Everything You Can't Calculate

Ever since Netflix has locked down on passwords, it’s made me rethink the cost of having a child.

In San Francisco, where I live, it costs approximately $36,000 annually to raise a child. Compare that to the $240 annual cost of having a Netflix subscription, it’s easy to see why so many people are choosing to postpone or forgo having children. With $36,000, you could 1) eat out every single night of the year at a Michelin Star restaurant, 2) buy a brand new Audi A3, and 3) Take yourself and 4 of your closest friends on a round-the-world trip. Sushi in Tokyo sounds a lot better than changing diapers. But with every decision comes the part that you can’t calculate. Every job that offers you $20,000 more in salary, every lease that will move you across the city, even the decision to have kids has something that we can’t rationalize. So why don’t we talk about it more?

The Human Factor

Economists, at their core, run models on the assumption that markets and more importantly, people are rational human beings. We all know that’s not true as we make irrational decisions all the time. Between the cost of something free or the sunk cost fallacy, we act irrationally. Our decision-making comes at a cost with our emotions. In Morgan Housel’s Psychology of Money, he writes to be reasonable, not rational. We can often treat our relationship with money as purely rational. We compare prices between two different products, invest in ways that we believe will return the best results, and take pride in finding something on sale at Costco. However, our relationship with money is deeply emotional, especially when it involves large purchases. You may think that selling your house may be a purely financial decision, but it becomes a lot more difficult when it feels like the first place you could call home. On the outside, someone may make a purchase that seems crazy, purchasing an NFT of a cartoon rock, participating in an MLM scheme, or spending obscene amounts of money on Pokémon cards. It’s important to understand that everyone makes decisions that seem logical to them.

Every decision you make has an opportunity cost. Simply put, opportunity costs are everything you lose out on when you don’t choose an option. For example, by choosing this job, you are forgoing other potential jobs you can work, by purchasing this concert ticket, you are forgoing other activities that you can do on a Saturday night, and so on. This includes how you spend your money. Once you are making enough money to meet your basic needs (housing, transportation, food, etc.) you now have discretionary income or money that you can spend on things you don’t have to. Whether you choose to spend it on eating out, traveling the world or a spa day is completely up to you. However, choosing what you spend your money on has an opportunity cost. Once you spend your money on a nice meal out, you can’t turn around and spend it on something else, it’s gone. It’s easy to calculate opportunity costs when it comes to money. You can look at a new sweatshirt and ask yourself “Is this worth 5 trips to Chipotle?” If not, you put it down and treat yourself to Chipotle instead. This gets infinitely more difficult once decisions involve criteria besides money.

What You Can’t Put In a Spreadsheet

Part of needing to make these decisions is determining what criteria you are looking to prioritize. For example, if you have 2 job offers, one that offers $20,000 more than the other, would you take it? What if it was for a company you hate, would you take it? How about if it would be for a company that you are indifferent towards? Or a company mission that you believe in, but with a mediocre manager? This becomes hard to decide because it is no longer about a number on a spreadsheet. When we don’t have clarity on what we want, it becomes easy to look on the surface at things that are easy to calculate and forget about everything else.

That’s what makes the article on the costs of raising a child so intriguing. It’s easy to read this article and conclude that anyone who has children in the Bay Area is insane. However, it may cost almost $100 daily to have a child, but how can you measure the time when they smear cake all over their face on their first birthday? You can budget for a batch of diapers or move to a place with another bedroom but you can’t account for the joy of carrying your child to bed after they’ve fallen asleep in your arms reading Goodnight Moon. You can compare the different salaries of jobs, but you can’t calculate the sense of satisfaction you get from finishing a day where you feel like you have genuinely contributed positively to the world around you. Sometimes, there are things that you just can’t calculate.

-Derek