Mises Daily Articles

Home | Mises Library | Poverty, Child Rearing, and Government Incentives

Poverty, Child Rearing, and Government Incentives


Tags Interventionism

04/23/2015Adam Vass Gal

The article is adapted from Adam Vass Gal’s new book Generational Poverty: An Economic Look at the Culture of the Poor (2015) from Vernon Press.

When examining cyclical poverty, it is important to study the typical tendencies of people that have generational success. Some like to equate financial success to a level of work ethic, and assume the harder you work, the more you will make. This book’s study takes a different approach.

Many people benefit from cultural attitudes handed down from parents, but for many others, making financial progress may take a completely different mindset than that of one’s parents. Hard work is a significant part of the equation and cannot be taken for granted. Still, there are many other life choices that need to be made in order for hard work to be effective.

Hard work is important, but when closely examined, changing a person’s thought processes and culture appears to be the more difficult hurdle in leaving generational poverty behind.

The Challenge of Single Parenthood

The first glaring issue facing impoverished communities is the challenge of raising a child as a single parent. Raising a child with a significant other is difficult, but going it alone is one of the most financially crippling situations one can find himself (or, more typically, herself ) trying to navigate.

According to 2006 Census data, there are over thirteen million single parents in the United States, and the Department of Agriculture estimated in 2010 that it cost on average almost $227,000 to raise a child. Meanwhile, the average income of a high school graduate is a little more than $20,000 annually. According to a 2013 report by the Pew Research Center, over 60 percent of single parents made less than $30,000 annually.

As you may guess from such figures, many single parents do live below the poverty line. The financial responsibilities are virtually impossible to traverse, but there are many psychological issues that accompany this predicament as well. Those living below the poverty line are more inclined to develop depression, anxiety, and other health issues. This can lead to numerous problems, the most damaging of which may be a poor relationship with the child or children. In turn, this begins or perpetuates a cycle of poverty in many cases.

Incidence of single parenthood have larger effects across the community as well. Harvard economist Raj Chetty found that, “children of married parents also have higher rates of upward mobility if they live in communities with fewer single parents.” So, not only does it help your cause to have two parents, but it is also statistically better for children to live in a community that has fewer single parents.

The more telling statistic may be that poorer people living in clusters are less likely to leave the cluster. In the rare instance that a single parent living below the poverty line lives within a wealthy community (some wealthy areas can have pockets of government housing for example), Dr. Chetty has found that they would be more likely to experience upward mobility.

One could therefore easily draw this conclusion: if wealthy surroundings and increased income create more opportunity, then the redistribution of wealth from the very wealthy to the very poor is the cure. Peculiarly, however, this solution does not have the statistical support one might think at first glance. Taxing and throwing money at poor households was somewhat inconsequential. Chetty’s findings actually indicated that a strong two-parent home and better schools were the solution.

The Financial Advantages of Not Having Children

If a single-parent home presents the greatest economic challenge, then what demographic creates the situation that is most likely to succeed financially? As you might expect, the answer is a couple that lives together, shares expenses, and does not have children.

Coincidentally, another Harvard professor, Dr. Daniel Gilbert, studied that couples are also happier without children, and we can contrast this against the fact that a young, single parent is more likely to experience depression and anxiety. “Figures show that married people are in almost every way happier than unmarried people — whether they are single, divorced, cohabiting,” comments Dr. Gilbert. He went on to add that, “They are healthier, live longer, have more sex.” There is a significant amount of data showing the childless couples are more financially stable.

To emphasize this further, we can look to the experience of gay couples, who are not subject to unplanned pregnancies, and who have fewer children, even if adopted children are considered. According to a 2012 survey of over 1,000 gay couples by Prudential, gay couples made more money, had a lower unemployment rate, saved more, and struggled with less debt than heterosexual couples. The survey also found that gay couples report a higher average education level. Thus, for many, the decision to have children becomes a tough financial decision, and often involves a move from two incomes and a largely discretionary spending, to a situation of one income and numerous new forms of non-discretionary spending. For those who opt to continue with two incomes, the added expense of childcare will soon present itself.

Consequently, in many cases, it makes sense to delay child rearing, as the delay can allow for attainment of higher levels of education, and allows time to become more professionally and financially stable before adopting the added expenses of children.

Government Incentives and Low-Income Households

One basic economic principle is that people respond to incentives. And yet the social welfare system encourages many young women to have children even in the absence of family or financial stability. In many cases, a young woman will recognize that if she has a child, it gives her the ability to start drawing government assistance, which can be a means to move out on one’s own. If combined with a general community-wide permissiveness for sexual activity and child rearing outside of two-parent relationships, we will find child rearing under such circumstances has become relatively common. For example, the National Center for Chronic Disease Prevention and Health Promotion found in 2008 that 435,000 live births occurred to mothers between the ages of fifteen and nineteen. More than half of those births were unintended. The Center estimates that teen pregnancies cost the tax payers more than $9 billion between “increased health care and foster care, increased incarceration rates among children of teen parents, and lost tax revenue because of lower educational attainment and income among teen mothers.”

Child rearing is just one example of the type of decision-making and behavior that can greatly affect financial success, but which is not directly tied to one’s work ethic or hours spent working. In other cases, we find that devout religious affiliation and voting are indicators of social mobility. In any case, financial stability and independence can be determined by fundamental behaviors that involve much more than simply maximizing income. Moreover, these learned behaviors can span multiple generations and be reinforced throughout the community and well beyond one’s immediate family.

Image source: iStockphoto

Adam Vass Gal

Adam Vass Gal works in financial services. He has also taught economics at Belmont University since 2003. Adam holds a BBA in economics and MS in finance, both from Mississippi State University.