Many parents believe that the time they spend with their kids is more valuable the older they are, and that investing time later isn''t as useful if they invested early – both of which are wrong, according to research by Teodora Boneva and Christopher Rauh, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
Their study analyses the results of two surveys of 538 and 1,707 parents in England, which gave them three hypothetical levels of support that they could offer, and asked them to predict how much money the child would be earning by age 30. Parents believed that an additional weekly hour of invested in their young children increases earnings at age 30 by 5.1%, whereas an equivalent weekly hour invested later raises future earnings by 8.5%.
Compared with actual figures, parents overestimate the effectiveness of late time investment by a factor of two. They also perceive the returns to investing time later to be lower if they gave their kids early support, while empirical evidence has shown early and late investment to be complementary.
The authors comment: ''Policies that target parents'' beliefs about the productivity of parental investments, are likely to be effective in raising child outcomes. Our findings also suggest that policies that target parental beliefs are most likely to benefit children from low socioeconomic backgrounds and have the potential to reduce gaps in achievement.''
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The time that parents invest in their children is crucial for children''s development of cognitive and socio-emotional skills. While previous work has documented that more educated parents tend to invest more time in their children (Guryan et al, 2008), little is known about why this is the case.
While parental preferences or constraints could explain part of the socioeconomic gap in investments, Boneva and Rauh (2015, 2016) find that parental beliefs about returns to time investments can explain 17% of the variation in parental investments.
Parents with higher income perceive returns to time investments in children to be higher. Given that perceived returns are positively related to actual investment choices, parental beliefs might be one of the factors that can explain the low intergenerational mobility in the UK.
Traditionally, economic models assume that agents make utility-maximising decisions under full rationality and in possession of perfect information about which investments are necessary at which stages of childhood. For the case of skill formation, two properties of the skill accumulation process have recently received considerable empirical support:
• First, early investments are crucial as skills might be more malleable during that period of childhood.
• Second, early and late investments exhibit dynamic complementarities, meaning that the returns to late investments are greater if they are preceded by high early investments (''skills beget skills'').
But Boneva and Rauh find that parents are generally unaware of these two properties of the skill accumulation process. In fact, parents tend to believe the opposite: they perceive the returns to late investments to be higher than the returns to early investments, and they perceive early and late investments as substitutes rather than complements.
The findings stem from two surveys of 538 and 1,707 parents of school children in England. The data contain detailed information on parental beliefs, current parental investments and socioeconomic background.
To elicit parental beliefs about how parental investments affect future outcomes, parents are presented with hypothetical investment scenarios, which vary along three dimensions: (i) the level of early investments, (ii) the level of late investments, and (iii) the initial human capital level of the child.
For each scenario, parents are asked to state what they believe the future earnings of the child will be at age 30. In the scenarios, early investments refer to investments made during primary school years, while late investments refer to investments made during secondary school years.
The focus is on a particular type of parental investment, which is relevant to all school-age children: the time parents spend per week interacting with their child or helping with schoolwork. By presenting parents with hypothetical investment decisions of hypothetical families, potential confounding factors can be held constant, such as household, child and neighbourhood characteristics.
Parents believe that an additional weekly hour of early investments made at the younger ages increases earnings at age 30 by 5.1%, whereas an additional weekly hour invested later raises future earnings by 8.5% (Figure 1). Put differently, parents perceive the returns to late investments to be 67% higher than the returns to early investments.
When comparing perceived returns to actual returns estimated from the British Cohort Study, on average parents overestimate the returns to late investment by a factor of two. Moreover, parents perceive the returns to late investments to be lower if preceded by high early investments, indicating that parents perceive investments in the two time periods as substitutes rather than complements.
Therefore, parents might delay investments because they perceive late investments as more productive than they are or because they perceive investments in different periods as substitutes – that is, they believe that missed early investments can be compensated at a relatively low cost during later periods.
Finally, the authors document that parents who are more inclined to believe that (i) children''s skills are not malleable through parental investments in the home environment and (ii) children lack the capabilities to acquire skills are also more likely to perceive the returns to parental investments to be low.
Conclusions
The results suggest that policies targeting parental beliefs about the productivity of parental investments are likely to be effective in raising child outcomes. For example, such policies could inform parents about the benefits of parental investments, and raise awareness about the evidence that early investments are important and difficult to make up for at later stages.
Also, policies targeting parental beliefs about the malleability of children''s skills or the capability of children to acquire skills might be effective in raising parental investments. A similar intervention, which targets children''s beliefs about the malleability of skills, has been shown to increase children''s propensity to engage in skill accumulating activities and to increase skill levels (Alan et al, 2015).
Our findings also suggest that policies targeting parental beliefs are most likely to benefit children from low socioeconomic backgrounds. Therefore, such policies have the potential to reduce gaps in achievements and improve equality of opportunity.
Further reading
Alan, S, T Boneva, and S Ertac (2015), ''Ever Failed, Try Again, Succeed Better: Results from a Randomized Educational Intervention on Grit.'' HCEO Working Paper 2015-009.
Boneva, T. and Rauh, C. (2016), Parental Beliefs about the Returns to Educational Investments: The Later the Better? HCEO Working Paper 2015-019
Boneva, T. and Rauh, C. (2016), Human Capital Production and Parental Beliefs, Working Paper 2016
Guryan, J, E Hurst, and M Kearney (2008), ''Parental Education and Parental Time with Children.'' The Journal of Economic Perspectives, 23–46.
Parental Beliefs about Returns to Educational Investments – Teodora Boneva and Christopher Rauh
