Chicago Booth Review Podcast What Makes Welfare Recipients Invest in Their Kids’ Human Capital?

Rebecca Dizon-Ross: We had an example of parents who, based on historical decisions of removal, their kids, on average, had a 70% chance that they were going to lose benefits at age 18, and we asked those parents about their beliefs, and over 50% thought their kid had no chance of losing benefits, so they just didn't know that this was an option.

Hal Weitzman: Critics of social welfare programs often talk about how payments can disincentivize work. But is that always the case? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today, I'm talking with Chicago Booth's, Rebecca Dizon-Ross, about her research on how parents of disabled children think about the social safety net and investing in their kids' human capital. Could giving them better information help shape their thinking and behavior? Rebecca Dizon-Ross, welcome back to the Chicago Booth Review Podcast.

Rebecca Dizon-Ross: Thank you. Pleasure to be here. Thanks for having for me.

Hal Weitzman: It's such fun talking with you last time about exercise and personalization, but this time, we want to talk about another area of your research, which is about the social safety net and how parents invest for their children's human capital, developing their children's human capital. Maybe we should start here. What was the conventional wisdom that you were trying to test in this research?

Rebecca Dizon-Ross: The question is, how will parents adjust their spending on their kid's education if they know their kid is going to get social safety net benefits in adulthood? It's this dynamic effect over time where the thought experiment is, if a parent knows for sure that their kid is going to receive government benefits in adulthood, how will the parent invest differently when the child is still a child? And so, the conventional wisdom was that the parent would spend less if they knew their kid was going to get social safety benefits in adulthood, and that's for two reasons. One is what economists would call an income effect, which just simply means they expect their kid to have more money in adulthood. And if one of the primary goals of investing in education is to prepare them to earn money, then they need that less because they already have money through the social safety net. So that's one effect, is they'd invest less because they wouldn't think the kid would really need it as much.

And then, the other channel's a little more subtle, it's that since many social safety net programs have basically higher effective marginal tax rates, because the benefits go away as you earn more. It basically means people face a high effective marginal tax rate, and so because they'd be facing a high tax rate on their earnings, that means the returns to education would be lower because, basically, some of the extra money they'd earn as a result of education would be taxed away. That decreases the financial incentive for investing in education, and so standard models would then predict parents might invest less as a result of that as well.

Hal Weitzman: Okay. All right. That was the conventional wisdom that you were testing, and what you found was there was what you call belief gap among parents about their children's future eligibility. First of all, tell us what is it. What's the program that you are talking about, the social security program?

Rebecca Dizon-Ross: Yes. We look at these ideas in the context of Supplemental Security Income in the US, or SSI. SSI is now the largest cash welfare program in the US. It, I think, has almost 6 million adults and around 1 million children recipients. For both kids and adults, the program just gives monthly cash benefits that are for kid recipients. It's a lot of money. It's somewhere around, I think by now, $12,000 roughly a year, which is around 50% of median income for these households. It's a huge amount of money they're getting from their kids, and in order to enroll in the program, you both have to have low income or be poor, and then also be disabled. For the kid recipients, it's about the family's income or wealth and then the kids' disability status.

Hal Weitzman: This is a program that for families that are below the poverty line and where the child is disabled, not the parents.

Rebecca Dizon-Ross: Exactly, exactly. SSI as a whole, and this becomes important in sort of the research, it's for kids and adults, so there's also adults who earn it and it's about their own disability status, but then, when kids are on it, it's about that.

Hal Weitzman: But you are specifically looking at when the kids would be earning it.

Rebecca Dizon-Ross: We're looking at the kids, but we're looking at the impact of parents' beliefs about whether their kid will receive it in adulthood on the kids when they're children. It's basically like the ideal experiment where it is, and we tried to approximate that would be telling parents, "Your child is definitely going to continue receiving this benefit in adulthood," versus telling other parents, "Your child will definitely not continue receiving this benefit in adulthood." And then, we see how do they behave differently when their kids are kids.

Hal Weitzman: Okay. Fascinating, and this is really the biggest cash welfare?

Rebecca Dizon-Ross: Cash welfare these days, yes, exactly, because of the decrease in other AFDC and things like that. It's the largest cash welfare program.

Hal Weitzman: Okay. As I was saying, you found there was this-

Rebecca Dizon-Ross: It's like about 10% of kids below the poverty line or something like that are receiving it, so it's a really high share, and a lot of the growth in the kids program has been in things like ADHD, autism spectrum, social and behavioral disorders, and so many of them are not necessarily as severe as some people might think when you just hear as a program designed for the disabled.

Hal Weitzman: Okay. As we were saying earlier, you found this belief gap among parents about their children's future eligibility to receive this benefit. And then, that differs from what we might have expected, so tell us about that, that belief gap.

