The Effect of Financial Hardship on Children’s Cognitive Function

Abstract

Poor individuals appear to make worse decisions than rich individuals. This relationship seems to develop during childhood, becoming exacerbated overtime. Though it was long believed low-income individuals were simply less competent, recent work has come to show that monetary scarcity comes with a psychology of its own. A causal link between poverty and cognitive function has been established in adults; however, it remains unknown whether this effect can be seen in children. I hypothesize that poverty does indeed directly impede cognitive function in children, and present here a study that tests this hypothesis. In a laboratory experiment with low-income youth from Princeton, New Jersey, I first randomly assigned subjects to a neutral or financial condition. Subsequently, I experimentally induced neutral or financial thoughts, with participants performing cognitive tasks afterwards. Contrary to what was hypothesized, I found that experimentally induced non-financial thoughts reduced cognitive performance among participants, as compared to financial thoughts. I suggest that this is because, here, the neutral concerns consumed more mental resources than expected, leaving less for other tasks. These data provide a preliminary, unexamined perspective and help provide direction for future research in the field. I discuss some implications for poverty policy as well. Keywords: children, poverty, cognitive function