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What Are the Economic Costs of Child Poverty?
While the United States has a recent history of decreasing child poverty, significant child poverty remains. Even before the COVID-19 pandemic, one in seven children were classified as being in poverty. The economic effects of the pandemic threatened to exacerbate that problem as families with children faced unemployment, food insecurity, and other hardships. The implications for children are notable because evidence suggests that childhood poverty not only has long-lasting effects on health and education, but also quantifiable economic costs.
In 2018, a study by Michael McLaughlin and Mark R. Rank of Washington University in St. Louis quantified the economic cost of child poverty. Among the results of the study, the researchers point out that child poverty is higher in the United States than in many other developed countries.
To measure the economic impact of child poverty, the scholars quantified the costs of lower economic productivity, higher healthcare costs, and costs associated with crime, homelessness, and child maltreatment. The authors acknowledge that other important costs exist — such as emotional harm to children — but they are not easily quantifiable.
The largest economic cost of child poverty is the reduced future earning potential of children born into poverty. For adults who experienced poverty during childhood, earnings were reduced by a total of $294 billion in 2015. The next largest costs are related to street crime and poor health. In all, child poverty reduced the size of the economy by an estimated $1 trillion dollars, or 5.4 percent of gross domestic product, in 2015.
Researchers measured the economic cost of child poverty in seven areas:
| Type of Cost | Economic Cost (Billions of Dollars) |
|---|---|
| Reduced Earnings | $294 |
| Increased victimization costs of street crime | 201 |
| Increased health costs | 192 |
| Increased corrections and crime deterrence costs | 123 |
| Increased child homelessness costs | 97 |
| Increased social costs of incarceration | 83 |
| Increased child maltreatment costs | 41 |
| Total | 1,030 |
SOURCE: Michael McLaughlin and Mark R. Rank, Estimating the Economic Cost of Childhood Poverty in the United States, March 2018.
NOTE: Components may not sum to total due to rounding.
© 2021 Peter G. Peterson Foundation
Child poverty remains a significant structural challenge in America and was exacerbated by the pandemic. Census data suggests that overall poverty rates increased during the pandemic, despite legislation passed to mitigate its impact. Though that legislation included a number of elements that help children, including stimulus checks, enhanced Earned Income and Child Tax Credits, and increased benefits for the Supplemental Nutrition Assistance Program, parents were disproportionately impacted by the pandemic, and increases in child poverty have been particularly acute.
In 2020, child poverty increased; however, the narrative changed in 2021 as the nation exited the pandemic-ridden year. Child poverty fell by 4.5 percentage points, from 9.7 percent in 2020 to 5.2 percent in 2021. This is the lowest the child Supplemental Poverty Measure (SPM) rate has ever been and reflects a sentiment of hope about future improvements in the child poverty rate.
In the longer term, a better understanding of the economic effects of child poverty can help policymakers make informed decisions about the most efficient use of federal dollars for anti-poverty programs and initiatives.
Related: How Much Government Spending Goes to Children?
Image credit: Photo by Spencer Platt/Getty Images