The Consequences of Income Instability for Children’s Well-Being (2024)

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Child Dev Perspect. Author manuscript; available in PMC 2020 Oct 9.

Published in final edited form as:

Child Dev Perspect. 2013 Jun; 7(2): 85–90.

Published online 2013 Jan 17. doi:10.1111/cdep.12018

PMCID: PMC7546433

NIHMSID: NIHMS1055722

PMID: 33042213

Heather D. Hill,¹ Pamela Morris,² Lisa A. Gennetian,³ Sharon Wolf,² and Carly Tubbs²

Abstract

Income instability is an important and under-studied dimension of the established empirical relation between family income and children’s healthy development. Frequent fluctuations in income may influence daily processes and routines of family life, but the nature of such effects also may vary by specific patterns of income instability, parents’ responses, and children’s characteristics. In this article, we review existing theory and research on income, family functioning, and child development to better understand the potential implications of income instability for children’s development. We also integrate theoretical insights from developmental psychology, economics, sociology, and social neuroscience to propose a set of testable hypotheses for social science investigations on this topic.

Keywords: income instability, stress, household chaos

Families’ economic resources strongly influence children’s developmental trajectories. In the developed and developing world alike, children in low-income homes consistently fare less well on measures of cognitive, social-emotional, and physical development than children in higher income homes (for a review, see ). We know that family income level often varies across childhood and is most influential in shaping children’s outcomes early in life (e.g., ; ). Much less is known about how regular or repeated patterns of changes in income affect family processes and children’s development.

Income instability is likely to interfere with healthy development, particularly if parents do not have the economic or psychological resources to maintain parenting practices and consistent spending on goods that promote children’s well-being. However, instability could be more or less detrimental, depending on the family’s income level and the trend of that income over time, the events leading to the income changes and whether parents expected or intended for those events to happen, and the child’s age, salient developmental tasks, and innate sensitivity to change. These challenging empirical questions have not been addressed by researchers studying income level and children. In this article, we combine insights from developmental psychology, economics, sociology, and social neuroscience to begin developing a conceptual framework and a set of testable hypotheses related to income instability and child development.

THE STATE OF RESEARCH ON INCOME AND CHILDREN

High-income children consistently do better than their low-income peers across developmental domains (for a review, see Gennetian et al., 2010).^¹ These studies typically conceptualize family income as a static state measured annually or averaged across multiple years, or they examine income “shocks” between two time points (e.g., Elder, 1974; Votruba-Drzal, 2003). Only a few studies examine income or poverty-status instability as it relates to family and child outcomes (e.g., ; ; ). This disparity reflects both the scarcity of data that allow us to examine change over time and the difficulty of defining and operationalizing the concept of instability.

Average and point-in-time income measures mask substantial and distinct patterns of income variability over time. The concept of instability suggests multiple, substantial changes in monthly or yearly income (more than a single change in level). To distinguish the effects of income instability and income level, it makes sense to compare families with stable and unstable income at similar average income levels. Our research suggests that income instability happens to families across the income distribution, but is more common and consequential in low-income families.^² Instability around the poverty line is worth examining (because it relates to eligibility for public assistance), but more important is whether the fluctuations are meaningful or substantive to the family (an empirical question we discuss later in more detail).

Income instability’s relation to change in other aspects of family life is likely to be complex and multidirectional. Changes in family composition and parents’ employment, for example, may affect outcomes for children partly through how they affect a family’s economic situation. If unmeasured, these precipitating events could bias estimates of the effect of income instability on children. The effects of income on family processes might also be moderated by specific precipitating events. For instance, income fluctuations caused by seasonal work might be less detrimental than those caused by unexpected cuts in work hours. Although not a source of bias, this type of heterogeneity is worth understanding. Finally, income instability may precipitate change in important contexts of child development, such as where children live and go to school.

Despite these complex interrelationships, decades of research on income level and children suggest that we should examine income instability separately as a dimension of family economic context.^³ Income instability also warrants separate attention because policy makers are more likely to intervene with income support than in other facets of family life.

BUILDING A MORE DYNAMIC FRAMEWORK

The Starting Point: Theories of Income Level and Child Development

Two theoretical paradigms explain how families’ income level affects children’s well-being: the economic investment model and the psychological stress model. Both take the position that economic contexts indirectly influence children’s outcomes by shaping family practices, processes, and relationships. From an economic perspective, parents who have consistently low incomes may be less able to invest in resources that promote healthy development, including nutritious food and cognitively stimulating materials (; Coleman, 1988; Mayer, 1997). Developmental psychologists and sociologists have focused on economic hardships as a cause of parents’ stress, which decreases the quality of parenting and places children at risk for social-emotional and behavioral difficulties (e.g., ; ). Empirical evidence supports both theories and further suggests that investments and stress are, respectively, more salient for cognitive and social-emotional development ().

