Wealth Inequality Hits Families with Children Very Hard

Yesterday I suggested that an important reason for the continued drop in the U.S. birth rate was the rising level of income and wealth inequality. Professor Rubèn Rumbaut pointed me to an Op-Ed in today's NYTimes that underscores that thesis. The article is drawn from a paper just accepted for publication in Demography, the official journal of the Population Association of America (PAA), so it represents peer-reviewed scientific research. Their article in Demography starts out with the following comments:

In his 1984 presidential address to the Population Association of America, demographer Samuel Preston called attention to what he saw as a troubling trend: the transfer of resources to the elderly at the expense of children (Preston 1984). As Preston noted, society bears responsibility for taking care of the elderly and children, who often rely on others for resources. As America’s primary dependents, however, the elderly and children often compete for resources. By prioritizing the elderly over children in the provision of public transfers, Preston argued, society risked negative consequences because subsequent generations would have insufficient resources to thrive. More than three decades later, little has changed: the United States still directs a disproportionate amount of social welfare dollars to those over the age of 65 relative to those under the age of 18 (Moffitt 2015).

That last reference is to yet another Past President of the PAA, Robert Moffitt, who is at The Johns Hopkins University. Professor Preston was, as it turns out, a member of my own PhD committee at UC, Berkeley, so you can see that these issues are central to what demographers do. 

The authors of this paper--Christina M. Gibson-Davis of Duke University and Christine Percheski of Northwestern University--analyzed data from the Survey of Consumer Finances (SCF), a cross-sectional study of U.S. households conducted by the Federal Reserve approximately every three years. Data come from the years 1989 to 2013. They found that the elderly are doing OK over this time, but--consistent with Professor Preston's concern--the same is not true for families with children:

Families with children fared worse as a group. Overall, their wealth declined by 56 percent in the same period. More important, they also faced a wide and growing divide: Wealth inequality for these households grew significantly from 1989 to 2013. The top 1 percent saw their wealth increase by 156 percent, while parents in the bottom half saw their wealth shrink by 260 percent. About a third of all families with children in 2013 had no wealth, only debt.

In 2013, the top 1 percent of these families had a median wealth of $5.1 million, thanks to skyrocketing incomes, increasing home values and strong returns on stocks and investments. They have millions in savings and generous trust funds for their children.

Families on the bottom rungs live very differently. They may not even own a home, and if they face an unexpected expense, like a medical emergency, they don’t have a cushion of savings or other assets to draw on. And when their children start college, some of these parents may still be paying off their own student loans.

This is precisely what I had in mind in suggesting that rising economic inequality was causing people of reproductive age in this country to think hard about having a child. And, I could not agree more with their overall conclusion: "The United States needs a fundamental rethinking of public policy priorities to improve the lives of the next generation of children." This should include the creation of better, higher-paying jobs for young adults (the potential parents), along with strong support for academically excellent (and safe) public education so that these kids can grow up with the knowledge and skills they need to succeed in life.