Parental Spending on Children and Children’s Social-Emotional Development

Wei-Jun Jean Yeung, National University of Singapore
Lingxin Hao, Johns Hopkins University

This paper examines the causal relationship between parental spending on children and children’s social-emotional development. Extensive research has related children’s developmental outcomes to material resources through family income and wealth. However, scholars have long noted the inconsistency between reported income and expenditures. Spending on children is one of the most direct ways parents can invest in children. Hence expenditure on children is a more accurate measure of intergenerational transmission of economic resources to children. We use data from the PSID and its Child Development Supplement which provides child-specific expenditure data for a national longitudinal sample of children. We draw theories from multiple disciplines and use instrumental variable approach to address the endogeneity issue to establish the causal relationship. This study will contribute to the body of literature on the growing social and economic inequality for parents by social class and race and the implications for parenting and child outcomes.