Advertisement

Demography

pp 1–26 | Cite as

Saving, Sharing, or Spending? The Wealth Consequences of Raising Children

  • Michelle Maroto
Article

Abstract

This study uses 1986–2012 National Longitudinal Survey of Youth 1979 cohort data to investigate the relationship between raising children and net worth among younger Baby Boomer parents. I combine fixed-effects and unconditional quantile regression models to estimate changes in net worth associated with having children in different age groups across the wealth distribution. This allows me to test whether standard economic models for savings and consumption over the life course hold for families at different wealth levels. My findings show that the wealth effects of children vary throughout the distribution. Among families at or below the median, children of all ages were associated with wealth declines, likely due to the costs of child-rearing. However, at the 75th percentile and above, wealth increased with the presence of younger children but decreased after those children reached age 18. My results, therefore, provide evidence for a saving and investment model of child-rearing among wealthier families but not among families at or below median wealth levels. For these families, the costs of raising children largely outweighed motivations for saving.

Keywords

Children Families Wealth Intergenerational transfers Life course 

Supplementary material

13524_2018_716_MOESM1_ESM.pdf (491 kb)
ESM 1 (PDF 491 kb)

References

  1. Albertini, M., & Radl, J. (2012). Intergenerational transfers and social class: Inter-vivos transfers as means of status reproduction. Acta Sociologica, 55, 107–123.CrossRefGoogle Scholar
  2. Allison, P. D. (2009). Fixed effects regression models. Thousand Oaks, CA: Sage.CrossRefGoogle Scholar
  3. Avery, R. B., & Rendall, M. S. (2002). Lifetime inheritances of three generations of whites and blacks. American Journal of Sociology, 107, 1300–1346.CrossRefGoogle Scholar
  4. Borgen, N. T. (2016). Fixed effects in unconditional quantile regression. Stata Journal, 16, 403–415.Google Scholar
  5. Bricker, J., Dettling, L. J., Henriques, A., Hsu, J. W., Moore, K. B., Sabelhaus, J., . . . Windle, R. A. (2014). Changes in U.S. family finances from 2010 to 2013: Evidence from the Survey of Consumer Finances (Bulletin Report Vol. 100, No. 3). Washington, DC: Board of Governors of the Federal Reserve System.Google Scholar
  6. Browning, M., & Lusardi, A. (1996). Household saving: Micro theories and micro facts. Journal of Economic Literature, 34, 1797–1855.Google Scholar
  7. Budig, M. J., & England, P. (2001). The wage penalty for motherhood. American Sociological Review, 66, 204–225.CrossRefGoogle Scholar
  8. Burbidge, J. B., Magee, L., & Robb, A. L. (1988). Alternative transformations to handle extreme values of the dependent variable. Journal of the American Statistical Association, 83, 123–127.CrossRefGoogle Scholar
  9. Comanor, W. S., Sarro, M., & Rogers, M. (2015). The monetary cost of raising children. In J. Langenfeld (Ed.), Research in law and economics: Economic and legal issues in competition, intellectual property, bankruptcy, and the cost of raising children (Vol. 27, pp. 209–251). Bingley, UK: Emerald Group Publishing Limited.Google Scholar
  10. DeNardi, M., French, E., & Bailey Jones, J. B. (2016). Savings after retirement: A survey. Annual Review of Economics, 8, 177–204.  https://doi.org/10.1146/annurev-economics-080315-015127 CrossRefGoogle Scholar
  11. Dockery, A. M., & Bawa, S. (2015). The impact of children on Australian couples’ wealth accumulation. Economic Record, 91(S1), 139–150.CrossRefGoogle Scholar
  12. Dynan, K. E., Skinner, J., & Zeldes, S. P. (2002). The importance of bequests and life-cycle saving in capital accumulation: A new answer. American Economic Review: Papers and Proceedings, 92, 274–278.CrossRefGoogle Scholar
  13. Elder, G. H., Jr. (1985). Life course dynamics: Trajectories and transitions, 1968–1980. Ithaca, NY: Cornell University Press.Google Scholar
  14. England, P., Bearak, J., Budig, M. J., & Hodges, M. J. (2016). Do highly paid, highly skilled women experience the largest motherhood penalty? American Sociological Review, 81, 1161–1189.CrossRefGoogle Scholar
  15. Fingerman, K., Kim, K., Davis, E., Furstenberg, F., Birditt, K., & Zarit, S. (2015). I’ll give you the world: Socioeconomic differences in parental support of adult children. Journal of Marriage and Family, 77, 844–865.CrossRefGoogle Scholar
  16. Firpo, S., Fortin, N. M., & Lemieux, T. (2009). Unconditional quantile regressions. Econometrica, 77, 953–973.CrossRefGoogle Scholar
  17. Folbre, N. (2008). Valuing children: Rethinking the economics of the family. Cambridge, MA: Harvard University Press.Google Scholar
