Purpose: There have been many studies demonstrating the impact of income poverty on child development outcomes (Aber, Bennett, Conley, & Li, 1997; Duncan & Brooks-Gunn, 1997; Duncan, Yeung, Brooks-Gunn, & Smith, 1998; Guo & Harris, 2000). Only a few recent studies (Conley, 1999; Shapiro, 2004) have considered the impact of wealth and financial assets on child outcomes. Given that the correlations between income and wealth are relatively low (around .32) and that wealth disparities across race are high (by a factor of ten), it is useful to consider whether household wealth is distinct from income with respect to child outcomes.

Methods: Using data from the Panel Study of Income Dynamics (PSID) Child Development Supplement (1997 and 2001 waves), linear regressions are conducted to test whether household income and household wealth have differential impacts on academic test scores at different ages. The regressions are run across three age groups (3 to 5, 6 to 9, and 10-12) in 1997 and then across similar age groups in 2001 (adding an older 14-17 group). The income and wealth measures are tested along with other frequently used control variables (including race, female-headed household, and parental education).

Results: Considering the 1997 Applied Problem score outcome, the permanent income measure is marginally significant (p=.085) for the youngest age cohort (3 to 5), but is no longer significant for the older children. Measures of 1994 net worth are significant across all age groups with the continuous measure demonstrating higher coefficients for older children. Testing for similar results in the 2002 Applied Problem score outcome, the results are not quite as neat, but for the 10-13 year old age group, net worth in 1999 is significant (p=.03) while permanent income is not (p=.33). A similar pattern was found for this same age group in the CDS-I data.

Implications: Although further analysis will need to be done, there is evidence that income may be the better predictor of academic outcomes for very young children, but as they grow older (10-13) and into adolescence, household wealth may be increasingly important to consider.

Literature Cited:

Aber, J. L., Bennett, N. G., Conley, D. C., & Li, J. L. (1997). The effects of poverty on child health and development. Annual Review of Public Health, 18, 463-483.

Conley, D. (1999). Being Black, Living in the Red: Race, Wealth, and Social Policy in America. Berkeley, CA: University of California Press.

Duncan, G. J., & Brooks-Gunn, J. (1997). Consequences of growing up poor. New York: Russell Sage Foundation.

Duncan, G. J., Yeung, W. J., Brooks-Gunn, J., & Smith, J. R. (1998). How much does childhood poverty affect the life chances of children? American Sociological Review, 63(3), 406-423.

Guo, G., & Harris, K. M. (2000). The mechanisms mediating the effects of poverty on children's intellectual development. Demography, 37(4), 431-447.

Shapiro, T. M. (2004). The Hidden Cost of Being African American: How Wealth Perpetuates Inequality. New York: Oxford University Press.