Does parents' money matter?

Author / Creator

Shea, John

Available as

Online

Summary

Abstract: This paper asks whether parental income per se has a positive impact on children's human capital accumulation. Previous research has established that income is positively correlated acros...

Abstract: This paper asks whether parental income per se has a positive impact on children's human capital accumulation. Previous research has established that income is positively correlated across generations. This does not prove that parents' money matters, however, since income is presumably correlated with unobserved abilities transmitted across generations. This paper estimates the impact of parental income by focusing on variation due to parental factors -- union, industry, and job loss experience -- that arguably represent luck. When I examine a nationally representative sample, I find that changes in parental income due to luck have at best a negligible impact on children's human capital. On the other hand, I find that parental income does matter in a sample of low income families. These findings are potentially consistent with models in which credit market imperfections constrain low income households to make suboptimal investments in their children.

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