tag:theconversation.com,2011:/africa/topics/poor-4314/articlesPoor – The Conversation2018-09-07T08:45:25Ztag:theconversation.com,2011:article/1028022018-09-07T08:45:25Z2018-09-07T08:45:25ZTo zero-rate, or not to zero-rate: why the VAT debate is more complex than it appears<figure><img src="https://images.theconversation.com/files/235238/original/file-20180906-190647-14yai3q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">EPA/Nic Bothma</span></span></figcaption></figure><p>The one percentage point increase in South Africa’s Value Added Tax (VAT) rate, which was implemented in April this year, has raised important questions about how the tax system can and should address inequality. In response to the increase, Nhlanhla Nene, the minister of finance, <a href="https://www.gov.za/speeches/treasury-releases-independent-panel-review-current-list-zero-rated-vat-items-report-public">appointed</a> an expert panel to look into ways that zero rating can better tackle inequality. The panel made <a href="http://www.treasury.gov.za/comm_media/press/2018/2018081001%20VAT%20Panel%20Final%20Report.pdf">recommendations</a> about additional items which should be zero rated. </p>
<p>It’s important that the recommendations of the panel be considered within the framework of a larger conversation about tax policy in South Africa. This is particularly true because the tax system is key to addressing the extremely high levels of inequality in South Africa. </p>
<p>To be both fair and to address inequality, tax systems need to do two things. First, they should treat people with the same income and circumstances in the same way. Secondly, they should treat people with different incomes and different circumstances appropriately differently – rich people should both pay a greater amount of taxes and also a larger portion of their income in taxes. </p>
<p>But South Africans should also be realistic about what tax policies can achieve. Zero rating isn’t a panacea: it should be accompanied by policies that help poor people access essential products. In addition, its unintended consequences should be noted: by providing relief for the poor, it also provides a large amount of relief for the rich. The rich consume far more than the poor, and thus benefit in absolute terms to a far greater degree than the poor.</p>
<h2>The example of sanitary pads</h2>
<p>The panel’s recommendation about sanitary products is a good example of the limitations of VAT in addressing inequality. </p>
<p>The panel agreed that it was important to include sanitary products on the zero-rated list. But addressing the issue only through tax policy effectively subsidises the consumption of women from higher-income households, but does very little to address the fact that most poor women are simply unable to afford sanitary pads, whether they are zero rated or not. </p>
<p>The panel therefore argued that it was imperative that free sanitary pads should be given to women and girls who can’t afford to buy them. It found that women in the poorest 70% of households are able to meet only 8% of their needs for sanitary products. Zero rating won’t help them much. </p>
<p>If South Africa is to address the problem of access to sanitary pads, zero rating has to be accompanied by policies that make sanitary pads available, free of charge, to those who cannot afford to purchase them.</p>
<h2>The case of books</h2>
<p>A number of submissions to the panel argued for zero rating books to promote access to reading material. But unlike sanitary pads, the case for zero rating books is not a strong one. </p>
<p>Books are very expensive and bought almost entirely by the richest 10% of households. Zero-rating books would be symbolically good, but it would, in effect only subsidise the consumption of high-income households and do very little to actually promote a culture of reading among low-income households. Better provision of books in schools and access to libraries are likely to have a much bigger impact.</p>
<p>This highlights that targeted expenditure programmes can ensure that the relief reaches those who need it most. This is not to say that one or the other of these options must prevail. But tax collection tools should always be weighed against expenditure policy options. </p>
<h2>Unintended consequences</h2>
<p>It’s also important to be aware that changes in tax policies often generate changes in economic behaviour. That’s why there are “sin” taxes on products like alcohol and tobacco. The assumption is that a higher tax will result in reduced consumption. Zero-rating may change economic behaviour which could result in unintended consequences. </p>
<p>Take the example of zero rating frozen chicken pieces. The argument for zero rating them is that poor people buy chicken in pieces, so exempting them from VAT will make them more affordable.</p>
<p>But high-cost chicken (including organic or free range) consumed mainly by the rich could also be sold in pieces. The fact that they also enjoyed the benefits of zero rating would allow wealthy consumers to benefit. This highlights the related issue of demarcation – how can we define items for zero rating in a way that is efficient and practicable? </p>
<p>The zero rating of school uniforms is the best example of this challenge. School uniforms consist, say, of white shirts, grey skirts and trousers, black shoes, and blazers or jackets. But these items are also consumed by wealthy people many of whom wear white shirts and black shoes with their business attire. What distinguishes a business shirt from a school shirt, and how do we ensure only the latter is VAT exempt? If we are unable to do this in an effective manner, the benefit of the zero rating will be enjoyed both by the intended group – parents of school children - but also by the wealthy. </p>
<p>Another problem is that those who have economic power are often able to pass on the costs of a tax to others. For example, if company taxes are increased, a firm that has a monopoly may be able to pass on the full costs of the tax to consumers by increasing the price of the goods. </p>
<p>In the case of zero rating, the problem is reversed – how do we ensure that any benefit from zero rating is passed on to the consumer and not captured by producers, wholesalers and retailers? In markets where producers or retailers are in a powerful position, we can’t assume that the zero rating benefit will be passed on to the consumer. </p>
<h2>Simplicity is key</h2>
