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Between diapers, daycare, extracurricular activities, college tuition, and more, having children is often seen as a financial drain. However, a new working paper from the National Bureau of Economic Research (NBER) suggests a surprising twist: having kids could actually increase your lifetime wealth by more than 23%.
The reason? Your desire to leave behind a legacy for your children can nudge you to earn and save more over your career. Beyond saving for retirement, which tends to be a top financial priority, having kids leads parents to make intentional financial decisions that prioritize long-term security for themselves and their children.
Key Takeaways
- Parents may accumulate approximately 23% more money over their lifetimes compared to people without kids.
- Bequest motives, or the desire to provide for children after death, lead many parents to work harder, save more, and make long-term financial decisions beyond just retirement planning.
- While children bring added financial pressure, they may also encourage people to take a more strategic approach to earning, saving, and spending.
Having Kids Can Lead to Higher Earnings
There’s no denying that kids are expensive. Food, clothes, education, and healthcare for another person (or multiple people!) can reduce your income.
In fact, the costs go beyond direct expenses, as many parents, especially women, temporarily reduce their working hours or leave the workforce entirely to care for their children during early childhood years. This lowers short-term earnings and can even affect earning potential in the long run.
Despite the financial burden of raising a child, there can be a benefit: having kids can motivate people to earn and save more.
In the NBER paper, economists explored how bequest motives—which refers to the desire for individuals to leave behind an inheritance to their children—affect how much people work. According to the study, the absence of these bequest motives can diminish aggregate wealth by over 23%.
“Bequest motives, medical expenses, and wage risk each account for substantial shares of aggregate wealth, with bequest motives alone responsible for 23.8%,” the authors wrote.
This indicates that the responsibility of caring for children inspires parents to increase their earnings (and lifetime wealth) and plan more strategically for the future.
Your earnings are a key part of building wealth, but that’s only one piece of the puzzle. When parents are motivated by bequest motives, they approach their finances differently from someone without children.
In addition to seeking opportunities to earn more over their lifetime, they are strategic about how they save, spend, and look at money overall. Rather than simply focusing on their retirement, these individuals adopt strategies that prioritize long-term wealth accumulation
For some, this could be a combination of securing that higher-paying job, developing a household budget, automating savings, and delaying retirement to squeeze more earnings from those later career years.
The Bottom Line
While raising children is expensive and adds pressure, as the research shows, the desire to leave something behind for their heirs motivates parents to work harder and increase their earnings.
But trying to maximize your earnings and wealth is only piece of the puzzle. When parents are motivated by bequest motives, they approach their finances differently from someone without children. Parents may be more strategic about how they save, spend, and look at money overall. Rather than simply focusing on their retirement, these individuals adopt strategies that prioritize long-term wealth accumulation
For some, this could mean trying to secure a higher-paying job, developing a household budget, automating savings, and delaying retirement to leave the workforce with a larger nest egg.