Rebecca Dizon-Ross: As I mentioned, SSI has both a kids program and adults program, and the criterion to be on them are the same, you have to be both poor and disabled. But critically, the definition of what it means to be disabled changes. For a kid, the definition of disability is about whether you can engage in age-appropriate activity. And so that's why there's been huge growth in things like ADHD, autism spectrum disorder, which make it hard to stay sit still in school. However, after age 18, so in adulthood, the definition is about ability to work. For lots of the things, where you can meet the kids' standard, it's hard to meet the adult standard. And so, for many people who have these type of social and behavioral disorders, say like 80% of people with certain of these diagnoses are actually kicked off the program at age 18.

When you hit age 18, you're re-evaluated under the adult standard and lots of people with certain diagnoses are removed. That's the context on the program, so the question is, well, do people know this? Are parents aware that if their kid gets this and has a certain diagnosis that they'll in all likelihood be removed? And that's where there's this belief gap where the answer is no. A lot of parents whose kids have a very high chance of removal because they have these diagnoses, where they can actually work, so they will likely get removed, are unaware.

They just know that there's a kid's program and an adults program, and so, they think their kid is going to get benefits for the rest of their lives. What we were doing is we said, "Oh, because they basically overestimate the likelihood of getting benefits in the future, we can do an information experiment where we tell some of them, "Hey, actually your kid has a really high chance of removal," and so that's going to let us see what impact does it have if they think their kid is going to be on the program in the future versus if they don't think their kid is going to be on in the future.

Hal Weitzman: So the belief gap is just you're testing whether it's an information gap?

Rebecca Dizon-Ross: Yes, exactly. Yes, the belief gap is just sort of the method through which we are able to answer our big research questions.

Hal Weitzman: They don't know. Right, they don't know-

Rebecca Dizon-Ross: Yes, exactly.

Hal Weitzman: ... how strict it is, how strict the requirements are, so they're assuming that things are going to carry on as they are.

Rebecca Dizon-Ross: Exactly. We had an example of parents who, based on historical decisions of removal, their kids, on average, had a 70% chance that they were going to lose benefits at age 18, and we asked those parents about their beliefs, and over 50% thought their kid had no chance of losing benefits. They just didn't know that this was an option. Kind of average across the sample was that they thought there was say a 20% likelihood, so that's a huge gap, like 70% of these kids were actually going to be removed and parents thought it would be maybe 20. There's a big information gap, and that's what we exploit to do our experiment, where we told them this information, we told a randomly selected set, "Hey, actually, your kid has a 70 or 80 or 90, it was specific to their diagnosis and other characteristics, chance of being removed at age 18.

And so then, we got to see whether as a result they increased their investment in their kids' education because they thought that they now knew that their kid was not going to be on, or in all likelihood, would not be getting social safety net benefits. Our project had two goals. One was to answer this theoretical question we started with, which is what's the impact of your future beliefs of the social safety net on decisions today, but was also to test an intervention we thought could improve the kids' outcomes because we thought, according to the conventional wisdom, that telling parents this would actually make them invest more in their kids' education, and so would help their kids' ultimate outcomes.

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Rebecca, in the first half, we talked about your research about the social safety net, this program, Supplemental Security Income and parents' understanding or misunderstanding of it and the likelihood that their children would be considered eligible when they became adults, and then how that affect their investment decision. Tell us, you were in the middle of explaining how the experiment worked, you tried to inform or change parents' beliefs about this eligibility, and I have to give a shoutout to our Chicago Booth review video team, the award-winning Josh Stunkel and Ray Zane, multi award-winning, right? Josh Stunkel and Ray Zane, who helped you to make videos to inform the parents. Tell us about what they did, what you did, and then, ultimately, what effect it had on the parents.

Rebecca Dizon-Ross: We wanted to give parents information about how likely their kid was to be kicked off of SSI. For example, we wanted to tell, we predicted for each parent how likely their kid was based on their kid's diagnosis, severity, things like that. And so, let's say a parent, their kid had an 80% chance of being removed at age 18, we wanted to tell them, "Your kid has an 80% chance of being removed," and have them absorb that information. And so we did, first, we started off by several pilots, where we were giving this, we sent payments like information cards where it had a little graphic and we had them do this online survey where they're reading over things. And then, after showing them this information, we'd ask them, "What do you think about the chance your child would be removed?" And our information was having zero effect on their beliefs.

Somehow, the way we were designing it was not working at all. And so we were like, "We need a better way to get in. Let's try a video." And so we were like, "How can we design a video?" And I was like, "Wait a second. The Chicago Booth Review team has done some really good video about my research, maybe they'd be willing to help us." They really saved our lives because they made these awesome videos that really walked parents through it and explained to them exactly their child's likelihood of removal with these great graphics and things like that. Once we started with these videos, then suddenly parents started understanding what we were saying and we moved their beliefs. That really enabled the whole experiment to happen.

