Net Worth, Poverty and Child Development: The Importance of Wealth

• In Event: More than Money: The Roles of Wealth, Income and Other Economic Circumstances in Child Development

Abstract

Scholarship on how economic deprivation affects children’s development predominantly considers the importance of income scarcity but ignores wealth depravation. In fact, net worth poverty, measured as household total assets minus total debts that is less than one-fourth of the federal poverty line, affects two-thirds of Black and one-half of Latino households with children (Gibson-Davis, Gennetian and Keister 2020). Between 1989 and 2016, net worth poverty was higher and rose faster than income poverty (Gibson-Davis et al. 2020). Net worth poverty is of concern because wealth facilitates children’s human capital attainment and socioemotional functioning (Conley 2001, Pfeffer 2018). Net worth poverty may be particularly problematic for children because parents with low wealth may have difficulties providing their offspring with environments conducive to child flourishing, such as residence in safe neighborhoods, access to good schools, or opportunities for cultural or social enrichment (Killewald, Pfeffer and Schachner 2017).

This study is the first to examine how net worth poverty is associated with child outcomes and to compare the difference in associations between income and net worth poverty for child well-being. We examine how wealth scarcity or net worth poverty shapes children’s development using data from the Panel Study of Income Dynamics (PSID) and Child Development Supplement (CDS) from 1994 to 2014 with information on cognitive, behavioral, and socio-emotional development for 7,000 children aged 3-18.

Wealth and income poverty likely affect child development through distinct pathways (Gibson-Davis and Hill 2020). Net worth poverty is a measure of the adequacy of the stock of resources owned by a household, whereas income poverty measures the adequacy of a flow of resources. As a store of value, wealth represents goods that a household can access to meet unexpected expenses, buffer against income loss, and contend with economic shocks, such as medical emergencies (Killewald et al. 2017). Wealth also provides parents with a psychological safety net that can hedge against the anxieties of child-rearing and improve child well-being indirectly (Shapiro 2004): owning a home in a safe neighborhood and having savings for college and other unforeseen expenses can lower parents’ stress and allow them to focus on their children’s development and emotional health (Diemer, Marchand and Mistry 2019). Wealth may also influence parent and child expectations about future educational attainment and economic success (Shanks and Destin 2009). Wealth has robust positive associations with child development that cannot be attributed solely to income (Conley 2001, Pfeffer 2018), but literature to date has not considered the potentially unique contribution of net worth poverty to child well-being.
Preliminary results (Table 1) indicate that children who experienced net worth poverty – either alone or in combination with income poverty – were consistently associated with worse cognitive and behavioral scores. Across age ranges, children in net worth and income poverty, relative to children who were not poor, were associated with significantly lower Woodcock Johnson and Behavioral Problem Index scores. Children who were net worth poor, relative to those who were income poor, also exhibited worse outcomes, particularly for children over the ages of 6.

Authors

• Lisa Gennetian, Duke University
  Presenting Author

• Christina Gibson-Davis, Duke Univeristy
  Non-Presenting Author

• Lisa Keister, Duke University
  Non-Presenting Author

• Santiago Deambrosi, Duke University
  Non-Presenting Author