Childhood Consumption As a Potential Mechanism of Intergenerational Transfers: An Unique Opportunity from PSID

1. Childhood Consumption As a Potential Mechanism of Intergenerational Transfers:An Unique Opportunity from PSID Lingxin Hao Johns Hopkins University and Wei-Jun Jean Yeung New York University

2. What are our research questions? • Childhood consumption is an understudied mechanism of parental investment • How race, class, and child characteristics shape between-family and within-family childhood consumption patterns in the U.S.? • How do parents promote or hinder intergenerational mobility through childhood consumption? • How do childhood consumption components affect child developmental outcomes?

3. Why Examine Childhood Consumption? • Conventional intergenerational effects on children • parents’ SES • family income • Consumption is a better indicator of material well-being than income (Meyer and Sulllivan, 2003) • a more direct measure • less underreporting bias • Many sources of income often not captured in surveys (Edin and Lein, 1997)

4. Scarce Childhood Consumption Data • Few major national datasets contain consumption data • Even fewer contain childhood consumption data • Survey of Consumer Finance (SCF) • The richest data on household-level consumption • But little on child-specific consumption (Lundberg & Rose, 2003; Bianchi et al 2005) • Other major national datasets on children do not provide childhood consumption data • NLSY (79, Children, YA, 97) • NELS • ECLS-K and ECLS-B • Add Health

5. PSID-CDSIIAn Unique Opportunity • Child Development Supplement 2002-2003 (CDSII) of Panel Study of Income Dynamics (PSID) • Provides child-specific consumption data • Provides assessment of various domains of child development • Allow linkages among • family background • Child characteristics • childhood consumption • child developmental outcomes

6. Testing Theories from Multiple Disciplines • Childhood consumption & development • Child-specific material well-being • Corresponding to child-specific developmental well-being • Cognitive • Socio-emotional • Social stratification theory • Is inequality in parental resources retained, exacerbated, or reduced in childhood consumption? • Is social class and race order maintained or weakened in child developmental outcomes • Addresses between-family variations • Provides no rationale for within-family variations • Economic theory of intergenerational transfer • Parents are altruist, investing in children’s human capital • Parents are “social planner”, caring about the welfare of the whole family • Parents can manipulate resource transfers to ensure that children behave • Addresses within-family variations • Birth order effect • Sibling competition • The firstborn occupies a unique niche • Resource dilution in various life cycle stages

7. How do we use the data? • PSID-CDSII • Childhood consumption data • Child developmental outcomes • A sample of 2,907 children aged 5-19 in 2,020 families • 887 families have 2 sampled children • Core PSID data • Family background • Snapshots in 2003 • Longitudinal from the child birth year • Family consumption in 2003

8. Childhood Consumption Measures • Child-specific consumption is corresponding to developmental domains • Cognitive development • Formal schooling expenditures • Other cognitively related spending • Social-emotional development • Social-cultural related spending • Need to refine other child-specific spending • Residual category • Shared family consumptionis corresponding to general development • Total family consumption minus education and childcare • food, health care, housing, utility, transportation, etc.

9. Childhood Consumption Measures • Formal schooling • private school tuition • public school tuition equivalent • Other cognitively related • school supplies • tutoring • lessons • Social-cultural related • toys and presents • Vacation • sports and community group activities • Other child-specific spending • clothing & shoes • childcare • car-related • Shared family consumption (food, health care, housing, utility, transportation, etc.) • Total family consumption minus education and childcare

10. Formal Schooling • Private school tuition • 8.4% children attend • Ave. $3,100, range $138-$20500 • Public school “Shadow tuition” • Public schooling is “free” • But parents decide residence in consideration of public school quality • Property tax is used to fund public schooling • State variation is the % of local tax revenue for public schooling • Tuition equivalent = (property_tax*local_rate)/(number of children) • Only assign to children who attend public school • 62% of children incur public tuition equivalent

11. Other Cognitively Related • Separate this smaller expenditure from formal schooling • Incur to almost all children • school supplies • Receiving tutoring • Lessons on various subjects

12. Social-Cultural Related • Provide opportunities for social interaction and cultural learning • Incur to all children • Paid by parents, resident and non-resident parent • toys and presents • Vacation • sports and community group activities • Museums, theaters

13. Shared Family Consumption • Parents invest the “public good” for all members of the family • No sibling variation • Total family consumption minus education and childcare cost • Because education and childcare are child-specific • Shared consumption is more than 5 times as high as total child-specific consumption

14. What are the challenges? • Many items • Need to use all to construct a complete picture • Complicate skip patterns • Need to figure in programming • Consider all 3 types of questions for each consumption item • Yes/no question • Amount question • Per unit question • Outliers and missing data • “micro-manage” each item using available information • “macro-manage” missing data without any clue via imputation • Regression imputation • Multiple imputation

15. What are Our Suggestions? • PSID provides more information on how respondent actually understand the question • E.g., do the reported food expenses include Food Stamps? • PSID provides more guidance/warning flags for users • PSID provides examples of program codes to ensure correct and efficient use of the data

16. Analysis of Childhood Consumption • Focus on transmission of inequality • Between-family patterns and models • Within-family patterns and models • Use quantile functions to describe patterns by race and SES categories • Reveal group gaps in both central and off-central locations of the distribution • Reveal within-family variations along the distribution • Use quantile regression models • Estimate potential differential adjusted group gaps by race and class along the distribution (central and off-central quantiles) • Estimate potential differential effect of birth order along the distribution • Identify factors that polarize or equalize childhood consumption

17. Childhood Consumption: Proportion of Positive Value and Proportion of Within Variance

18. Formal Schooling by Race and SES

19. Other Cognitive-Related Consumption by Race and SES

20. Social-Cultural Consumptionby Race and SES

21. Residual Categoryby Race and SES

22. Differentiation Within Family: Formal Schooling

23. Within-Family by Race and SES: Formal Schooling

24. Differentiation within Family: Socio-Cultural Consumption

25. Within-Family by Race and SES:Socio-cultural Consumption

26. Overall Model for Childhood Consumption

27. Between Model for Childhood Consumption

28. Within Model for Childhood Consumption

29. Quantile Regression Models for Childhood Consumption

30. Summary Findings about Childhood Consumption • Race and SES are two strong factors determining between-family variations in childhood consumption • The firstborn receives greater transfers from parents compared to the later born • SES reproduces intergenerational advantages more strongly for the firstborn than the later born • Quantile regression results show that race (black/white) and SES polarizes formal schooling spending, but not otherchildhood consumption components

31. Future Research Directions • Refine childhood consumption domains • Further Investigate other childhood consumption domains • Childcare related • Health related • Housing • Treat the potential endogeneity of childhood consumption to any consequences of childhood consumption • Model the full dynamics among family background, childhood consumption, and children’s well-being at multiple time points