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The psychological effects of poverty on investments in children’s human capital


Lichand, Guilherme; Bettinger, Eric; Cunha, Nina; Madeira, Ricardo (2021). The psychological effects of poverty on investments in children’s human capital. Working paper series / Department of Economics 349, University of Zurich.

Abstract

Do poor parents respond inefficiently to future returns on investments, even when they would have the financial means to invest optimally? Combining multiple experiments, we document that when parents of high-school students in Brazil are offered the opportunity to invest in an educational program, (1) prior experience with the program closes the gap in willingness to invest between high- and low-SES parents, but (2) financial worries reopen that gap. We show that financial worries lead parents to respond to small but immediate returns as if they were large, and to large but future returns as if they were small.

Abstract

Do poor parents respond inefficiently to future returns on investments, even when they would have the financial means to invest optimally? Combining multiple experiments, we document that when parents of high-school students in Brazil are offered the opportunity to invest in an educational program, (1) prior experience with the program closes the gap in willingness to invest between high- and low-SES parents, but (2) financial worries reopen that gap. We show that financial worries lead parents to respond to small but immediate returns as if they were large, and to large but future returns as if they were small.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C93, D91, E24, I25, I26
Uncontrolled Keywords:Psychology of poverty, attention misallocation
Language:English
Date:April 2021
Deposited On:02 Sep 2020 09:53
Last Modified:27 Apr 2021 10:44
Series Name:Working paper series / Department of Economics
Number of Pages:60
ISSN:1664-705X
Additional Information:Revised version
OA Status:Green
Official URL:https://www.econ.uzh.ch/en/research/workingpapers.html?paper-id=1030

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