Monday, June 19, 2006

Explaining economics to children

With all of this baby bonus stuff, I thought I would recount how all this looked to my 7 year old. Back in 2004 (when she was 5), I explained to her that the government was going to give us "$3000 for her baby sister." I remember that she was horrified. "I don't think we should give her away for that." I guess I needed to choose my words more carefully. I tried to explain that they were just giving us the money and we could keep the baby which is why they called it a 'baby bonus.'

She was definitely suspicious. Even children can understand that nothing comes for free. "Where did they get the money?" Well, you know where that one led; straight back to us. There was simply no way to explain the sense of us giving money to the government to have them give it straight back to us for a baby we were going to have anyway. If you can't fool a child ...

Fast forward 2 years later and we were watching the news when the baby bonus story came up. She was very interested in the idea that the 1st July, 2004, had the most births ever on a single day. I said that there were half as many births on the previous day but on that day parents would not have received $3000. Waiting one day to have a child would, however, mean they got the cash.

"How can you choose when to have a child?"

"Well, there are two ways they can come out [explicit reference; we are like that in our household] and an operation. If you have an operation you have some ability to choose the day. It doesn't just happen. So do you think it is worth waiting a little while to get $3000?"


Well, I guess that she understands marginal incentives pretty well too as did about 2000 parents at the time. The moral of this story: if you can't make economic policy make sense to a child, it likely doesn't make sense to adults but if a child can understand incentives, it likely means adults will.