make their children help earn money instead of going to school, they are very likely instiling the value of hardwork upon them (I don’t wish to be controversial- I am against child labor but as an economist, I believe I have the obligation to objectively analyze all angles visible to me). Another example is that when they choose to make the elder sibling stay home and care for the younger ones, the sense of responsibility and perhaps even kindness are sowed in their young persona. These children will later be adults whose decisions affect the communities they live in: A hardworking citizen is not beneficial only to the enterprise he works for, but could also serve as an inspiration for the rest of his colleagues. A genuinely kind person simply makes the world brighter.

Children in Situation B will of course have a more “obvious” contribution to society, given that they are well-fed, clothed, sheltered, etc… Most of all, they are literate! And the thought of them growing up, participating in the labor force, paying their taxes and heeding the laws reassure us that the future will be at the very least, sound, in spite of the many potential crises it may face.

These kind of outcomes are not easily measured by the ROI tool, but they are visible results to the society and they contribute to the growth and development of a nation.

A unique opportunity for investment

I hope it was as fun for you as it was for me to “play” with these ideas. For those who are already parents and who choose to be parents, we are given the chance to influence how the future is shaped. We could consciously invest in human and social capital; to (try to) raise useful, respectful, compassionate and intelligent citizens who would do their best to contribute in making this world a better place.

Just think how each of us, individually, fill the world with such diversity, richness in culture and traditions that it’s compelling to imagine all sorts of things we can pass along to our children…

This thought gives me confidence that my boy would live in a very interesting, challenging, and fascinating place in the time to come.

 

 

 

*Minorities with very different cultures such as gypsies are not included in this scenario

 

Author’s note: This week’s post was delayed because my son got really sick. We had to rush him to the hospital and he was under observation for more than one week. We are back home now and I dedicate this post to him- for his strength and courage, for his incredibly good humor and his unbelievably heart-melting smile. Bravo anak! you make nanay proud!

Sources:

  1. Investopedia
  2. Author’s college notes, circa ’05
  3. Social Return On Investment, New Economics, available at: http://www.neweconomics.org/issues/entry/social-return-on-investment

3 thoughts on “An “eye” for Investment

  1. Thanks for this blog post regarding investment; I really enjoyed it and am definitely recommending this blog to my friends and family. I’m a 15 year old with a blog on finance and economics at shreysfinanceblog.com, and would really appreciate it if you could read and comment on some of my articles, and perhaps follow, reblog and share some of my posts on social media. Thanks again for this fantastic post.

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