In 2011, more than one in five or 16 million children in the U.S. lived in a poor family (U.S. Census Bureau, 2012). In this same year, the federal government spent approximately $65 billion in cash tax transfers to families with children and an additional $40 billion in near cash and welfare benefits (Issacs et al., 2012). Are these cash supports an effective two-generation strategy for promoting child wellbeing? Are they a good investment?

Poor children begin school well behind their more affluent age mates academically and lose ground during the school years.  Children from poor families are also rated by their teachers as less well behaved, exhibit higher levels of antisocial behavior, and go on to complete less schooling, work less and earn less (Duncan, Ziol-Guest and Kalil, 2010). Growing up in poverty is associated with a variety of worse health outcomes as well and evidence suggests that economic disparities in general health tend to grow from early childhood through adolescence (Case et al., 2008).  

Poverty is associated with a cluster of disadvantages that may be detrimental to children, including low levels of parental education and living with a single parent. This paper will review existing literature to understand whether children would be helped by a policy that increased family incomes, but did nothing else.  Its aim is to distinguish the effects of family income from the influences of other sources of disadvantage. In the last 10 years, there have been numerous rigorous studies published that provide a strong empirical base from which to draw conclusions, and thus make this new review important and timely.

Our review not only pays careful attention to issues of causality, which are of paramount importance, but we also attend to the timing of economic deprivation.  Almost universally neglected in the poverty impacts literature is careful thought about the timing of economic hardship across childhood and adolescence. Emerging research in neuroscience and developmental psychology suggests that poverty early in a child’s life may be particularly harmful (Kishyama et al. 2009; Knudsen et al. 2007). Not only does the astonishingly rapid development of young children’s brains leave them sensitive (and vulnerable) to environmental conditions, but the family context (as opposed to schools or peers) dominates young children’s everyday lives. The review will includes several very recent studies using new data sources that include both poverty measures throughout childhood and as early as the prenatal year as well as adult economic outcomes measured in the fourth decade of life. These new studies provide critical evidence about the importance of the timing of economic deprivation.

This paper will speak directly to policy issues by answering key policy questions such as: does boosting income through policies such as the Earned Income Tax Credit, Food Stamps or the Child Tax Credit likely lead to better child outcomes? Finally, by weighing the magnitude of the benefits relative to the costs, the paper will consider whether income support programs for parents might constitute efficacious two-generation policies.