  18. Grinstein-Weiss, M., Wages, K., & Ssewamala, F. M. (2006). Saving and asset accumulation among low-income families with children in IDAs. Children and Youth Services Review, 28, 192–211.CrossRefGoogle Scholar
  19. Grinstein-Weiss, M., Yeo, Y. H., Zhan, M., & Charles, P. (2008). Asset holding and net worth among households with children: Differences by household type. Children and Youth Services Review, 30, 62–78.CrossRefGoogle Scholar
  20. Hao, L., & Yeung, W. J. (2015). Parental spending on school-age children: Structural stratification and parental expectation. Demography, 52, 835–860.CrossRefGoogle Scholar
  21. Hardie, J. H., & Seltzer, J. A. (2016). Parent-child relationships and the transition to adulthood: A comparison of black, Hispanic, and white immigrant and native-born youth. Social Forces, 95, 321–353.CrossRefGoogle Scholar
  22. Johnson, N. L. (1949). Systems of frequency curves generated by methods of translation. Biometrika, 36, 149–176.CrossRefGoogle Scholar
  23. Keister, L. A. (2000). Wealth in America: Trends in wealth inequality. New York, NY: Cambridge University Press.CrossRefGoogle Scholar
  24. Keister, L. A., & Moller, S. (2000). Wealth inequality in the United States. Annual Review of Sociology, 26, 63–81.CrossRefGoogle Scholar
  25. Kennickell, A. B. (2000). Wealth measurement in the Survey of Consumer Finances: Methodology and directions for future research (Working paper). Washington, DC: Board of Governors of the Federal Reserve Board. Retrieved from https://www.federalreserve.gov/econresdata/scf/files/measurement.pdf
  26. Kennickell, A. B., & Woodburn, R. L. (1992). Estimation of household net worth using model-based and design-based weights: Evidence from the 1989 Survey of Consumer Finances (Working paper). Washington, DC: Board of Governors of the Federal Reserve Board. Retrieved from http://www.federalreserve.gov/pubs/oss/oss2/method.html
  27. Keynes, J. M. (1936). The general theory of employment, interest, and money. London, UK: Palgrave MacMillan.Google Scholar
  28. Killewald, A., Pfeffer, F. T., & Schachner, J. N. (2017). Wealth inequality and accumulation. Annual Review of Sociology, 43, 379–404.CrossRefGoogle Scholar
  29. Kim, Y., & Sherraden, M. (2011). Do parental assets matter for children’s educational attainment? Evidence from mediation tests. Children and Youth Services Review, 33, 969–979.CrossRefGoogle Scholar
  30. Kornrich, S., & Furstenberg, F. (2013). Investing in children: Changes in parental spending on children, 1972–2007. Demography, 50, 1–23.CrossRefGoogle Scholar
  31. Land, K. C., & Russell, S. T. (1996). Wealth accumulation across the adult life course: Stability and change in sociodemographic covariate structures of net worth data in the survey of income and program participation, 1984–1991. Social Science Research, 25, 423–462.CrossRefGoogle Scholar
  32. Lareau, A. (2002). Invisible inequality: Social class and childrearing in black families and white families. American Sociological Review, 67, 747–776.CrossRefGoogle Scholar
  33. Leicht, K., & Fitzgerald, S. T. (2014). The real reason 60 is the new 30: Consumer debt and income insecurity in late middle age. Sociological Quarterly, 55, 236–260.CrossRefGoogle Scholar
  34. Lino, M., Kuczynski, K., Rodriguez, N., & Schap, T. R. (2017). Expenditures on children by families, 2015 (CNPP Miscellaneous Report No. 1528-2015). Alexandria, VA: U.S. Department of Agriculture, Center for Nutrition Policy and Promotion.Google Scholar
  35. Love, D. A. (2010). The effects of marital status and children on savings and portfolio choice. Review of Financial Studies, 23, 385–432.CrossRefGoogle Scholar
  36. Lupton, J. P., & Smith, J. P. (2003). Marriage, assets and savings. In S. A. Grossbard-Shechtman (Ed.), Marriage and the economy (pp. 129–152). Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar
  37. Macmillan, R., & Copher, R. (2005). Families in the life course: Interdependency of roles, role configurations, and pathways. Journal of Marriage and Family, 67, 858–879.CrossRefGoogle Scholar
  38. Mare, R. D. (2011). A multigenerational view of inequality. Demography, 48, 1–23.CrossRefGoogle Scholar
  39. Maroto, M. (2016). Growing farther apart: Racial and ethnic inequality in household wealth across the distribution. Sociological Science, 3, 801–824.CrossRefGoogle Scholar
  40. Maroto, M. (2017). When the kids live at home: Coresidence, parental assets, and economic insecurity. Journal of Marriage and Family, 79, 1041–1059.CrossRefGoogle Scholar
  41. Maroto, M., & Aylsworth, L. (2017). Assessing the relationship between gender, household structure, and net worth in the United States. Journal of Family and Economic Issues, 38, 556–571.CrossRefGoogle Scholar
  42. Modigliani, F. (1986). Life cycle, individual thrift, and the wealth of nations. American Economic Review, 76, 297–313.Google Scholar