Harnessing Multidisciplinary Insights: Instability and Child Development

We do not yet know how these key pathways of parental investment and stress operate differently in the context of stable versus volatile income environments. Families with stable low incomes may have consistent access to child care, health insurance, and other government supports, whereas families with fluctuating incomes may move in and out of eligibility for these programs. Also, family routines and the quality of parental and nonparental care may be shaped by income change. Families with stable incomes are likely to invest in their children at consistently high or low levels, whereas families with unstable incomes may face greater uncertainty and invest intermittently. The effects of instability could also depend on a family’s income trend over time and whether parents feel optimistic about their economic future.

To inform research in this area, we draw on a number of relevant theoretical insights from developmental psychology, family sociology, and social neuroscience.

Income Instability May Contribute to Household Chaos or Family Instability

Two general notions of instability have emerged from developmental psychology and family sociology: household chaos and family instability (; ). Both are probably linked to income instability, perhaps more so than income level. Chaotic home environments have overstimulating physical (e.g., noise and overcrowding) and psychosocial (e.g., divorce and parental job loss) characteristics, which disrupt children’s development by reducing the quantity and quality of time parents spend with their children and the regularity of household routines (). Greater chaos is associated with decreased responsiveness and efficacy on the part of parents (), as well as declines in children’s competency and self-regulation ().

Some aspects of household chaos are similar to the broad notion of family instability, defined as “an aggregate of several kinds of events that challenge daily continuity and cohesiveness of family life for a child” (Ackerman et al., 1999, p. 258). Studies of family instability, which focus on some combination of changes in parents’ relationship status, residence, and schools, have found associations between such changes and more stress and less regular sleep for parents and less school engagement and more social-emotional problems for young people (e.g., ; ).

Income instability is sometimes conceived of as a type of household chaos, or as a mechanism by which family instability affects family life. Importantly, multiple income changes could also cause many of the changes captured in chaos or family instability measures. For example, families experiencing income instability may change residences more than those that are persistently low income.

Income Instability May Disrupt Proximal Processes

Bioecological systems theory asserts that development occurs through engagement in repeated and increasingly complex interactions with individuals and objects, known as proximal processes. To promote healthy development, proximal processes must occur frequently and regularly (). These interactions might be interrupted if income instability alters parents’ warmth or supervision or if it disrupts daily routines. If parents are repeatedly challenged to manage family finances, interact with bureaucratic systems, or make difficult decisions about spending on their children, they may feel more stressed and have less energy to consistently interact with and supervise their children. In such environments, children may be less likely to develop strategies to effectively regulate their emotions (). Parents with stable, but low income may experience some of these challenges, but they are more likely to adapt and develop coping strategies as long as their income level is predictable.

Income Instability May Alter the Body’s Stress Response System

An environment that impedes adaptation because it is changing too regularly or rapidly may present the greatest challenges to physiological systems (). With repeated exposure to stressful conditions (such as a constantly changing economic environment), the body adopts physiological changes (Ganzel et al., 2010) that do not revert back when the challenge is over (). These changes, although “readying” the body to confront the stressor the next time it appears, have long-term physiological costs (in the form of allostatic load; ). Animal research provides examples of how unpredictability can lead to stress: Pigeons initially fed on a fixed schedule were able to adapt positively to a later change in feeding schedule, but pigeons fed on a variable schedule adapted to a fixed schedule with erratic or negatively accelerating patterns (Zeiler, 1968; see also examples among monkeys, ). In allostatic terms, each income change may be a stressor to which the body must physiologically adapt both central systems of allostatic accommodation (in areas of the brain that process emotional information) and related peripheral systems (e.g., HPA-axis activity or immune system function).

Income Instability May Interact With Developmental Transitions and Child Characteristics

Life course theories suggest that the effects of income instability are likely to differ by their timing in the developmental process. Moreover, mediating and moderating factors (such as the investment and stress processes described earlier) may vary in importance across different developmental periods (Elder, 1997). For instance, early childhood is a critical period when children learn to master certain tasks (e.g., establishing secure attachments) that provide a critical foundation for development (). An unpredictable family climate puts young children at risk for developmental delays in mastering such tasks (). Children may also be particularly vulnerable to income instability when it occurs during key transition periods (). For instance, experiencing repeated income changes during puberty or the transition to high school may put adolescents at greater risk.

Children’s characteristics, including gender and temperament, are also likely to interact with the family context to produce heterogeneity in outcomes. A child’s response to stress can affect a caregiver’s reactions and, in turn, how the situation influences development (Rutter, 1987). This hypothesis is consistent with the finding that boys, less adaptable children, and children with more behavior problems are more vulnerable to family structure instability (Ackerman et al., 1999). Alternatively, some children may be genetically more susceptible than others to both positive and negative environmental conditions ().