<p>Issues of administrative ease and efficiency are very important for tax policy. Issues of demarcation must be easy to define and implement at the risk or passing an administrative and therefore financial burden onto both business and the receiver of revenue. In addition, the more complex a tax system is, the more the incentive there is for evasion and the greater the resources needed for enforcement and collection.</p>
<p>Our argument is that while issues of zero rating are very important, it’s vital to understand them in the context of the larger tax policy universe. This includes how revenue is allocated, how consumers respond to changes, and the importance of being realistic and pragmatic about implementation.</p><img src="https://counter.theconversation.com/content/102802/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Imraan Valodia receives funding from the NRF. He was a member of the Panel appointed by the Finance Minister to investigate zero-rating </span></em></p><p class="fine-print"><em><span>David Francis was the research assistant to the Independent Panel of Experts for the Review of Zero Rating in South Africa.</span></em></p>South Africans debating the zero rating of certain products for VAT purposes must realise it isn’t a panacea for poor people and should be accompanied by other policies.Imraan Valodia, Dean of Commerce, Law and Management, University of the WitwatersrandDavid Francis, Research Manager at the Southern Centre for Inequality Studies, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1015692018-08-27T14:15:46Z2018-08-27T14:15:46ZZero rated VAT items: how South Africa is going about expanding the list<figure><img src="https://images.theconversation.com/files/233510/original/file-20180824-149469-1obiheh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>South Africa is processing a new <a href="http://www.treasury.gov.za/comm_media/press/2018/2018081001%20VAT%20Panel%20Final%20Report.pdf">report</a> produced by an independent panel that reviewed the current list of items exempted from Value Added Tax (VAT). The review came after VAT was increased in the 2018/19 budget, from 14% to 15%, to help the country plug a huge budget hole. On the back of concerns that the VAT increase will hurt poor people, the country’s minister of finance ordered the review to shield poor households. The Conversation Africa’s Sibonelo Radebe asked Lee-Ann Steenkamp to unpack key issues from the report.</em></p>
<p><strong>What are the key findings of this report?</strong></p>
<p>South Africa’s current VAT system allows for 19 basic food items to be taxed at a rate of zero percent (as opposed to the official rate of 15%). The zero rating of food items was originally introduced as a means of providing some relief to low-income households which spend a relatively high proportion of their income on zero rated items. Examples include brown bread, fresh fruit and vegetables, dried mealies and dried beans.</p>
<p>The Panel made a number of recommendations which are now subject to public comment. </p>
<p>Six items were identified for possible inclusion in the list of zero rated items. These are: </p>
<ul>
<li><p>White bread</p></li>
<li><p>White flour</p></li>
<li><p>Cake flour</p></li>
<li><p>Sanitary products</p></li>
<li><p>School uniforms, and</p></li>
<li><p>Nappies, including cloth and adult nappies.</p></li>
</ul>
<p>In total, the zero rating effect would provide tax relief of R2.8 billion for the poorest households.</p>
<p><strong>What are the high points of the report?</strong></p>
<p>The VAT review process has been generally impressive as a transparent, consultative process that allowed concerned citizens to share their opinions.</p>
<p>Considering that the panel had to work through over 2 000 submissions and was under a tight deadline, I believe the list of six additional zero rated items provides a useful starting point for the follow-up public hearings. </p>
<p>The report itself is thorough and quite detailed (at 91 pages) and sets out the rationale for each recommendation. </p>
<p>The panel applied the basic principles of good tax policy design, namely equity, efficiency and ease of administration. </p>
<p><strong>Were there any low points?</strong></p>
<p>It’s important to note that it would be impossible to please everyone.</p>
<p>The recommendation of the panel that baby formulae shouldn’t be zero rated, will likely be considered a low point by many. But it should be pointed out that the panel based this decision on public health recommendations, particularly government’s policy of promoting <a href="https://theconversation.com/south-africa-has-made-giant-strides-in-breastfeeding-but-its-still-taboo-in-public-places-80694">breastfeeding</a>.</p>
<p>As with any group of experts, it’s not surprising that the panel was unable to reach consensus on some issues. This included whether or not to recommend the zero rating of deep-frozen chicken parts sold loose in plastic bags. They have the lowest retail price compared with other chicken products.</p>
<p>The panel did note that chicken is the largest staple protein for low-income households. And that it’s preferable to red meat and dairy from a nutritional and environmental point of view. Nevertheless, the majority of the panelists argued against including it on the list. The main reason for this is that a couple of producers dominate the local market and there were concerns that tax savings would not be passed on to consumers.</p>
<p><strong>What needs to be done to ensure good results from this process</strong></p>
<p>I’d like to draw attention to the panel’s critical statement that the National Treasury must ensure that the benefits of zero rating accrue to consumers. In other words, authorities must ensure that producers actually pass on the tax benefits to consumers.</p>
<p><a href="https://probonomatters.co.za/2018/08/draft-report-reviewing-list-of-items-zero-rated-for-vat/">Participation</a> and support by all stakeholders is a critical factor of success. So any person (whether an individual or a big corporate) unhappy with the panel’s recommendations should take up their issue by responding to the minister’s <a href="http://www.treasury.gov.za/comm_media/press/2018/2018081001%20Media%20Statement%20-%20Release%20of%20VAT%20Panel%20report.pdf">invitation</a> to submit written comments.</p>
<p>Big VAT vendors might also consider subsidising certain basic items without waiting for government to get on board. One low cost <a href="https://www.iol.co.za/business-report/companies/shoprite-is-offering-sas-first-taxfreepad-16720736">retailer</a> is already doing this by selling “tax-free” sanitary pads. </p>
<p><strong>Any other thoughts?</strong></p>
