Dave Grimmond likes the Budget 2015 drive to tackle child poverty by focusing resources on those under 6 to try and head off later costly interventions

By Dave Grimmond*

The Government should be commended for “pressing ahead with its social investment approach, which is about targeted, evidence-based investment to secure better long-term results for the most vulnerable New Zealanders” (2015 Budget Speech, p8). 

In particular, a focus on alleviating child poverty will potentially be of great benefit, not just for today’s victims, but for New Zealand in general. 

Economic deprivation as a child is a cause of poor adult outcomes when it denies them access to critical needs for their full development.

Investment in early childhood interventions for disadvantaged young children are more cost effective than interventions that come later in life.  For example, the dynamic nature of the skill formation process means that education at young ages prepares children so that they can take advantage of more advanced education in older ages.

An inability to master basic mathematics in primary school can effectively preclude children from more advanced studies later in life, and therefore narrows their range of career prospects. Conversely remediating the effects of early disadvantages at later ages is often prohibitively costly and seldom as effective as early intervention. 

Sustained deprivation during the early years of childhood appears to be more damaging for later life prospects than during the later years of childhood.  Parental income is positively associated with a wide range of important child outcomes, including:

• Cognitive test scores (intellectual ability)

• Social functioning issues such as emotional issues, mental health, and behavioural issues

• Physical health

• Teenage childbearing

• Educational attainment

• Future economic status, and

• Criminal behaviour.

At the most basic level, family income has an impact upon the child’s access to certain purchased goods and services important for their development including books, home computers, primary health care, sport and school field trips. But limited finances also restrict parents’ emotional wellbeing and the day-to-day running of the household, as well as their, and their children’s, social opportunities and experiences.

However, the relationship between household income and child outcomes is considerably more complicated than a simple issue of access to resources. Although there is considerable evidence that poor child and later-life outcomes are correlated with household income in early childhood, this does not necessarily mean that low incomes during childhood cause all of these problems. To begin with one needs to note that many children from poor beginnings go on to have productive and successful lives; likewise children from privileged backgrounds can develop considerable problems and cause considerable costs to society.

A lack of income may be more a marker of potential problems for children rather than the root cause of problems. The estimated size of the effect of parental income on child outcomes tends to reduce, with residual effects generally small to modest, when family background factors are controlled for. This suggests that it is the relationship between poverty and parenting that is the causative factor.

For example, in some situations it might be that the type of circumstance that undermines a parent or parents’ ability to care for their children simultaneously impacts on their access to income and resources. Thus a family shock (eg divorce) or an economic shock (losing one’s job) is likely to simultaneously reduce income and increase anxiety and stress levels for the family. In other cases, it might be that the personal characteristics that make someone unsuccessful in the labour market might also make them poor parents. For example, an alcohol or drug addiction might make someone both an unreliable worker and also an unreliable parent.

That income may not always be the root cause of child problems does not mean that access to resources is not an important component for improving child outcomes. Family resources influence the ability parents have to provide for their children’s physical wellbeing. Adequate access to resources also removes a potential source of family stress, thus potentially reducing the risk of psychological harm for children. 

However, the causes of deprivation are potentially more complicated than being just about a lack of income. Throwing money at the problem is not a guarantee of success. A study I conducted for Every Child Counts in 2011 identified that child outcomes in New Zealand would benefit not just from more public investment in children, but also from improving its quality to ensure it was more effective. In particular it was apparent that too much public funding for the benefit of children in New Zealand was directed at older children. Redirecting this investment towards children when they are younger (eg before the age of six) is likely to be more cost effective.

In addition, although a lack of resources will impact on current and future prospects, it is also important to understand the causes of the poverty in the first place. The key pathways into poverty for children are:

• Demographic – simply being born into poverty

• Labour market induced changes, eg parents losing their job

• Changes in the physical or psychological welfare of parent(s) or family members

• Changes in the size and composition of the family.

Changes in marital status are deemed to be more likely to be associated with child poverty transitions, but change in marital status occur less frequently than labour market transitions. It is often a combination of events that lead people into poverty, or into worse poverty.

Events common with the movement of households into financial poverty are the arrival of children or a relationship breakdown, in combination with unemployment or with some other reduction in household income. In nearly all OECD countries, child poverty rates are significantly higher for jobless families, for single-earner (versus two-earner) families, and for sole-parent (versus two-parent) families.

The factors contributing to poor childhood outcomes are complex but lone parenthood and the employment status of parents are important markers of child exposure to deprivation and this early life deprivation has a significant impact on their later life prospects.

In this respect, the Budget measures “to tackle child support debt and encourage parents to pay what they owe for their children” (p10) might ultimately have the biggest impact on reducing the incidence of child poverty.

More effective financial support from estranged parents will provide many solo parent households with greater resources for children.

Perhaps equally as important is that children will benefit if lower levels of conflict over income support reduces a prime source of family stress.

---------------------------------

David Grimmond is a senior economist at Infometrics. You can contact him here »