Parent expectation and early child investment

Flavio Cunha from University of Pennsylvania is our ERID visitor this week. He gave an enlightening talk yesterday on preferences, beliefs, and early investment in children. His talk reminds me of a recent New York Times article on the same topic.

Child psychologists have found a positive relationship between how much time parents spend with children and children’s cognitive skills. The gap in cognitive ability between children from rich and poor families appears at birth and continues widening up into their adulthood. Strikingly, 80% of the gap is formed before the age of five. It seems that high income parents tend to invest in their children long before the children are born, while poor parents may have let many precious opportunities slip by without noticing them. If parents of lower social and economic status simply don’t know that spending time with their children and offering encouragement are rewarding practices, policy makers can potentially tell them this and let them make more effective investments.

Professor Cunha introduced an interesting concept called “reference point”. It means the parents’ expectation of the child’s cognitive development process. For example, a parent may expect her child to be able to construct a full sentences by the first birthday. Reference points shape the investment patterns of parents. Investment in children is like learning. Parents learn how capable their children are by observing their accomplishments and comparing these with their reference points. They then adjust their investment strategies accordingly. For example, parents of a child who speaks relatively late may invest more into the child to prevent the child from lagging behind even further. However, the reverse could happen: Children who do not meet parents’ expectations may discourage parents from investing more into education. Professor Cunha hypothesized that parents will be more responsive in investment if their children are below the reference point.

Another related concept is parents’ beliefs about returns to their investment. Professor Cunha hypothesizes that there is only one true return, but parents have different beliefs about the distribution of this return. Beliefs are also subject to changes because of learning.

Professor Cunha surveyed a subsample of first-time pregnant women from the CPS sample. Most of them are single mothers, have high school diploma or lower education, and are unemployed. Although he didn’t go to details regarding his survey, he offered two pieces of advice from his experience:

1) Design your survey to be comprehensible for your targeted respondents. The majority of his sample are not educated and had a difficult time thinking about probabilities, so he asked them to give a range of a child’s expected accomplishments. For example, he asked these women when they think should be the earliest possible and latest possible age that a child could speak a full sentence.

2) Based on the characteristics of your sample, some questions may not generate enough variation as you would like to. Because the women surveyed in his sample come from low-income families, they would almost surely answer “yes” to the question “have you ever been a babysitter before?” Therefore this question tells little about how much child-care knowledge a woman is compared with others in the same sample.

As I was listening to this talk, I thought about the Chinese Household Income Project 2002 wave I’ve been analyzing in the past few months. There is a question “what level of education do you expect your child to accomplish?” Over 80% of rural parents expect their children to go to college. Children with more aspiring parents perform better overall. But it may well be that parents learn how capable their children are by their performances and adjust their expectations accordingly.

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