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Title: Borrowing Constraints on Families with Young Children
Resulting in 1 citation.
1. Caucutt, Elizabeth M.
Lochner, Lance John
Borrowing Constraints on Families with Young Children
Presented: Cleveland, OH, Federal Reserve Bank of Cleveland Research Department Conference on Innovation in Education, November 17-18, 2005.
Cohort(s): Children of the NLSY79, NLSY79
Publisher: Federal Reserve Bank of Cleveland
Keyword(s): Children, Academic Development; Debt/Borrowing; Family Background; Family Income; Family Structure; Mothers, Race; Parental Investments; Peabody Individual Achievement Test (PIAT- Math); Peabody Individual Achievement Test (PIAT- Reading); Test Scores/Test theory/IRT

Permission to reprint the abstract has not been received from the publisher.

This study investigates the role of family income and borrowing constraints in determining early invest-ments in children and youth achievement scores. As figure 3 shows, youths raised in families in the bottom third of the income distribution are much less likely to be among the highest PIAT test scorers (at ages 13–14) than are those in middle- and high-income groups.3 While more than 50 percent of all 13- to 14-year-olds in the top tercile of the income distribution are in the top third of the test-score distribution, fewer than 20 percent of those in the bottom income tercile managed such scores. These findings raise the natural question: To what extent do family borrowing constraints during early childhood and adolescence influence early investments in chil-dren, cognitive achievement levels, and ultimately college attendance and completion? Summary from Slides of the oral presentation at the conference. [Editor]

Schooling Outcomes and Family Income

  • Large differences in schooling outcomes by family income
    • Raw difference in college enrollment between highest and lowest income terciles is greater than 30%
    • After controlling for achievement test scores during adolescence, the gap declines considerably (especially among most able)
    • Most of the gap is eliminated when further controlling for family background
    Findings suggest that short-run credit constraints at college-going ages are not an important determinant of college attendance and completion decisions (Carneiro and Heckman, 2002)

    Conclusions

  • We distinguish between intragenerational and intergenerational borrowing constraints
  • We implement three tests for intragenerational constraints to determine whether the timing of family income affects child achievement for children and adolescents
  • All three tests suggest that income earned earlier leads to better child outcomes, consistent with an inability of s ome parents to borrow against future earnings
  • Potential remedies:
    • Improved borrowing opportunities for lower income families with young children
    • Expanded public subsidies for early investments in children (e.g. preschool) targeted to lower income families
  • Bibliography Citation
    Caucutt, Elizabeth M. and Lance John Lochner. "Borrowing Constraints on Families with Young Children." Presented: Cleveland, OH, Federal Reserve Bank of Cleveland Research Department Conference on Innovation in Education, November 17-18, 2005..