Estimating the cost of raising children in Israel

What is the cost of raising children in modern Israel? This important question has thus far received little attention in the literature, both methodologically and in terms of the study period. We empirically estimate the cost of raising children as a function of household income, number of children, their ages and the household's material standard of living, based on data from the most recent income and expenditure surveys of the Israeli Central Bureau of Statistics, while overcoming the methodological difficulties in such an estimation. Additionally, we derive a new method for identifying a household's material standard of living based on the expenditure elasticity of consumption items, which can be applied universally and in all periods. The main result of the study presented in this paper is a formula that can easily be used to calculate the average cost of raising children in Israeli households, based on the household's income, the number of children and their ages. We also present an interactive calculator based on this formula. The estimated costs based on this formula are preferable to those based on personal anecdotes and subjective reasoning. For a household with the median income in our sample, the cost of raising two young children (under 10 years of age) or of one teenager (aged 10 and higher) amounts to between 14 and 27 percent of the household's net income, dependent on the method of estimation. We conclude with proposing a simple method to update the estimated costs annually.