RESEARCH QUESTIONS AND HYPOTHESES

These theoretical insights suggest several questions for research:

Question 1: Do Income Level and Stability Have Distinct Effects?

In any given time period, family income level may mask varying patterns of income change. Studies of how aggregate or average income affects child development make strong assumptions about families finding ways to spend money consistently even when income fluctuates to make stable investments in children. We do not know whether predictable fluctuations in income due to seasonal work, the timing of paychecks, or government assistance payment schedules produce ripples in family expenditures that affect children. More unpredictable and potentially detrimental fluctuations might occur if one or more parents work irregularly, or for irregular hours, or if the romantic relationship between parents is erratic.

The theoretical framework described earlier suggests that at a given average income level, unstable income may be more detrimental for children’s development than stable low income (or a single income loss). Income level and stability could also interact because low-income families have few assets to buffer against fluctuations, and because income changes that affect eligibility for government assistance may amplify instability.

Question 2: Are Income Level and Stability More or Less Salient for Certain Developmental Domains or Stages?

Research suggests that income level may primarily affect how resources are allocated within families, with greater implications for children’s cognition and academic achievement, whereas income instability may primarily affect stress and parent–child relationships, with greater implications for children’s behavior. Separating out the effects of income instability from income level may allow a more nuanced theory that includes specific mediators of the effects of different dimensions of families’ economic circ*mstances. Also, income instability may be most detrimental if it disrupts a stage-salient developmental task, such as infants’ development of secure attachment relationships, or occurs during other systemic changes, such as puberty.

Question 3: Do the Precipitating Events Associated With Income Instability Explain or Moderate Its Effects?

The extent to which income instability affects children’s development may relate to the predictability and intentionality of events leading to income change, as well as to how parents and children react to the events. Even decreases in family income may benefit children if they reflect intentional choices to reallocate resources within the family (e.g., so a parent can stay home with a young child) or allow parents to make investments in their own education. Also, predictable income fluctuations (e.g., from seasonal jobs) might be far less stressful or have less of an economic impact than unpredictable ones, particularly if parents can plan and adapt to promote stability at home.

Question 4: How Do the Magnitude, Frequency, and Direction of Income Change Matter to Children?

Income changes may need to be of a certain proportional size—for instance, 30% or 40% of average income—or frequency to register as a change in family life (Elder, 1974). The exact threshold might vary by income level and the savings and strategies that parents use in response. Also, although most research focuses on income losses, even positive changes could disrupt routines and relationships that are fundamental to children’s development. For example, a household experiencing volatile income (regardless of direction) may have difficulty planning and setting aside money as a financial cushion. Alternatively, income fluctuations on a mostly upward trajectory could benefit children if they lead parents to be more optimistic and less stressed.

RESEARCH OPPORTUNITIES AND CHALLENGES

Income instability warrants greater attention as a dimension of the economic context of child development. The lack of research in this area is due, in part, to the limitations of existing theoretical models for understanding how change in income might matter to family life equally or differently than income level. In this article, we take a first step in developing that theoretical framework, but challenges remain.

First, income level is positively related to stability, making it difficult to disentangle the effects of each. Also challenging is the nonrandom selection of families into income patterns, such that instability may be associated with outcomes in children primarily through its association with other parent, child, or family characteristics. A related methodological challenge is modeling the selection of families into the precipitating events of income change, and then understanding how the consequent effects on children operate through income, family process, or some other pathway. These challenges are not dissimilar to those faced by researchers attempting to understand the effects of income level on children.

Second, few data sources offer frequent income information and valid measurement of family processes and developmental outcomes for children. Most surveys do not collect intrayear or multiyear income data, and those that do are not the same surveys that collect rich measures of life events, proximal processes, and child outcomes.

Opportunities for addressing these challenges lie not only in careful multivariate analysis but also in experimental and quasiexperimental research designs that leverage sources of exogenous variation in average income and income dynamics over time. For example, features of public assistance, such as income limits and recertification periods, may increase income instability, particularly for those families on the margin of eligibility. Research could leverage differences between states or between participants on either side of the eligibility thresholds as natural experiments. In addition, controlled experiments that provide income support payments may provide an opportunity to study income instability, if they lead to differing effects on level and instability across differing sites or subpopulations.

Understanding the effects of income instability on families and children has implications for public policy, as well as science. This topic is particularly important for low-income families and social policy. U.S. income and work support programs are designed principally to increase employment and reduce dependence among poor families. The extent to which specific programs and design features of programs mitigate or aggravate income instability is not well understood. A better theoretical and empirical understanding of income instability could help inform policies, contributing to the healthy development of a generation of families and design features of programs mitigate or aggravate income instability is not well understood.

Acknowledgments

Dr. Hill is grateful to the Population Research Center at NORC and the University of Chicago (National Institute for Child Health and Human Development Grant 5R24HD051152–07) for office space and computing resources.

