Short-term Financial Stress and Student Performance
About this Session
Time
Thu. 16.04. 15:55
Room
Lobby
Speaker
by Lucas Bütje
Students from lower socioeconomic status (SES) families consistently underperform their high-SES peers (e.g. Hanushek, Peterson, Talpey, and Woessmann, 2019; Skopek and Passaretta, 2021). This project investigates the role of short-term financial stress in explaining the socioeconomic achievement gap in Germany. For the US, short-term material hardship due to scarcity of Supplemental Nutrition Assistance Program (SNAP) benefits has been shown to negatively affect student outcomes (Bond, Carr, Packham, & Smith, 2021). I explore whether these findings generalize along two dimensions: First, to a country like Germany, where a more comprehensive social safety net may buffer families against such fluctuations. Second, to more general financial stress that goes beyond stress linked to specific in-kind transfers. Based on the payment schedules of wages and transfers in Germany, I hypothesize that lowincome families are liquidity-constrained at the end of the month, while high-income families can smooth consumption. This could increase the gap in student performance between lowand high-SES families at the end of the month. Drawing on four cohorts of the National Educational Panel Study, I leverage quasi-random variation in the intra-month timing of interviews and cognitive tests within a fixed effects framework. The quasi-randomness is supported by balance tests on a wide range of student and family characteristics. My analysis yields two main findings: First, I find evidence consistent with the hypothesis that parents experience liquidity constraints at the end of the month. Contrary to the initial hypothesis, this effect is not restricted to low-SES families, but is also observable in higher-SES families. On average, parents are approximately 0.04 standard deviations less satisfied with their standard of living during the last week of the month. Conversely, I find no statistically significant change in satisfaction for adults without children. Second, an investigation of the impact on children’s outcomes reveals no statistically significant average effect. However, the analysis has limited statistical power, resulting in wide confidence intervals that contain the effect sizes reported in the US literature. Therefore, the results should be interpreted as inconclusive rather than precise zeros. Furthermore, there is suggestive evidence of heterogeneity: in line with my initial hypothesis, the effect for children from low-SES backgrounds is statistically significant in some cognitive tests. The magnitude of these effects is comparable to findings in the US literature. The project’s next steps to address the statistical imprecision include a formal power analysis and exploring additional datasets to complement my analysis.
Students from lower socioeconomic status (SES) families consistently underperform their high-SES peers (e.g. Hanushek, Peterson, Talpey, and Woessmann, 2019; Skopek and Passaretta, 2021). This project investigates the role of short-term financial stress in explaining the socioeconomic achievement gap in Germany. For the US, short-term material hardship due to scarcity of Supplemental Nutrition Assistance Program (SNAP) benefits has been shown to negatively affect student outcomes (Bond, Carr, Packham, & Smith, 2021). I explore whether these findings generalize along two dimensions: First, to a country like Germany, where a more comprehensive social safety net may buffer families against such fluctuations. Second, to more general financial stress that goes beyond stress linked to specific in-kind transfers. Based on the payment schedules of wages and transfers in Germany, I hypothesize that lowincome families are liquidity-constrained at the end of the month, while high-income families can smooth consumption. This could increase the gap in student performance between lowand high-SES families at the end of the month. Drawing on four cohorts of the National Educational Panel Study, I leverage quasi-random variation in the intra-month timing of interviews and cognitive tests within a fixed effects framework. The quasi-randomness is supported by balance tests on a wide range of student and family characteristics. My analysis yields two main findings: First, I find evidence consistent with the hypothesis that parents experience liquidity constraints at the end of the month. Contrary to the initial hypothesis, this effect is not restricted to low-SES families, but is also observable in higher-SES families. On average, parents are approximately 0.04 standard deviations less satisfied with their standard of living during the last week of the month. Conversely, I find no statistically significant change in satisfaction for adults without children. Second, an investigation of the impact on children’s outcomes reveals no statistically significant average effect. However, the analysis has limited statistical power, resulting in wide confidence intervals that contain the effect sizes reported in the US literature. Therefore, the results should be interpreted as inconclusive rather than precise zeros. Furthermore, there is suggestive evidence of heterogeneity: in line with my initial hypothesis, the effect for children from low-SES backgrounds is statistically significant in some cognitive tests. The magnitude of these effects is comparable to findings in the US literature. The project’s next steps to address the statistical imprecision include a formal power analysis and exploring additional datasets to complement my analysis.