Childhood Circumstances and Young Adulthood Outcomes: The Effects of Mothers’ Financial Problems

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Marta Barazzetta, Andrew E. Clark, Conchita D’Ambrosio

The global financial crisis of 2007-2008 has had evident negative effects on households’ incomes, debt and insecurity. These have undoubtedly reduced the well-being of those directly concerned by job loss and lower incomes, and all of those who fear that these events might happen to them in the future. It is also possible that the memory of past hardship continue to scar individuals, even after the lower-income or job-loss episode is over.While these well-being effects on adults are well-understood, less is known about potential transmission to their children. Do the children of financially-stressed adults grow up differently? Much work has been carried out on intergenerational transmission, whereby richer or better-educated parents tend to have richer or better-educated children. We here apply this framework to temporary financial stress: Can we see echoes of childhood financial problems in young-adult outcomes many years later?

Marta Barazzetta, Andrew E. Clark and Conchita D’Ambrosio explore this issue using an unusual dataset that has followed the population of pregnant mothers in one region of the UK in the early 1990s. These mothers, and their children, have been interviewed very regularly ever since. Mothers are in particular asked every year (during the child’s first eleven years) whether they had had a “major financial problem” over the past year.
They count the number of such problems experienced during childhood. Just under one half of children grew up in households with at least one major financial problem over the child’s first 11 years, and around one in eight had three or more such episodes.
The study relates this childhood financial problem count to subsequent outcomes at age 16 or 18. These are both cognitive (exam scores) and non-cognitive (behavior and emotional health). Our striking finding is that the number of financial problems is a far better predictor of behavior and emotional health than is average family income during childhood (indeed, the latter is mostly insignificant), and as good a predictor of exam scores. We conclude that that family income is not a sufficient statistic for family resources and the demands that are made on them: periods of financial stress are at least just as important. Financial stress is not just the preserve of those at the bottom of the income distribution. Recent US figures show that 24% of individuals had experienced some form of financial hardship over the past year, and 63% of Americans have no emergency savings for a $1000 emergency-room visit or a $500 car repair. In Europe, 13% of the overall population in 2017 was in financial distress (defined as the need to draw on savings or run into debt to cover current expenditures), with figures ranging from 24% in the lowest income quartile to 9% in the top quartile. This financial stress affects both adults and their children. And the shadow that it casts is likely very long: childhood financial problems lead to significantly poorer young-adult outcomes, and it is known that these latter continue to affect life satisfaction throughout adult life.

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Original title of the article:Childhood Circumstances and Young Adulthood Outcomes: The Effects of Mothers’ Financial Problems
Published in: PSE Working Papers n°2017-44. 2017
Available at:https://hal-pse.archives-ouvertes.fr/halshs-01622334
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