Investments in Young Children among Low-Income Families

Sabino Kornrich, Juan March Institute
Natassia Rodriguez, Stanford University

Parents of all social strata invest in their children's development. While lower-income parents may have less income for monetary investments, some parents still engage in substantial spending starting in early childhood. In this paper, we take up the puzzle of how low-income households who engage in substantial investments in their young children balance their budgets. We ask whether and how their income, expenditures, and assets differ from those of other low-income households. We examine four possibilities: first, that households spending more on young children expend less on other discretionary goods, freeing up money for their children. Second, we investigate whether households with expenditures report owing more to individuals outside the household or receive other transfers from outside the household which are not counted in income. Third, we investigate whether households draw down stocks of wealth or borrow. We use data from the Consumer Expenditure Survey to examine these potential explanations.