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

Author

Listed:
  • Guilherme Lichand
  • Eric Bettinger
  • Nina Cunha
  • Ricardo Madeira

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.

Suggested Citation

  • Guilherme Lichand & Eric Bettinger & Nina Cunha & Ricardo Madeira, 2020. "The psychological effects of poverty on investments in children’s human capital," ECON - Working Papers 349, Department of Economics - University of Zurich, revised Apr 2021.
    • Handle: RePEc:zur:econwp:349
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    File URL: https://www.zora.uzh.ch/id/eprint/189746/7/econwp349.pdf
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    Cited by:

    1. Maulik Jagnani & Claire Duquennois, 2023. "Financial concerns and sleeplessness," French Stata Users' Group Meetings 2023 09, Stata Users Group.
    2. Gustav Agneman & Paolo Falco & Exaud Joel & Onesmo Selejio, 2020. "Does Scarcity Reduce Cooperation? Experimental Evidence from Rural Tanzania," DERG working paper series 20-04, University of Copenhagen. Department of Economics. Development Economics Research Group (DERG).

    More about this item

    Keywords

    Psychology of poverty; attention misallocation;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education

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