# Additional cost of children- PROBLEM RESOLVED- DATA ERROR

Not sure which other topic this would fit, so I am posting here.

Please clarify how the child cost factor is used. My understanding is that it would be multiplied times the living standard per adult to figure the additional consumption used by the child. For example, if the living standard per adult is 50,000 and the child factor in a given year is 0.5, the total consumption for 1 adult and 1 child would be \$75,000 in that year.

If this is correct, then I am seeing a calculation error. My spouse factor is 0.3 (since I did not break out housing). After my child is 18, the consumption amount for each year = 1.3 * living standard per adult; so it checks out. However, when my child is 17, with a child factor of 0.7 and the same spouse factor of 0.3, living standard per adult is \$50,000 and consumption is \$73,000. This does not compute. If my understanding is correct, first adult would be \$50,000, spouse would be \$15,000, and child would be \$35,000 for total consumption of \$100,000. If child ratio is applied to lower-cost adult consumption only (\$15,000), then child cost would be \$10,500 for a total of \$75,500.

To compound things, when I went from version 60 to 62, there is a discontinuity in the living standard and consumption after 10 years. I set the child cost factor to increase slightly each year so consumption increases each year for the first ten years with a constant living standard. In the 11th year, the living standard jumps up and the consumption drops. After that, the living standard is constant and consumption increases each year until my child is 18. The only thing I can see causing this is a problem with the child cost calculation.

Please explain how the child cost factor is used in the calculations so I can check my results. Thanks.

Regards,
Bill

1

HI BILL, THIS IS LARRY.

YOU STATE IN YOUR FORUM ENTRY:

"Please clarify how the child cost factor is used. My understanding is that it would be multiplied times the living standard per adult to figure the additional consumption used by the child. For example, if the living standard per adult is 50,000 and the child factor in a given year is 0.5, the total consumption for 1 adult and 1 child would be \$75,000 in that year. "

YOUR UNDERSTANDING HERE IS NOT CORRECT. THE FORMULA RELATING C (TOTAL CONSUMPTION EXPENDITURE) AND N THE NUMBER OF ADULTS AND K THE NUMBER OF KIDS (WHO I'LL ASSUME FOR SIMIPLICITY HAVE THE SAME .5 FACTOR) AND D THE ECONOMIES OF SHARED LIVING COEFFICIENT IS GIVEN, IN THIS CASE, BY

C EQUALS THE QUANTITY (N + .5 K) RAISED TO THE POWER D, WHERE D IS SET SUCH THAT 2 RAISED TO THE POWER D EQUALS 1.6 -- THE DEGREE OF ECONOMIES IN SHARED LIVING.

SO WHEN A SINGLE PERSON HAS A KID AND THE KID LEAVES THE HOUSEHOLD, CONSUMPTION DOESN'T FALL BY ONE THIRD AS YOUR SUGGEST, BUT BY A SMALLER FRACTION DUE TO ECONOMIES IN SHARED LIVING ENTERING INTO THE STORY.

HOPE THIS IS CLEAR. IF NOT, CALL ME AT 617 834-2148. BEST, LARRY

2

Ok, without asking you to explain the derivation of the formula (maybe some other day...), let me confirm my understanding of the implications. The economy of shared living factor not only affects the marginal additional consumption for an added adult but also that for children. Children have an additional factor to account for the change in cost as they grow. The increased consumption due to a child is a result of both factors. The child age factor should be entered as the total relative cost of the child not just the marginal add to family expense- in other words, the child factor covers some portion of the shared family expense. In your formula, as long as the shared living factor stays constant, the power "D" should also stay constant. The child factor would change annually (if so entered) and the number of children would eventually change as they are born or turn 19.

In any case, having the formula confirms that I am seeing unusual calculations in build 62. I checked my reports from build 60- the power "D" based on the shared living factor stays constant through time and through varying number and cost of children- no problems. When I downloaded and ran build 62, I noticed a discontinuity in the standard of living and consumption at the 10 year (2016/2017) mark. Reverse engineering the calculations with the formula shows that the power D (and associated shared living cost factor) starts in 2007 at a higher level that I specified in the assumptions page. The shared living cost factor then grows for about 7 years, declines for 2 years, while still being above the factor from Assumptions. At the 11th year, the factor and power D reset to the correct amount from the Assumptions and remain there for the rest of the years. My standard of living index is constant at 100 for all years and I am running this for 2 adults and 1 child.

Has anyone else noticed a possible calculation problem? I will be redoing my shared living ratio and child cost factors and will re-check the calculations in a few days.

Regards,
Bill

3

UPDATE-

Just re-did shared living expense factor and child cost factor as a constant value for all years (rather than increasing as before). Reports still show a step function at the 11th year where the living standard jumps up and consumption drops even though there is no change in the family composition or child cost factor. Special expenditures and receipts are essentially constant through this time period and living standard ratio is fixed at 100.

Definitely something not right here.

Regards,
Bill

4

Is something else happening in the 11th year? Is it possible you are debt constrained before then? Try setting your debt limit to 1,000,000 and see if consumption smooths.

5

Yes, being borrowing constrained is often shown by a step up in living standard. However, the total consumption would also increase and the ratio between them should remain the same if there are no other changes in dependents or cost of children.

In my case, the living standard increases at the same time consumption decreases with no changes in dependents. The ratio between the two is set by the shared cost of living factor and child cost factor. This ratio is constant after the 10th year and relates correctly to the ratio for two-adults-only, after my child turns 19. (However, I did try increasing the borrowing limit- to no avail.)

The only thing I can see changing in the 10th year is part of the Contingent Special Expenditures for me in the case of my wife dying. Since the problem shows up on the base report, the Contingent Special Expenditures should have no relationship. Just to check, I changed the contingent expense to be constant and ran the report again- still have the same problem.

Any other ideas, or do the programmers need to look at this?

Regards,
Bill

6

OK- The dependent problem has been resolved. Extensive hacking with special receipts and expenditures to work around the effects of the problem led me to the cause... Somewhere I picked up a 9-year-old ghost child in my main profile; once he was deleted, things went back to normal. Apparently another profile I had set up with a future child got mixed up in one of the database updates and added a current child to my main profile. Since I rarely see the family screen, I didn't notice it until I noticed that the corrections I was making would be consistent with an extra child.

Now we just have to get my wife's survivor standard of living down to where it should be- noted on another post.

Regards,
Bill