Cost of Living Relates to Child Development

As everyone knows, it costs a lot more to live in some places in the United States than others. New findings indicate that these cost of living differences have implications for the well-being of young children in families with lower incomes.

A new analysis using data from the Early Childhood Longitudinal Studies-Kindergarten Cohort (ECLS-K), a nationally-representative sample of children entering kindergarten in 1998, found that the local cost of living is correlated with child development outcomes.[i]  Higher cost of living was related to lower academic achievement in first grade, even after controlling for family income and a comprehensive set of social and demographic variables.  This effect was found only for families with incomes below 300% of the federal poverty threshold (i.e., below $66,339 for a family of four). It may be that families with higher incomes are not as sensitive to geographic variations in cost of living.

Basic expenses for necessities such as housing and child care vary dramatically across locales. For example, rent for a typical two-bedroom apartment in the Washington, DC, area is $1,324 a month, compared with $555 for a similar apartment in Casper, Wyoming (2007 Basic Family Budgets, Economic Policy Institute). Likewise, costs for child care for a two-parent, two-child household typically run $1,512 a month in DC, and $683 in Casper. Family income also varies across regions, but not as much as costs vary: the median income in Washington, DC, is $40,342, compared with $29,506 in Wyoming (Mapping the Measure of America). The minimum wage in Washington DC is $8.25, compared with $7.25 in Wyoming (U.S. Department of Labor).  Thus, while in this example wages/incomes are about 15-30 percent higher in DC than in Wyoming, major cost-of-living drivers are more than double.

Why might living in a higher-cost area have negative consequences for child development? Because parents living in such areas have to spend more on basic needs, such as housing and child care, they may have less financial resources left over to make other “investments” in their children’s development (e.g., to buy books, enroll children in extracurricular activities, buy a home computer). Indeed, we found that, for families living below the poverty threshold, a higher cost of living (independent of family income) was related to lower levels of parental “investments” in these types of activities. In spite of big differences by geographic location in a family’s expenses on basic needs like housing and child care, the official federal poverty threshold is applied uniformly across the nation. The federal poverty guidelines (somewhat different from, but based on, the threshold methodology) are used by 85 government programs serving over 22 million people yearly to determine eligibility for receiving assistance.

A new measure  of poverty  released by the Census Bureau on Monday, the Supplemental Poverty Measure (SPM), takes strides towards improvement by making geographic adjustments to the poverty threshold. However, because the old measure will still be used in determining eligibility for government programs, some families and children who have exceptional cost burdens because of their living in higher-cost areas will continue to be ineligible for assistance, because their incomes are marginally too high. Although eligibility for some government assistance programs, such as child care subsidies and Temporary Assistance for Needy Families (TANF), does vary by state, many families living in high-cost areas are struggling to make ends meet, yet have incomes too high to qualify for assistance. This is all the more troublesome in light of these study findings showing that children in these families may suffer negative consequences.