Correlation, Consumption, Confusion, or Constraints: Why Do Poor Children Perform so Poorly?

Abstract

Early developing and persistent gaps in child achievement by family income combined with the importance of adolescent skill levels for schooling and lifetime earnings suggest that a key component of intergenerational mobility is determined before individuals enter school. After documenting important differences in early child investments by family income, we study four leading mechanisms thought to explain these gaps: intergenerational ability correlation, consumption value of investment, information frictions, and credit constraints. We evaluate whether these mechanisms are consistent with other stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills.

Keywords: Credit constraints, human capital, intergenerational mobility, uncertainty

JEL Classification: D84, D91, I24, I26, J24