Investing in Poor Children Makes Economic Sense

Back • September 24, 2012 • Uncategorized

It is in everyone’s best interest to ensure that children living in low-income households are supported in achieving their full earnings potential.  One of the many reasons to support children is that they are our economic future – they will grow up to contribute to the state’s economic wealth and to pay taxes that support the social safety net for everyone.  Simply put, children from low-income backgrounds will buy more things and pay more taxes when allowed to reach their full economic potential. This is the topic of a new report from the number crunchers at the National Bureau of Economic Research (NBER).  Their results for the U.S. economy suggest that the state could reap benefits equivalent to 1.28 percent of total disposable income (consumer spending) if families with children who live in poverty received additional support, as more of their children would reach the earnings capacity of the typical child. Furthermore, this increase would be “in perpetuity,” which translates into more private sector jobs and additional tax revenues for state government — forever.

How many more things would these children buy?  In 2011, personal income in Connecticut was nearly $204 billion, according to the Bureau of Economic Analysis. This study suggests that increasing the income of poor families could potentially generate benefits from additional future income from their children worth about $2.6 billion yearly. Furthermore, the research finds that we would not have to wait long to see the benefits, and middle- and high-income workers would also benefit from increasing economic success among children from low-income households. 

Unfortunately for Connecticut’s future, the percentage of children living in poverty in the state has increased from 10.2 percent in 2001 to 14.9 percent in 2011.  Unless this trend is reversed, we can expect relatively less consumer spending in the future, as more of the state’s consumers will have come from poor homes with lessened opportunities for attaining economic success, and less disposable income.  However, Connecticut’s future is not set in stone and we can increase future consumption, and jobs, by investing more in low-income children now with the prospects of their soon becoming well-paid workers with greater disposable income.

One strategy the NBER report suggests is to lower marginal tax rates for low-income parents, which would give these parents more money to benefit their kids, who will in turn grow up into well-paid workers with more money to spend in Connecticut, resulting in greater economic activity and more jobs for Connecticut residents. 

How much more would investment in children cost?  In a separate new report, the State Department of Education estimates that it would require an additional annual investment of $43.8 million to provide high-quality universal preschool for all low-income children in the state’s poorest districts (along with a one-time investment of $220.6 million for additional classrooms).  Providing universal preschool for all low-income children would be a wise investment towards increasing the economic potential of children living in poverty, and a prudent public investment towards increasing the state’s disposable income by $2.6 billion yearly.