<p>Zero rating is not a silver bullet and civil society should pressure government to expand initiatives that would assist poor and low income households. These could include reducing transport costs, strengthening the school nutrition programme and increasing the child support grant and old age pension.</p>
<p>It should also be remembered that if tax relief is offered in one area, the resulting deficit has to be made up elsewhere. Any potential weakening of the tax base must be carefully considered. Tinkering with VAT rates and zero rating more items won’t help the country much if it doesn’t significantly reduce unemployment rates and boost economic growth. We should also bear in mind that national elections are looming. Ultimately, political factors could very well decide how VAT reform is to be implemented.</p><img src="https://counter.theconversation.com/content/101569/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Lee-Ann Steenkamp is affiliated with the South African Institute of Tax Professionals (SAIT).</span></em></p>The review of South Africa’s list of zero rated VAT items faces a tricky challenge of shielding the poor while ensuring that the relief isn’t exploited.Lee-Ann Steenkamp, Senior lecturer, University of Stellenbosch Business School (USB), Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/791542017-06-14T02:21:54Z2017-06-14T02:21:54ZDo poor people eat more junk food than wealthier Americans?<figure><img src="https://images.theconversation.com/files/173655/original/file-20170613-30093-1bz5vct.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Billionaire Warren Buffett says he drinks five Cokes a day.</span> <span class="attribution"><span class="source">AP Photo/Nati Harnik</span></span></figcaption></figure><p>Eating fast food is frequently blamed for damaging our health. </p>
<p>As nutrition experts point out, it is <a href="https://www.nature.com/ijo/journal/v31/n6/full/0803616a.html">not</a> the <a href="https://www.ers.usda.gov/publications/pub-details/?pubid=43699">healthiest</a> type of meal since it is typically high in fat and salt. More widely, it’s <a href="http://www.news-medical.net/health/Obesity-and-Fast-Food.aspx">seen as a key factor</a> in the growing obesity epidemic in the U.S. and throughout the world. </p>
<p>Because it’s considered relatively inexpensive, there’s an assumption that poor people eat more fast food than other socioeconomic groups – which has convinced some local governments to <a href="http://www.nytimes.com/2011/01/16/us/16fastfood.html?mcubz=0">try to limit their access</a>. Food journalist <a href="http://www.nytimes.com/2011/09/25/opinion/sunday/is-junk-food-really-cheaper.html">Mark Bittman</a> sums up the sentiment succinctly: </p>
<blockquote>
<p>“The ‘fact’ that junk food is cheaper than real food has become a reflexive part of how we explain why so many Americans are overweight, particularly those with lower incomes.”</p>
</blockquote>
<p>Our recently <a href="http://www.sciencedirect.com/science/article/pii/S1570677X16300363">published research</a> examined this assumption by looking at who eats fast food using a large sample of random Americans. What we found surprised us: Poor people were actually less likely to eat fast food – and do so less frequently – than those in the middle class, and only a little more likely than the rich.</p>
<p>In other words, the guilty pleasure of enjoying a McDonald’s hamburger, Kentucky Fried Chicken popcorn nuggets or Taco Bell burrito is shared across the income spectrum, from rich to poor, with an overwhelming majority of every group reporting having indulged at least once over a nonconsecutive three-week period. </p>
<h2>A diet of Cokes and Oreos</h2>
<p>In retrospect, the fact that everyone eats fast food perhaps should not be that surprising. </p>
<p>There are rich and famous people, including President <a href="https://www.nytimes.com/2016/08/09/us/politics/donald-trump-diet.html">Donald Trump</a>, who are also famous for their <a href="http://www.vanityfair.com/news/2016/02/mind-boggling-reason-donald-trump-loves-mcdonalds">love of fast food</a>. Trump even made a <a href="https://www.youtube.com/watch?v=yr9LwiSayWU">commercial for McDonald’s</a> in 2002 extolling the virtues of their hamburgers. Warren Buffett, one of the world’s richest people, says he “eats like a 6-year-old,” <a href="https://finance.yahoo.com/news/warren-buffett-berkshire-hathaway-sweet-tooth-dairy-queen-coca-cola-see-s-candies-201539716.html">meaning lots of Oreos and Cokes</a> every day (he <a href="http://www.seattletimes.com/business/warren-buffettis-bad-for-your-health/">invests like one too</a>). </p>
<figure>
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<p>What we learned from our research is that we all have a soft spot for fast food. We analyzed a <a href="https://www.bls.gov/nls/">cross-section of the youngest members of the baby boom generation</a> – Americans born from 1957 to 1964 – from all walks of life who have been interviewed regularly since 1979. Respondents were asked about fast-food consumption in the years 2008, 2010 and 2012 – when they were in their 40’s and 50’s. Specifically, interviewers posed the following question: </p>
<blockquote>
<p>“In the past seven days, how many times did you eat food from a fast-food restaurant such as McDonald’s, Kentucky Fried Chicken, Pizza Hut or Taco Bell?”</p>
</blockquote>
<p>Overall, 79 percent of respondents said they ate fast food at least once during the three weeks. Breaking it down by income deciles (groups of 10 percent of aggregate household income) did not show big differences. Among the highest 10th of earners, about 75 percent reported eating fast food at least once in the period, compared with 81 percent for the poorest. Earners in the middle were the biggest fans of fast food, at about 85 percent. </p>
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<p>The data also show middle earners are more likely to eat fast food frequently, averaging a little over four meals during the three weeks, compared with three for the richest and 3.7 for the poorest. </p>
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<p>Because the data occurred over a four-year period, we were also able to examine whether dramatic changes in wealth or income altered individuals’ eating habits. The data showed becoming richer or poorer didn’t have much effect at all on how often people ate fast food. </p>
<h2>Regulating fast food</h2>
<p>These results suggest focusing on preventing poor people from having access to fast food may be misguided. </p>