Footnotes

¹The extent to which this relation reflects causation or selection is debated, but small, positive causal effects of income on children’s educational outcomes have been found (; ; ).

²Analysis of the Survey of Income and Program Participation indicates that families in the bottom income quintile experience 1.5–2.5 times more intrayear income instability than families in the top quintile ().

³For instance, most studies of income level and child development do not distinguish between the different sources or causes of income level (e.g., Duncan et al., 1998).

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The Consequences of Income Instability for Children’s Well-Being (2024)

FAQs

How does financial instability affect children? ›

Parents may interact with their children in tense or punitive ways with a short temper; children may respond with negative behaviors and emotions, and teens may face problems in school, negative peer groups, lost self-esteem, and delinquency.

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What impact might instability have on a child's life? ›

Chronic instability—experiencing transitions so often that instability becomes the norm, as it does for many low-income families—may create toxic stress, which increases children's risks of all kinds of health and social problems. Finally, many background factors affect the impact of a given transition.

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How does income affect children? ›

In addition, low-income children are at greater risk than higher-income children for a range of cognitive, emotional, and health-related problems, including detrimental effects on executive functioning, below average academic achievement, poor social emotional functioning, developmental delays, behavioral problems, ...

How does poverty affect a child's well being? ›

Poverty ravages children with preventable diseases. Poverty creates, perpetuates and widens achievement gaps. Poverty increases parent stress and impairs parenting practices. Poverty introduces hunger, neglect, insecurity and instability into children's lives.

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What are the negative effects of financial instability? ›

Major instability can lead to bank runs, hyperinflation, or a stock market crash. It can severely shake confidence in the financial and economic system.

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What is income instability? ›

The concept of instability suggests multiple, substantial changes in monthly or yearly income (more than a single change in level). To distinguish the effects of income instability and income level, it makes sense to compare families with stable and unstable income at similar average income levels.

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How does lack of stability affect children? ›

There are links between stability and children flourishing in their home, school, and social lives. If a child experiences instability, they may have difficulty making friends, achieving their full potential in school, or even trusting the adults around them.

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What are two consequences of instability in the family? ›

Consequences of family instability

Children may have clothing that is dirty or doesn't fit; they may show signs of malnutrition or have eating disorders and behaviors associated with food. Children may tell stories that are inconsistent or fanciful in an attempt to hide the instabilities and insecurities.

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How does family instability affect children? ›

Family stability can promote positive social behavior in children and adolescents, while instability is associated with social maladjustment, including behaviors such as aggression toward peers, teachers, or parents.

How does income affect well-being? ›

Those on low incomes are known to have poorer mental health and wellbeing than those who are wealthier. However, there is debate in the literature around the extent to which this represents a causal relationship, rather than being solely the result of confounding or reverse causation.

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How does low-income affect mental health in children? ›

Children in poverty under stress have shown problems concentrating, comprehending and remembering new information or experiences, interacting with others, staying motivated, and exhibiting appropriate behavioral or emotional responses.

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Why do kids from low-income families perform worse? ›

Children from low-income families often do not receive the stimulation and do not learn the social skills required to prepare them for school. Typical problems are parental inconsistency (with regard to daily routines and parenting), frequent changes of primary caregivers, lack of supervision and poor role modelling.

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Is poverty a significant threat to children's well being? ›

Poverty can affect children by limiting the resources a family has to invest in children and spend on basic needs. Numerous studies demonstrate that poverty makes it difficult for families to meet basic material needs, such as nutritious food; safe and stable housing; and accessible medical, dental, and vision care.

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How does poverty affect child welfare? ›

Poverty and Risk Factors for Maltreatment

A study from the U.S. Department of Health and Human Services found that children living in poverty are at seven times higher risk for neglect, three times higher risk for physical abuse, and two times higher risk for sexual abuse.

How does poverty affect how well a family functions? ›

Poverty can create considerable stress for families. As per the family stress model, poverty can contribute to interparental conflict, which plays a key role in family dynamics and can be a precursor to negative child outcomes. Conflict can also arise between children and parents because of economic pressures.

Why shouldn't you have kids if you're financially unstable? ›

When you're financially unstable, planning for the future becomes a challenge. Saving for your child's education, future emergencies, or even your retirement can seem impossible. Kids grow up fast, and before you know it, you'll need to think about university fees and other big expenses.

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Many living expenses may increase, including grocery, clothing, transportation, health-care, insurance, and housing costs. You may also need to account for new expenses, such as child care, or adjust your budget to account for a decrease in your income, if you decide to become a stay-at-home parent.

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Being financially stable could potentially have a positive impact on your mental health by providing improved peace of mind. When you're not worrying about finances, you may be free to focus on other things, such as the enjoyable aspects of life like time spent with your family and friends.

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