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Does Parents' Money Matter?

  • John Shea

This paper asks whether parental income per se has a positive impact on children's human capital accumulation. Previous research has established that income is positively correlated across generations. This does not prove that parents' money matters, however, since income is presumably correlated with unobserved abilities transmitted across generations. This paper estimates the impact of parental income by focusing on variation due to parental factors -- union, industry, and job loss experience -- that arguably represent luck. When I examine a nationally representative sample, I find that changes in parental income due to luck have at best a negligible impact on children's human capital. On the other hand, I find that parental income does matter in a sample of low income families. These findings are potentially consistent with models in which credit market imperfections constrain low income households to make suboptimal investments in their children.

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File URL: http://www.nber.org/papers/w6026.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6026.

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Date of creation: May 1997
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Publication status: published as Shea, John. "Does Parents' Money Matter?," Journal of Public Economics, 2000, v77(2,Aug), 155-184.
Handle: RePEc:nbr:nberwo:6026
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