<p>For example, Los Angeles in 2008 <a href="http://www.nytimes.com/2011/01/16/us/16fastfood.html?mcubz=0">banned new freestanding fast food restaurants</a> from opening in the poor neighborhoods of South L.A. The given reason for the ban was because “fast-food businesses in low-income areas, particularly along the Southeast Los Angeles commercial corridors, intensifies socio-economic problems in the neighborhoods, and creates serious public health problems.”</p>
<p>Research suggests <a href="https://www.ncbi.nlm.nih.gov/pubmed/25779774">this ban did not work</a> since obesity rates went up after the ban compared to other neighborhoods where fast food had no restrictions. This seems to pour cold water on <a href="https://www.cdc.gov/phlp/winnable/zoning_obesity.html">other efforts</a> to solve obesity problems by <a href="http://www.telegraph.co.uk/news/uknews/1576136/Government-may-ban-fast-food-near-schools.html">regulating the location</a> of fast-food restaurants. </p>
<h2>Not all that cheap</h2>
<p>Another problem with the stereotype about poor people and fast food is that by and large it’s not actually that cheap, in absolute monetary terms. </p>
<p>The typical cost per meal at a fast-food restaurant – which the U.S. Census calls limited service – is <a href="https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ECN_2012_US_72SXSB02&prodType=table">over US$8</a> based on the average of all limited service places. <a href="http://www.businessinsider.com/cost-to-eat-at-every-major-fast-food-chain-2015-9">Fast food is cheap only in comparison</a> to eating in a full-service restaurant, with the average cost totals about US$15 on average.</p>
<p>Moreover, $8 is a lot for a family living under the U.S. poverty line, which for a family of two is a <a href="https://aspe.hhs.gov/poverty-guidelines">bit above $16,000</a>, or about $44 per day. It is doubtful a poor family of two would be able to regularly spend more than a third of its daily income eating fast food.</p>
<h2>The lure of fast food</h2>
<p>If politicians really want to improve the health of the poor, limiting fast-food restaurants in low-income neighborhoods is probably not the way to go. </p>
<p>So what are some alternative solutions? </p>
<p>We found that people who said they checked ingredients before eating new foods had lower fast-food intake. This suggests that making it easier for Americans to learn what is in their food could help sway consumers away from fast food and toward healthier eating options. </p>
<p>Another finding was that working more hours raises fast-food consumption, regardless of income level. People eat it because it’s fast and convenient. This suggests policies that make nutritious foods more readily available, quickly, could help offset the lure of fast food. For example, reducing the red tape for approving food trucks that serve meals containing fresh fruits and vegetables could promote healthier, convenient eating. </p>
<p>Our goal is not to be fast-food cheerleaders. We do not doubt that a diet high in fast food is unhealthy. We just doubt, based on our data, that the poor eat fast food more than anyone else.</p><img src="https://counter.theconversation.com/content/79154/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There’s an assumption that the poor eat more unhealthy fast food because it’s relatively cheap, leading some governments to try limit their access. Two researchers tested that assumption.Jay L. Zagorsky, Economist and Research Scientist, The Ohio State UniversityPatricia Smith, Professor of Economics, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/781782017-05-24T05:06:46Z2017-05-24T05:06:46ZPoor kids hit puberty sooner and risk a lifetime of health problems<figure><img src="https://images.theconversation.com/files/170686/original/file-20170524-5749-1mdge6o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It can be a tough time for children going through the physical and emotional changes of puberty. And if they enter puberty early, the health impacts can stay with them for life.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/525638404?src=Zg0uuHb8KUaaM5_85T6a_w-1-9&size=medium_jpg">from www.shutterstock.com</a></span></figcaption></figure><p>Shape-shifting bodies. Cracking voices. Hairs sprouting in new places. Puberty marks a dramatic period of change for young people. Now new research shows children who grow up in poor homes enter puberty early.</p>
<p>Not only do they experience more emotional, behavioural and social problems compared to their peers, early puberty puts them at risk of a range of health issues for the rest of their lives.</p>
<p>The research, published today in the journal <a href="http://pediatrics.aappublications.org/">Pediatrics</a>, adds to a body of work showing the cumulative effect of adversity in childhood can have lifelong physical, mental and behavioural repercussions.</p>
<p>However, the reason why these disadvantaged children enter puberty early remains unclear. And work is continuing to pinpoint factors that trigger the cascade of hormones that mark this critical period of development.</p>
<h2>What is puberty?</h2>
<p>Puberty is an inherently awkward transition in which a child’s body matures to allow reproduction.</p>
<p>In girls, it typically begins with breast development between the ages of eight and 13 and ends with menarche, or the first period. In boys, puberty begins between ages nine and 14, on average, starting with growth of the sexual organs and wrapping up with facial hair and a deepened voice.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=808&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=808&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=808&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1015&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1015&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170674/original/file-20170523-5790-ymkul8.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1015&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What causes puberty? One of Science’s 125 big questions of all time that still remains unanswered today.</span>
<span class="attribution"><a class="source" href="http://science.sciencemag.org/content/309/5731/news-summaries">Science/AAAS</a></span>
</figcaption>
</figure>
<p>But changes at puberty are not all physical. Puberty also triggers rapid biological and social change, and increasing risk for <a href="https://theconversation.com/growing-up-too-fast-early-puberty-and-mental-illness-13159">psychological health problems</a>, like depression and anxiety, substance use and abuse, self-harm and eating disorders.</p>
<p>We still don’t know exactly what triggers the cascade of hormone secretions that, over time, produces these tell-tale changes. And “What triggers puberty?” was one of the 125 questions posed in Science magazine’s 125th anniversary edition in 2005 that still remains unanswered today.</p>