  43. Modigliani, F., & Brumberg, R. (1954). Utility analysis and the consumption function: An interpretation of cross-section data. In K. Kurihara (Ed.), Post-Keynesian economics (pp. 388–436). New Brunswick, NJ: Rutgers University Press.Google Scholar
  44. O’Rand, A. M., & Krecker, M. L. (1990). Concepts of the life cycle: Their history, meanings, and uses in the social sciences. Annual Review of Sociology, 16, 241–262.CrossRefGoogle Scholar
  45. Ozawa, M. N., & Lee, Y. (2006). The net worth of female-headed households: A comparison to other types of households. Family Relations, 55, 132–145.CrossRefGoogle Scholar
  46. Painter, M. A., & Shafer, K. (2011). Children, race/ethnicity, and marital wealth accumulation in black and Hispanic households. Journal of Comparative Family Studies, 42, 145–169.Google Scholar
  47. Pence, K. M. (2006). The role of wealth transformations: An application to estimating the effect of tax incentives on saving. B.E. Journal of Economic Analysis & Policy, 5(1), 1–24.  https://doi.org/10.1515/1538-0645.1430 CrossRefGoogle Scholar
  48. Pfeffer, F. T., & Schoeni, R. F. (2016). How wealth inequality shapes our future. RSF: Russell Sage Foundation Journal of the Social Sciences, 2(6), 2–22.Google Scholar
  49. Porter, S. R. (2015). Quantile regression: Analyzing changes in distributions instead of means. In M. B. Paulsen (Ed.), Higher education, Vol. 30: Handbook of theory and research (pp. 335–381). Cham, Switzerland: Springer.Google Scholar
  50. Rauscher, E. (2016). Passing it on: Parent-to-adult child financial transfers for school and socioeconomic attainment. RSF: Russell Sage Foundation Journal of the Social Sciences, 2(6), 172–196.Google Scholar
  51. Schmidt, L., & Sevak, P. (2006). Gender, marriage, and asset accumulation in the United States. Feminist Economics, 12, 139–166.CrossRefGoogle Scholar
  52. Schoeni, R. F., & Ross, K. E. (2005). Material assistance from families during the transition to adulthood. In R. A. Settersten, Jr., F. F. Furstenberg, Jr., & R. G. Rumbaut (Eds.), On the frontier of adulthood (pp. 396–416). Chicago, IL: University of Chicago Press.CrossRefGoogle Scholar
  53. Scholz, J. K., & Seshadri, A. (2007). Children and household wealth (Working Paper No. WP 2007-158). Ann Arbor: University of Michigan Retirement Research Center.Google Scholar
  54. Seltzer, J. A., & Bianchi, S. M. (2013). Demographic change and parent-child relationships in adulthood. Annual Review of Sociology, 39, 275–290.CrossRefGoogle Scholar
  55. Semyonov, M., & Lewin-Epstein, N. (2013). Ways to richness: Determination of household wealth in 16 countries. European Sociological Review, 29, 1134–1148.CrossRefGoogle Scholar
  56. Settersten, R. A., Jr., & Ray, B. (2010). What’s going on with young people today? The long and twisting path to adulthood. Future of Children, 20(1), 19–41.CrossRefGoogle Scholar
  57. Smith, J. P., & Ward, M. P. (1980). Asset accumulation and family size. Demography, 17, 243–260.CrossRefGoogle Scholar
  58. Spilerman, S. (2000). Wealth and stratification processes. Annual Review of Sociology, 26, 497–524.CrossRefGoogle Scholar
  59. Stearns, P. N. (2003). Anxious parents: A history of modern childrearing in America. New York: New York University Press.Google Scholar
  60. Swartz, T. T., Kim, M., Uno, M., Mortimer, J., & Bengtson O’Brien, K. (2011). Safety nets and scaffolds: Parental support in the transition to adulthood. Journal of Marriage and Family, 73, 414–429.CrossRefGoogle Scholar
  61. Tin, J. (2000). Life-cycle hypothesis, propensities to save, and demand for financial assets. Journal of Economics and Finance, 24, 110–121.CrossRefGoogle Scholar
  62. Wolff, E. N. (1981). The accumulation of household wealth over the life-cycle: A microdata analysis. Review of Income and Wealth, 27, 75–96.CrossRefGoogle Scholar
  63. Wolff, E. N. (2002). Inheritance and wealth inequality, 1989–1998. American Economic Review: Papers and Proceedings, 99, 260–264.CrossRefGoogle Scholar
  64. Wolff, E. N. (2016). Household wealth trends in the United States 1962–2013: What happened over the Great Recession. Russell Sage Foundation Journal of the Social Sciences, 2(6), 24–43.CrossRefGoogle Scholar
  65. Wooldridge, J. M. (2009). Introductory econometrics: A modern approach (4th ed.). Cincinnati, OH: South-Western College Publishing.Google Scholar
  66. Yamokoski, A., & Keister, L. A. (2006). The wealth of single women: Marital status and parenthood in the asset accumulation of young baby boomers in the United States. Feminist Economics, 12, 167–194.CrossRefGoogle Scholar

Copyright information

© Population Association of America 2018

Authors and Affiliations

  1. 1.Department of SociologyUniversity of AlbertaEdmontonCanada

Personalised recommendations