The Impact Of Family Income On How Kids Do In School: New Evidence Comparing Adopted And Biological Children

03 Oct 2005

Parents' income has a positive influence on the educational attainment of their children – but this impact is not nearly as strong as the influence of family genes. These are the central conclusions of new research by Dr Erik Plug and Professor Wim Vijverberg, published in the October 2005 issue of the Economic Journal.

Their study uses the presence of adopted children in some households as a ''natural experiment'' to distinguish between the effects of genes and income on children''s educational achievements. Since adopted children share only their adoptive parents'' environment and not their genes, any relation between their school outcomes and their adoptive parents'' income is driven by the influence parents have on their children''s environment, and not by parents passing on their genes.

The findings indicate that parental income does matter for schooling outcomes. The effect is definitely positive though not that large: a doubling of family income increases the time children spend in school by 0.37 years. To put this in perspective, schooling would rise by the same amount if both parents had 1.15 years additional education; and it is three times the size of the gap in school attainment between boys and girls. This income effect is equally strong for biological children after taking account of the effect of genetically transferred ability.

Not surprisingly, parental ability makes a large difference for biological children. Children''s schooling rises by the same amount when their parents'' income is constant and their IQ score increases by 4 points (and as a result
their schooling rises by 0.6 years) as it does when parents of a certain level of ability double their income. Statistically speaking, given the range of variation in the data, the income effect is only 16 percent of the IQ effect and thus is quite weak in comparison.

Almost all studies, across countries and over time, show that children of higher income parents tend to go to school longer. Does this mean that if lower income parents have better economic opportunities, their children will also do better in school? In other words, does lack of income hinder the education of children living in lower income households?

This is the question that previous research has not addressed adequately, despite the apparent answer suggested by the simple association between income and educational attainment. Arriving at a satisfactory answer is difficult because there are many confounding factors at work. An important one is that high income is an indicator of superior ability: more able parents are often richer than less able parents. Parental abilities responsible for economic success are passed on genetically to the next generation. Therefore, children of higher income parents may do well in school because they inherit superior genes, not because their parents can afford to buy their children a better education.

The research question can therefore be answered only if there is a good way to separate the genetic effect from the income effect. The research strategy in this study accomplishes this task. The results motivate the design of educational policies that benefit poor families. Provided that there is a reliable method to measure children''s ability, society benefits from alleviating the financial constraints that keep able but lower income students from seeking a more advanced education.

Such short-run assistance also has long-term benefits: not only will programme beneficiaries earn higher incomes in the future, but they will also be able to finance the education of their own higher ability offspring. Nevertheless, since the income effects are small compared with the effects of other parental characteristics, it would take large financial transfers to improve the educational achievement of current and future generations.

''Does Family Income Matter for Schooling Outcomes? Using Adoptees as a Natural Experiment'' by Erik Plug and Wim Vijverberg is published in the October 2005 issue of the Economic Journal. Erik Plug is at the University of Amsterdam. Wim Vijverberg is at the University of Texas at Dallas.

Wim Vijverberg

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