<p>In particular, we still don’t know exactly what <em>causes</em> some children to enter puberty earlier than others, although there have been many factors <em>linked</em> to early puberty.</p>
<p>These include <a href="http://www.annualreviews.org/doi/full/10.1146/annurev-publhealth-031914-122606?url_ver=Z39.88-2003&rfr_id=ori%3Arid%3Acrossref.org&rfr_dat=cr_pub%3Dpubmed&">childhood obesity</a>, being born <a href="https://academic.oup.com/aje/article-lookup/doi/10.1093/aje/kws159">small for gestational age</a> and exposure to <a href="https://academic.oup.com/jcem/article-lookup/doi/10.1210/jc.2015-2706">environmental chemicals</a>. Other researchers have linked early puberty with <a href="https://www.jstor.org/stable/41995770?seq=1#page_scan_tab_contents">living with a stepfather</a> or having experienced <a href="https://www.ncbi.nlm.nih.gov/pubmed/26358357">stressful life events</a>, such as childhood maltreatment and abuse.</p>
<h2>What we did</h2>
<p>Previous studies looking into social impacts on the timing of puberty have had mixed results. While one Indian study found poor girls started their periods <a href="https://www.degruyter.com/view/j/ijamh.2015.27.issue-4/ijamh-2014-0056/ijamh-2014-0056.xml">later than normal</a>, a UK study found girls who grew up the poorest were twice as likely to have started their periods <a href="http://adc.bmj.com/content/102/3/232.long">earlier</a> than the richest.</p>
<p>So, we carried out the first study of its kind in Australia to see how cumulative exposure to social disadvantage affected the age children entered puberty.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/170684/original/file-20170524-5790-1ucy3v9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">We asked whether children had gone through puberty at the age of 10-11 then matched their answers with family income levels and other indicators.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/download/confirm/374710399?src=Zg0uuHb8KUaaM5_85T6a_w-1-4&size=medium_jpg">from www.shutterstock.com</a></span>
</figcaption>
</figure>
<p>We asked parents of 3,700 children in the <a href="http://www.growingupinaustralia.gov.au/">Growing Up in Australia Study</a> to report signs of their children’s puberty at age eight to nine, and then again at ten to 11. Signs included: a growth spurt, pubic hair and skin changes; breast growth and menstruation in girls; and voice deepening and facial hair in boys.</p>
<p>We then compared the family’s socioeconomic position – as measured by their parent’s annual income, education and employment – of those who started puberty early with others who started on time.</p>
<p>At ten to 11 years old, about 19% of boys and 21% of girls were classified in the early puberty group. In other words, they had entered puberty earlier compared to their counterparts.</p>
<p>Boys from very disadvantaged homes had a four-fold increase in the rate of early puberty, while girls’ risk increased nearly two-fold compared with kids that came from the richest families.</p>
<h2>How could this happen?</h2>
<p>Research on the <a href="http://www.pnas.org/content/109/Supplement_2/17143.full">biology of stress</a> shows how major adversity, like extreme poverty, can permanently set the body’s stress response to high alert, affecting the brain’s circuits. This might, in turn, influence how reproductive hormones are regulated, so affecting the timing and trajectory of puberty.</p>
<p>Another body of research <a href="http://physiologyonline.physiology.org/content/26/6/412.long">suggests</a> the social environment can influence so-called <a href="https://theconversation.com/explainer-what-is-epigenetics-13877">epigenetic changes</a> in our genes. These changes might affect the regulation of genes involved in reproductive development, switching some on or off sooner than usual.</p>
<p>Another <a href="http://psycnet.apa.org/psycinfo/2004-20177-005">theory</a> is that in the <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-8624.1991.tb01558.x/full">face of hardship</a> – for instance, economic disadvantage, harsh physical environment, the absence of a father – children may be programmed to start the reproductive process earlier to ensure their genes are passed on to the next generation.</p>
<p>Yet, we still don’t know exactly how poverty or disadvantage triggers early puberty.</p>
<h2>Why this matters</h2>
<p>What we do know, however, is early puberty is linked with a range of <a href="http://pediatrics.aappublications.org/content/121/Supplement_3/S218">health issues</a>.</p>
<p>For instance, in girls, it’s linked with emotional, behavioural and social problems during adolescence including: depressive disorders, substance disorders, eating disorders and earlier-than-usual displays of sexuality.</p>
<p>Early puberty also affects people’s health far beyond their teenage years. It places them at a <a href="http://www.nature.com/ijo/journal/v37/n8/full/ijo2012177a.html">greater risk</a> of developing obesity, reproductive cancers and cardiometabolic diseases (diabetes, heart disease or stroke) in later life.</p><img src="https://counter.theconversation.com/content/78178/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ying Sun is originally from Anhui Medical University, China.</span></em></p>Shape-shifting bodies. Cracking voices. Hairs sprouting in new places. Why do some children enter puberty early?Ying Sun, Associate Professor and Visiting Academic, Centre for Adolescent Health, Murdoch Children's Research InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/427162015-06-11T11:07:17Z2015-06-11T11:07:17ZFCC plan to turbocharge internet access for the poor may also give jolt to economy<figure><img src="https://images.theconversation.com/files/84592/original/image-20150610-6801-1m4cqj4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Poorer Americans are still connecting to the internet at a snail's pace, even though broadband is widely available. </span> <span class="attribution"><span class="source">Snail broadband via www.shutterstock.com</span></span></figcaption></figure><p>The Federal Communications Commission’s (FCC) recent proposal to expand the current <a href="https://www.fcc.gov/lifeline">Lifeline program</a> – which provides phone service to low-income households – to include broadband access has drawn both <a href="http://www.wired.com/2015/05/helping-poor-pay-broadband-good-us/">praise</a> and <a href="http://thehill.com/policy/technology/overnights/243680-overnight-tech-lifeline-in-the-spotlight">criticism</a>. </p>
