New research shows that certain types of debt that parents take on may have adverse effects on children’s socioemotional well-being.
According to the study, which was published in the journal Pediatrics, children who had parents with higher levels of home mortgage and student debt had a greater socioemotional well-being with fewer behavioral problems than children whose parents have less mortgage and student loan debt.
The findings suggest that children benefit from an environment in which their parents own a home and/or have higher levels of education, according to researchers.
The study also found that children with parents who had either higher levels of or increases in unsecured debt — such as credit card debt, medical debt, and payday loans — were likely to experience poorer socioemotional well-being.
High levels of unsecured debt may create stress or anxiety for parents, which may hinder their ability to exhibit good parenting behaviors, and subsequently affect the well-being of their children, according to Lawrence M. Berger, director of the Institute for Research on Poverty and professor and doctoral program chair in the School of Social Work at the University of Wisconsin-Madison, and Jason N. Houle, an assistant professor of sociology at Dartmouth College.
“It makes intuitive sense that debt that can help you improve your social status in life and make investments — taking on student loans to go to college or taking on a mortgage to buy a home — might lead to better outcomes, while taking on debt that is not tied to these investments, such as credit card debt, may be more harmful,” said Jason N. Houle, an assistant professor of sociology at Dartmouth. “That is indeed what we find.
“Overall, our findings support the narrative that debt is a ‘double-edged sword,’ as my colleague at Ohio State University, Rachel Dwyer, puts it,” he continued. “Debt can bridge the gap between your family’s immediate economic resources and the costs of goods and therefore can be a valuable resource, but at the end of the day, it has to be repaid with interest and sometimes with a great deal of interest when it comes to unsecured debt.”
Based on data from the National Longitudinal Study of Youth 1979 and Children of the NLSY-79, researchers studied more than 9,000 children between the ages of five and 14 and their mothers annually or biennially from 1986 to 2008.
To measure the socioemotional well-being of children, the researchers looked at a child’s total score on the Behavioral Problems Index (BPI), a set of 28 questions to mothers that looks at the frequency and severity of behavior for children ages four and over.
The study then measured the total personal debt that a parent may have that was not incurred from having a business, including: Home debt (mortgage or home equity loans); education debt; auto debt; and unsecured debt, such as credit card debt, medical debt, payday loans, and other types of debt not tied to an asset.
According to the researchers, a strength of the study is that it compares the same families over time, and examines how children’s behavioral problems change as their parents plunge into and out of debt over the course of their childhood, rather than comparing different families that have varying levels of debt at a single point in time.
“Most of the time in the social sciences, for a question like this, we’ll use survey data and statistical analyses to make comparisons,” Houle noted. “If we’re interested in how debt is linked to child well-being, we’ll compare children in families that have lots of debt, to families that have less debt.
“If children in those families that have lots of debt are doing worse than the kids in the families with less debt, we might say that debt could be an explanation why. A problem with this traditional analysis is that we’re comparing different families (what we would call a ‘between-family’ comparison), and families are different for lots of reasons — correlation is not causation, as they say.
“What we do in this study is a bit different,” he explained. “We follow the same families over time and essentially ask: What happens to children in families as their parents take on or discharge debt over time? Thus, we’re fundamentally making a ‘within-family’ comparison.
“Instead of comparing different families to one another, we’re comparing families to themselves over time. This is by no means a perfect solution to the ‘correlation is not causation’ problem, but it can make for a more compelling case and suggests that if a family takes on a great deal of unsecured debt, their children may feel the consequences of that debt.”
The study found that:
- Children whose parents have any debt on average had greater socioemotional well-being with fewer behavioral problems;
- Children whose parents have unsecured debt had more behavior problems than those with any unsecured debt.
- Parents with any unsecured debt in the study owed an average total of $10,000 in unsecured debt and had greater levels of total, education, and auto debt, but less home debt than those with no unsecured debt, indicating that more advantaged individuals were likely to take on more debt given that they had greater access to credit.
- If parents had $5,000 in unsecured debt and that figure was to be increased to the average in the sample of $10,000 in unsecured debt, this results in an increase in child behavior problem.
“I think it is common to assume that those who are struggling with debt are those who have made poor financial decisions or are irresponsible, but the research shows that the reality is quite different,” said Houle.
“For those who are taking on a lot of credit card debt, or are buried in medical debt, or have payday loans — for many, it’s the only choice they have. In an era where wages have stagnated and costs have risen but credit has become more readily available (due in large part to financial deregulatory policies at the state and federal level over the past three decades), families are going into debt to help make ends meet and keep their head above water.
“Fundamentally, if we’re worried about the positives and negatives of debt, we should ask: How all of this credit became available in the first place; and why families are borrowing,” he continued.
“However, at a more immediate level, if some forms of debt are stressful for families and their children, we might ask how we can alleviate some of that stress. While it is beyond the scope of this study, others have pointed towards financial counseling or financial education as potential short-term solutions. In the confines of a pediatrician’s office, a referral to one of these services may help in the short-term, but it doesn’t solve the larger, structural issues.”