For the past twenty years, Delta Dental’s “Tooth Fairy Poll” has tracked the “average monetary payout” from the Tooth Fairy in the United States. The final results for 2016 show an all-time high average payout of $4.66, up from $3.91 in 2015. Total cash payouts in 2016 from the Tooth Fairy: $291 million, up 14 percent from the previous year.
Delta Dental’s poll reveals a lot of interesting information behind this total payout figure of $291 million. The Tooth Fairy is very busy (she visits 85% of households with children); she has a strong preference for cash transactions (89% of Tooth Fairy visits result in a cash payout); and she pays more for first teeth than on repeat visits (20% more). The poll’s results are based on responses from a representative sample of 1,588 parents of children ages 6-12.
But there’s one thing the poll doesn’t explain: why has the Tooth Fairy’s payout grown so much faster than the normal rate of inflation? Over the last ten years, the payout has gone up nearly ten percent a year, whereas overall inflation has averaged only around 2 percent a year. Why the difference?
A recent episode of NPR’s Planet Money podcast attempted an explanation. According to the economists interviewed for the story, income elasticity of demand is to blame. In other words, the economic principle according to which people spend more or less on certain categories of goods depending on their income level.
We like to spend more on children when our incomes go up, or so the theory goes. If our salary goes up 10 percent, we may not spend 10 percent more on food, but we probably splurge more on our children. That might explain why the Tooth Fairy’s payout has increased so much more rapidly over the years than inflation, which measures the general increase in prices across all categories of goods and services.
As Justin Wolfers, a professor at the University of Michigan, explains: “It doesn’t surprise me to hear that the Tooth Fairy has outpaced inflation because the Tooth Fairy is one of those vehicles with which we give more to our children.”
How much cash do you think the tooth fairy should be leaving? Should she be leaving something else instead? Please share your thoughts in the comment section.