<p>Since 1985, the program has helped cover the cost of landline and (20 years later) mobile phone service for low-income households, and is <a href="http://www.gao.gov/products/GAO-15-335">credited</a> with helping cut the telephone penetration gap between low- and high-income households by two-thirds. </p>
<p>But what does the empirical evidence have to say about extending such a program to broadband? Is there a documented need for it? What are the expected economic gains? Will there be increases in low-income Americans’ quality of life, decreases in overall poverty rates or growth in our regional or national economies? </p>
<h2>The widening broadband adoption gap</h2>
<p>In FCC Chairman Tom Wheeler’s <a href="https://www.fcc.gov/blog/lifeline-low-income-americans">blog post on the topic</a>, he noted the large disparity in broadband adoption rates between low-income households that make less than US$25,000 a year and high-income ones that earn more than $100,000. While rates on the high end approach universal adoption at 95%, poorer homes don’t even reach half (47%). </p>
<p>Even more interesting is the fact that this gap has actually widened, by five percentage points, over the past decade, despite low-income adoption rates starting from an abysmally low 7% in 2003 (see chart below). </p>
<p>Since market forces and prior policy efforts have not been successful at reducing this gap over time, there is a clear need for measures to encourage adoption among low-income households. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/84000/original/image-20150604-3368-1mi7av6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The chart shows broadband adoption rates for low-income households (below $25,000) and high-income ones (above $100,000), and the growing gap between them.</span>
<span class="attribution"><span class="source">Current Population Survey Internet Use Supplement (2003, 2012)</span></span>
</figcaption>
</figure>
<p>Some studies have directly pointed to this gap in highlighting the importance of broadband in today’s society, particularly for low-income households. </p>
<p>A 2010 study commissioned by the FCC notes that broadband access <a href="http://webarchive.ssrc.org/broadband_adoption.pdf">is becoming required</a> for social and economic inclusion – and low-income communities know it. Another <a href="http://onlinelibrary.wiley.com/doi/10.2202/1944-2866.1058/abstract">qualitative study</a> found that price was only one factor in what was termed “digital exclusion” of low-income communities. </p>
<h2>More access is good for economic growth</h2>
<p>In terms of the economic impact of such a program, Chairman Wheeler’s notes referenced a 2012 study that estimated broadband helps a typical US consumer save $8,800 per year by providing access to online bargains. </p>
<p><a href="http://www.internetinnovation.org/press-room/broadband-news-press-releases/report-americans-save-8800-annually-thanks-to-internet/">This study</a>, however, is not peer-reviewed and can be thought of as a “best-case” scenario in which a very internet-savvy consumer scours the web for the best deals on products ranging from apartments and cars to food and gas. It is not a very realistic scenario for low-income households that will be relatively new to the internet, particularly since 37% of these households responded that their primary reason for not using the internet at home was “no need.” </p>
<p>What, then, does the peer-reviewed research say about the potential impacts of such a program? </p>
<p>There is little research focused directly on the economic impact of increasing adoption among low-income households. However, we can draw from a wider body of evidence that deals with broadband’s impact on the overall economy. </p>
<p>Importantly, a large body of recent work stresses that it is broadband <em>adoption</em> (and not simply access) that drives many of the positive results. This is in direct contrast to the current federal policy solution of <a href="http://www.dailyyonder.com/broadband-policy-should-focus-adoption/2015/05/13/7838">pushing out</a> infrastructure to underserved areas, at the expense of promoting adoption. </p>
<p>The new Lifeline proposal directly addresses this critique by subsidizing broadband use for a specific demographic with historically low broadband adoption rates. The proposed subsidy of $9.25 per month (roughly <a href="http://www.dailydot.com/politics/us-broadband-speed-cost-infographic/">one-third</a> of a typical broadband bill) should encourage adoption in those households where cost is the primary barrier. </p>
<p>The current Lifeline program, which <a href="http://www.latimes.com/business/la-fi-lifeline-broadband-fcc-20150528-story.html">paid out</a> $1.7 billion in 2014, should not experience any sizable increases in costs since recipients will be limited to one subsidy per household (that is, they will have to choose to subsidize either phone or broadband service).</p>
<p>Here is a sampling of what else the empirical evidence suggests regarding the benefits of increased broadband adoption in the US:</p>
<ul>
<li><p><a href="http://www.brookings.edu/%7E/media/research/files/papers/2007/6/labor-crandall/06labor_crandall.pdf">increases</a> in the number of broadband lines per capita (a measure of adoption) have a strong positive relationship with overall employment, according to a Brookings Institution study</p></li>
<li><p>high levels of broadband adoption (greater than 60%) in rural counties <a href="http://www.sciencedirect.com/science/article/pii/S0308596114000949">are (arguably) causally related</a> to higher income and lower unemployment in those areas</p></li>
<li><p>a statistical process known as regression analysis <a href="http://link.springer.com/article/10.1007/s00168-014-0637-x">shows</a> that there is a positive relationship between broadband adoption rates and the number of firms and jobs in rural counties </p></li>
<li><p>increased internet usage <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6040.2006.00191.x/abstract">is associated</a> with higher levels of community participation </p></li>
<li><p>there is even <a href="http://www.tandfonline.com/doi/abs/10.1080/0144929X.2013.830334">some evidence</a> that rising levels of broadband adoption are related to improvements in self-reported health outcomes within a community. </p></li>
</ul>
<p>Clearly, there are positive economic and social outcomes associated with increasing overall broadband adoption rates. Focusing on low-income households (with historically low adoption levels) is a logical first step for any policy aimed at a general increase in these rates. </p>
