Litigation + Valuation Perspectives

Demystifying Valuation, Economic Damages + Forensic Accounting

Estimating future earnings of a child or minor

One of the biggest challenges facing an expert when assessing damages in matters involving children is the future lost wages portion of a calculation. Estimating future earnings, probable educational attainment, and evaluating worklife expectancy are only some of the considerations that make these cases difficult and when the incident happens at such a young age, the longer-than-normal worklife can cause its own difficulties in applying a growth rate.

Don’t miss: Sell-side due diligence: Cheerleader or value service?

How can the expert determine the career choices that will be made during one’s lifetime, particularly when the plaintiff is so young? Is it realistic to assess lost wages for those of an astronaut, given a 3-year-old’s love for all things space related? When it may be easy to establish lost wages in a matter involving an injured teacher who has had a 25-year career with a well-established salary history, it is much more complicated to estimate when the injured party has not even begun to think about his or her future. Consequently, the expert typically uses a toolkit of resources that will help to determine the best fit.

Educational attainment data from the U.S. Census Bureau is a good place to start when assembling data that will be used to build assumptions regarding a lost earnings calculation for a child. Statistically, children tend to follow in the footsteps of their parents, so it is also reasonable to consider the educational achievements of the parents and the likelihood that the child will follow suit. Once the educational level is decided, median wage data can be used for the selected levels of education, and a lifetime of earnings begins to take shape.

Sometimes, a child is older when they are injured and may already have an established academic record or may have expressed an intent to go to college and pursue a particular career field. In such cases, many experts will consider the intents of the adolescent in addition to the past academic performance of the child and what the statistical data shows to develop a forecast of what the child’s future earnings capacity can be.

In instances where a child may be able to work in the future but in a reduced capacity, a vocational expert will typically supply his or her assessment of the child’s injuries and the expected impact on the child’s ability to earn in the future. Using these assessments, the expert will apply the information to dial in on a more accurate prediction of lifetime earnings.

These are just a handful of the complications that can make calculating lost earnings for a child more difficult than when preparing one for an adult. Fortunately, our team of experts at Henry+Horne are here to help with valuations of all kinds.

Have questions? Our litigation + valuation professionals help clients in a variety of industries including constructiondealershipsrestaurantstechnology and more. Contact us today.

Alison Wise