Parental investment in kids - a case of information failure?

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, 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.’