<h2>Reasons for skepticism</h2>
<p>There are reasons to be skeptical about the FCC’s proposal. A pilot program initiative consisting of 14 projects that ran from 2012 to 2014 <a href="http://www.gao.gov/products/GAO-15-335">succeeded</a> in signing up only about one-tenth of the anticipated customers during its run. </p>
<p>A summary of the <a href="http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0522/DA-15-624A1.pdf">lessons learned</a> from this and other projects suggests that there was little interest in offers of digital literacy training and that some of the enrolled recipients lost service during the course of the project due to an inability to pay the (reduced) costs. </p>
<p>These are causes for concern in a program focused on encouraging large numbers of customers to productively use broadband. </p>
<h2>Step in the right direction</h2>
<p>Nonetheless, the Lifeline program deserves credit for being forward-looking. In its original form, it recognized the prevalence of cell-phone use at a relatively early stage, and allowed for prepaid wireless services to be included in the program after 2005. As a result, program disbursements shifted from 82% landline in 2008 to 85% wireless by 2014. </p>
<p>The transition to broadband is a natural further step. The National Broadband Map <a href="http://www.broadbandmap.gov/download/Broadband%20Availability%20in%20Rural%20vs%20Urban%20Areas.pdf">tells</a> us that 99.9% and 95.8% of urban and rural America, respectively, have access to broadband with download speeds of at least 6 megabits per second (Mbps) and upload rates of 1.5 Mbps. </p>
<p>However, some groups (including low-income households) continue to lag behind in terms of adopting and effectively using this technology. The existing literature tells us that there are significant benefits associated with increased broadband adoption rates. Building upon a recognized, successful federal program to subsidize connections should be seen as a step in the right direction for US broadband policy.</p><img src="https://counter.theconversation.com/content/42716/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian Whitacre has received funding from the US Department of Agriculture Rural Utilities Service, the US Department of Health and Human Services, the Oklahoma Department of Environmental Quality, and the National Agricultural and Rural Development Policy (NARDeP) Center.</span></em></p>Research suggests that helping low-income households access the internet with broadband connections could bolster job and economic growth.Brian Whitacre, Associate Professor and Extension Economist, Oklahoma State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/392812015-04-23T09:58:09Z2015-04-23T09:58:09ZWhy do poor children perform more poorly than rich ones?<figure><img src="https://images.theconversation.com/files/77024/original/image-20150403-9332-kvo5kj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Investments like reading to a child can make a big difference to how she performs later in life. </span> <span class="attribution"><span class="source">Reading a book from www.shutterstock.com</span></span></figcaption></figure><p><a href="http://www.jstor.org/stable/10.1086/262080">Research</a> has shown that children of poorer parents display substantially worse math and reading skills by the time they start grade school. Other <a href="http://onlinelibrary.wiley.com/doi/10.1111/1468-0297.00075/abstract">studies</a> have revealed that these wide gaps in pre-school skills persist into adulthood and help <a href="http://jenni.uchicago.edu/papers/Cunha_Heckman_etal_2006_HEE_v1_ch12.pdf">explain</a> low educational attainment and lifetime earnings. </p>
<p>Put together, these findings paint a bleak picture of how the fates of generations of poor children are largely sealed before they even set foot in a classroom, suggesting the current K-12 school system is ineffective as a springboard for opportunity. </p>
<p>So if we want a society that is meritocratic, we need to answer a fundamental and vexing question: why do less well-off children perform so poorly? Once we get a better sense of the answer, we can begin to understand how to improve mobility from generation to generation and craft appropriate economic and social policies to close the yawning income-related gap in ability. </p>
<h2>A rich investment</h2>
<p>These income-based achievement gaps are at least partially caused by substantial differences in how much rich and poor parents invest in their children. For example, parents of very young children among the top 25% of earners are more than twice as likely to have at least ten books in the home than those from the bottom quartile. Wealthier mothers are also more than 50% more likely to read to their child three or more times a week. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=376&fit=crop&dpr=1 600w, https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=376&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=376&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/78805/original/image-20150421-9012-baxrck.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">TKTK</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In addition, children aged 6 to 7 from richer families are more than twice as likely to be enrolled in special lessons or extracurricular activities compared with their lower-income counterparts.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=479&fit=crop&dpr=1 600w, https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=479&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=479&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/78807/original/image-20150421-9012-1hl4gp5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">tktktk</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>That leads us to the next question: why do rich and poor parents invest so differently in their children? </p>
<h2>Career investment</h2>
<p>One important reason parents invest so much time and money in their children’s development is to improve their career prospects when they grow up. </p>
<p><a href="http://www.jstor.org/stable/2534952?seq=1#page_scan_tab_contents">Economic theory</a> tells us that if this were the only reason families invested in their children (and all parents had sufficient access to borrowing), then all families would invest time and money up to the point where the labor market returns to the last dollar of investment equals what the family could earn from putting that same dollar in the bank. </p>
<p>Put simply, they’d invest in their kids until stashing cash in a savings account offered the same return. </p>
