SFI – The Danish National Centre for Social Research – has recently published a report on the association between low income in the childhood home and later life outcomes. The report is available (in Danish) here. The report contains two observational studies as well as a literature survey. Both observational studies use data from the Danish national registers.
Low income in the childhood home might affect the child’s development through a less healthy diet, fewer or lower-quality school resources, and a less stimulating environment. There may also be an indirect effect, for example if the level of resources causes stress in the family.
It is, however, difficult to identify these theoretical relationships in data. Many factors may affect both the income situation in the childhood home and the child’s development. For example, the parents’ preferences and abilities might explain associations between income in the childhood home and later life outcomes. If this is the case, it may very well be that, even if policy makers were able to increase the level of resources for low-income families, the later life outcomes for children would be unaffected. It is therefore extremely important for policy makers to distinguish correlations from causal links.
While the correlations shown in the SFI report are strong and robust across a number of tested specifications, they do not tell us whether the income situation during childhood is the actual cause of these negative outcomes.
Children from low-income households have worse outcomes later in life
In the first study, we evaluate the situation for children born in Denmark in the years 1980 to 1982 in the year they turn 30.
We find that individuals whose childhood home was affected by low income in just one of the first 15 years of life have a significantly lower income, have experienced significantly more unemployment, and are significantly more likely to be on early retirement when they turn 30. One year in a low-income family during childhood home is also correlated with less completed schooling at age 30. It is worth noting, however, that even individuals, who lived for their first 15 years of life in a household with less than 60 percent of the median income, on average, complete more than 13 years of schooling.
In the second study, we link the income situation during childhood to school performance for all the children in Denmark who finished ninth grade between 2002 and 2013. Individuals whose childhood home was affected by low-income in just one of the first 15 years perform significantly worse in both mathematics and Danish.
The international evidence
While the two observational studies only inform about correlations, the international research literature has attempted to identify causal links between parental resources and child development.
A recent study from the US confirms that parents’ income situation has a direct effect on children’s school performance. However, recent evidence from Norway shows that the effect of parents’ income on children’s development depends on the initial level of income in the family. An increase in income is observed to have positive effects for low-income families, while a similar increase for middle-income or high-income families has no effect.
Evidence from Norway also highlights that several other factors are at play. A study that finds that parental unemployment causes worse school performance for children also shows that this link is not caused by a changed income situation. A large-scale literature survey from 2011 concluded that there is still a lot to learn about the causal link between parental resources and child outcomes.