It is well established that parental income is positively associated with virtually every dimension of child well-being that social scientists measure. This report advances beyond simple analyses of the correlation between parental income and children's outcomes, by separating out the effect of parental income on children's outcomes, net of other influences such as family structure and parental education.
The report opens with an examination of theoretical perspectives that hypothesise why parental income might affect children's outcomes. It discusses a range of methodological issues that confront researchers in this field. It documents the findings of a range of research on the effect of parental income on six broad areas of child outcomes: cognitive test scores; socio-emotional functioning, mental health and behavioural problems; physical health; teenage childbearing; educational attainment; and future economic status. It considers whether the source of parental income matters for child outcomes, whether the effect of parental income might vary according to the age of the child, and whether the effect of parental income depends on the child's gender or race. The report concludes with a discussion of policy insights that might be gleaned from the research literature in this field.
Parental income is positively associated with all outcomes covered in the review. When family background variables are controlled, however, the estimated size of the effect of parental income reduces, and the residual effects are generally small to modest on most outcomes. The size of the effect of income differs across different outcomes: it appears to have its largest effect on cognitive test scores and educational attainment. For some outcomes, such as health, there is too little research to draw strong conclusions about the effect of income. The effect of income is larger when incomes are measured over a longer period - that is to say, extended durations on low income have stronger adverse effects on children than short periods on low income. There is some evidence that the effect of income is larger for low-income than for high-income children.
No general conclusions can be drawn about whether parental income is more important at different stages of childhood; however, there is some evidence to suggest that income is more important in early childhood for schooling outcomes. There is little evidence to suggest that income has differential effects on children of different gender or race. Welfare income is found to be negatively associated with a range of children's outcomes; however, this seems to be due not to welfare receipt per se but to parental characteristics that make some parents more prone to be on welfare than others. Finally, it is noted that most of the research has been done in the US and there is insufficient evidence to draw any conclusions about whether the effect of parental income varies across countries.
Although parental income generally has only a small to modest effect on any particular outcome, it contributes to many aspects of children's well-being. This means that income gains have the potential to make a significant cumulative difference to the lives of children.