Can Opportunity be Bought?

According to popular wisdom, money can’t buy happiness. But money just might buy opportunity, according to Greg Duncan, Katherine Magnuson, and Elizabeth Votruba-Drzal, writing in the latest edition of Future of Children.

Poverty Hurts Child Development

Income-based gaps in cognitive development emerge early on in a child’s life. Poor kids start school well behind their wealthier peers:



Future of Children

These disparities persist and, in some cases, even grow over time.

Is Money the Cause, Though?

Of course, poverty is also associated with a variety of other disadvantages that are known to affect child development, including unstable family structures and low levels of parental education. The policy-relevant question then is how far money in itself impacts on life chances

There are two primary ways that income can affect child development:

  1. Environmental stress: Recent work in psychology and behavioral economics finds that poverty can induce psychological distress, hinder good decision-making, and strain interactions between couples, all of which “can impair the socio-emotional, physical, cognitive, and academic development [of children].”
  2. Resources and investment: Income can also be invested in child development. There is a divergence in child-enrichment spending between poor and rich families (see below), that may have grave implications for opportunity in the U.S.:


So, Will More Money Boost Outcomes?

Boosting the income of poor families seems to have modest, but positive, effects on a variety of short- and long-term child outcomes, according to a handful of well-designed observational and quasi-experimental studies. Many of the more rigorous income studies find that the effects of increasing family income are largest when children are young, supporting the the growing consensus that early childhood poverty is particularly detrimental to child development.

Tackling the Income – Opportunity Connection

Money, then, matters for opportunity. But careful policy design is needed to ensure optimal outcomes. Duncan, Magnuson, and Votruba-Drzal suggest some improvements to current antipoverty policymaking:

  • Focus on early childhood poverty: If it turns out that poverty is most devastating in early childhood, then increasing the cash flow to families with very young children is a good investment. In a recent policy brief, for example, we proposed making the Earned Income Tax Credit more generous for children under the age of 5.
  • Tie cash to behaviors: One way to deliver cash assistance is by using cash payments to reward positive behaviors such as children’s school attendance or preventative health care. New York City’s Family Rewards program, for example, ties cash rewards to several indicators of children’s education, preventative health care, and parental employment.
  • Don’t cut family income: If higher income expands opportunity, then the reverse is also true. The authors warn that “reductions in the generosity of programs such as the EITC can be expected to reduce children’s success.”

To the extent that money matters, we need money-based policies. But we also need to invest in services, especially parenting, pre-K and school reform, which should make money matter less.