<p>This does not necessarily mean that all families should invest the same amount in their children, as not all children earn the same labor market return from the same investment. Indeed, children with higher ability have higher marginal returns at every level of investment. So, it takes more investment in them before the return on this additional investment equals the gains from savings.</p>
<p>This suggests one potential reason children from higher-income families receive greater investments and perform better academically: the natural ability of children and parents may be positively correlated. Higher-ability parents will tend to earn more and have more able children leading to a positive correlation between parental income and child investments and achievement. </p>
<p>The fact that these investment and achievement gaps shrink considerably when accounting for differences in maternal ability and education suggests that this is likely an important part of the story. However, the fact that significant gaps remain even after accounting for these characteristics suggests that other factors are also likely to be important.</p>
<h2>The joy of reading to a child</h2>
<p>First, parents may care about more than their children’s future careers. Parents may simply take pleasure in reading stories to their children or watching them learn to play a new musical instrument. They might enjoy bragging to their friends about their children’s success in school. In other words, if investments in children provide a direct benefit above and beyond the future labor market returns, parents will choose to invest more as their income rises – just as they tend to purchase more of other goods or services as their earnings increase. </p>
<p>Another explanation for the difference is that low-income parents may be poorly informed about the value of investment activities. They may face uncertainty about (or under-estimate) the value of investing in their children. </p>
<p>A third possibility is that poor parents may be unable to finance desired investments if they cannot borrow fully against their own future income or against the potentially high returns earned by their children.</p>
<p>While all of these possibilities might explain why richer parents invest more in their children than their poorer peers, it is important to understand which ones actually do, because they have very different policy implications. </p>
<p>If parents are investing in their children up until the return is the same as saving elsewhere, then there is no way to shift spending to increase future income, and the investment level is efficient. On the other hand, if they are investing too little in their children, so that the labor market returns are higher than saving elsewhere, the investment level is inefficient. In this case, policies that shift spending to education investment for these children increase future income. </p>
<p>If investment gaps result only from a strong correlation between the abilities of parents and children and/or the pure pleasure gained from activities like reading to a child, policies designed to reduce the income-related gap may be equitable but inefficient (that is, they may reduce overall US output). </p>
<p>By contrast, if low-income families are poorly informed or constrained in their capacity to borrow, then they may make inefficiently low investments in their children. In this case, well-designed policies can improve both equity and efficiency. </p>
<h2>Finding the right policy response</h2>
<p>In order to help sort this out, University of Western Ontario colleagues Lance Lochner, Youngmin Park and I <a href="http://economics.uwo.ca/cibc/workingpapers_docs/wp2015/Caucutt_Lochner_Park03.pdf">examined</a> the extent to which these explanations are consistent with other important empirical findings in the child development literature. We started with four facts: </p>
<ul>
<li><p>fact 1: the return to additional investment for poor children is high relative to the return on savings</p></li>
<li><p>fact 2: the return to additional investment is lower for higher-income children</p></li>
<li><p>fact 3: unexpected increases in family income lead to greater investments in children and improved childhood achievement</p></li>
<li><p>fact 4: income received when a child is young has a greater impact on achievement and educational attainment than income received when the child is older.</p></li>
</ul>
<p>Our research showed that to explain the high returns to additional investment among the poor (fact 1), information or credit market failures are needed. Absent these market frictions, families will invest until the returns are driven down to or below the returns on savings. </p>
<p>The timing of income is only important (fact 4) if some parents are constrained in their borrowing. Otherwise, families can always use borrowing and saving to spend money when they want regardless of when it is received. </p>
<p>If parents with young children are poorly informed about the value of investments and/or face limited borrowing opportunities, then policies designed to alleviate these market failures can improve efficiency while also improving the economic outcomes for those who are most disadvantaged. </p>
<h2>What might these policies look like?</h2>
<p>Governments can step in to directly provide credit for early child investments like they do for college students. One recent example is New York City’s pilot program, <a href="http://council.nyc.gov/html/pr/080513childcare.shtml">Middle Class Child Care Loan Initiative</a>, which provides low interest loans to middle-income families with small children to help pay for quality childcare programs. Means-tested subsidies for preschool can also help address borrowing problems. </p>
<p>Programs that help inform low-income parents about the value of talking and reading to their young children or the benefits of attending a quality preschool are steps towards confronting information problems.</p>
<p>By ensuring poorer families have access to financial resources and information about how important it is to make even modest and inexpensive investments in their children like a bedtime story, we can go a long way to shrinking this investment gap.</p><img src="https://counter.theconversation.com/content/39281/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Elizabeth Caucutt receives funding from CIGI-INET.</span></em></p>Investment gaps may be key to understanding why poorer children perform so much worse throughout life.Elizabeth Caucutt, Associate Professor of Economics, Western UniversityLicensed as Creative Commons – attribution, no derivatives.