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

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.

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Notes

  1. 1.

    In addition to a cross-sectional sample of 6,111 respondents, the NLSY79 originally included supplemental oversamples of 5,295 low-income, Hispanic, Latino, or black respondents as well as 1,280 respondents serving in the military. Because the survey dropped most of the military subsample in 1985, I do not include these respondents in my analyses.

  2. 2.

    Please see the online appendix (section S5) for a detailed comparison of SCF and NLSY79 wealth data.

  3. 3.

    To assess heterogeneity in family structures, I also tested models with measures for the ages of any children. Results from these models appear in the online appendix (section S3).

  4. 4.

    Unweighted descriptive statistics are presented in the online appendix (section S1).

  5. 5.

    For STATA functions for RIF procedures, please see Nicole Fortin’s website (http://faculty.arts.ubc.ca/nfortin/datahead.html).

  6. 6.

    Because many of these coefficients exceed 0.1, after multiplying by θ, I determine the percentage change in net worth for a one-unit change in each predictor variable using the formula %Δ(y) = 100 × (eb – 1) (Wooldridge 2009).

  7. 7.

    These results are consistent with models where I include a measure for the ages of all children (see the online appendix, section S3).

  8. 8.

    These estimates come from models with all covariates mean-centered. To transform estimates into dollar amounts, I rely on the formula ½(eθy + e−θy)βx (Pence 2006).

  9. 9.

    Estimates are higher for individuals at the 25th percentile and lower for individuals at the 75th percentile than would be generally expected because model coefficients are set at their means in order to compare estimates across percentiles.

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Correspondence to Michelle Maroto.

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Maroto, M. Saving, Sharing, or Spending? The Wealth Consequences of Raising Children. Demography 55, 2257–2282 (2018). https://doi.org/10.1007/s13524-018-0716-1

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Keywords

  • Children
  • Families
  • Wealth
  • Intergenerational transfers
  • Life course