27 February 2021

Would Decreasing Interest Rates Decrease Fertility Rates?

Lower interest rates increases the value of stocks and property because the future stream of dividends or rental income is discounted with a lower discount rate. As a result, the value of stocks or property rises as interest rates go down.

However, the same would apply to liabilities and expenses (rather than assets and income). Having a kid is a liability. You calculate the net present value of the child by discounting future steams of expenses. If interest rates go down, discount rate goes down, and value of the liability of the child rises. Higher cost of children means you have fewer children according to the law of demand.

The empirical data seems to back this up. Interest rates were low during WW2 and then rose until the 1970s. This coincided with the post-war baby boom. Global fertility collapsed from 1970s right as interest rates went down.

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