Hal Weitzman: How do you explain that? That's fascinating in itself. They're not reading this stuff or not taking it seriously if it's printed?

Rebecca Dizon-Ross: Exactly. I think so. Just you get little handouts in the mail, you're clicking through something on an online survey and they're probably just clicking through the slides, you know what I mean? Just trying to get to the next question, so it's just hard to get people to really focus on something.

Hal Weitzman: It's fascinating in itself, just the medium, because all sorts of organizations have tried different media. Text messages and letters that look very official telling you you've used more electricity than your neighbor or whatever to try to nudge different kinds of behavior. It does suggest that maybe those, we should think more about the medium as much as the message, anyway.

Rebecca Dizon-Ross: I do. That was a key takeaway for me as well. I think a lot is also specific to the population, so this is a relatively low income population. Actually, a lot of the parents are on the program, so many of the parents also have disabilities. Some might be specific to this population, but I definitely think the medium really matters is a key thing that I have found in doing information projects.

Hal Weitzman: Okay. Josh, are you available if policy makers are you're listening, are you available to make videos to nudge behavior among populations? He's not being drawn. He's nodding his head. Okay. Tell us about how these videos work. How did they change the behavior of the parents?

Rebecca Dizon-Ross: Yes. The first thing that we tested was, did they affect parents' beliefs? Were they actually effective in conveying the message? And there, they were. We really moved parents' beliefs about how likely it was that their kid would lose benefits. And so then, of course, we then looked at, "Well, does that then affect how much they spend on their kid's education, or how much they try to prepare their kids for the workforce?" There, we found a very precise no. We did not find the effect we were expecting. We thought it would lead to these nice positive impacts on educational spending, and we didn't see any of that. We had a large sample.

Hal Weitzman: Just to be clear. They changed what they thought, but they didn't change how they acted.

Rebecca Dizon-Ross: Exactly. They changed what they thought, and it wasn't just, we were worried at first after we saw these results. Well, maybe they can answer this question, but they haven't fully internalized it. We did things like we asked them about a hypothetical insurance product they could purchase like insurance that would give them payments if their kid lost disability. We saw a big impact on take up of that. People internalized it, they knew how to make decisions based on it, but they then didn't change what they were doing for their kids. Another thing that they did though was the parents changed how much they worked themselves. We see over the course of the next year, the parents worked more. They did internalize that their household would need more money, but the way that they kind of addressed that was through working more themselves, not investing more in their kids' education.

Hal Weitzman: What was the investment you were looking for in the kids?

Rebecca Dizon-Ross: What was the specific investment? We looked at a range of things. We looked at spending on potential tutoring opportunities, spending on career resources. We helped parents to enroll. There's these state-provided services that are designed to help people in this population to plan for their future education and workforce development, so basically, the exact type of service you would want to invest more in if you knew your kid was going to need to be working. Some people took those services up, so people thought it was valuable, but our treatment had zero effect on the take-up of it. Parents were just not behaving differently in respect to preparing their kids for the future, which was unexpected to us.

Hal Weitzman: Okay. How do you explain it?

Rebecca Dizon-Ross: One piece of the puzzle, I think, is that parents worked more themselves. To make up for the future income loss, they worked more themselves. But that doesn't fully explain it in a classic model. They would also prepare their kids more. They wouldn't just do one or the other. That answer seems to be a combination through the work we did. It seems to be a combination of two things. One thing is very unsurprising, especially to non-economists, which is that parents aren't just investing in their kids' education because they want the future income stream or treating it like a financial accountant. These parents wanted their kids to go as far as they could in school, even though there was this social safety net that was disincentivizing that decision. There's other things parents care about other than the financial returns to education. They might want their kid to be educated, because it helps them become good citizens. They just think education is important for other reasons, and so, they were already doing a lot for their kids even when the social safety net was disincentivizing that behavior.

That's one piece of the puzzle. And then, the other piece seems to be that these parents, it's a relatively poor sample, so there's only so much they can do for their kids. Since they were already investing because they wanted their kids to finish school, and since there's a limit on how much they have time for, they were already at the cap of what they could do, even with the social safety net disincentivizing that behavior. When we told them, "Hey, actually, you should invest more," they're like, "We're already doing all we can effectively." That suggests that the results could be very different in a different sample that's less constrained, so that's something we're interested in looking at in the future. That seems to be the three-piece parts of the story, parents working more, parents investing for reasons that have nothing to do with just the financial return, and then parents already being at the limit of what they can do.

Hal Weitzman: Right. That makes sense, and it's probably also, there's a sense that if you haven't done it before, there's probably a bigger leap to start doing it.

Rebecca Dizon-Ross: There could be some of that seeking behavior as well, yeah.

Hal Weitzman: I know that part of this research was, you actually surveyed experts in child development and education and asked them what they predicted would happen. Tell us what they said and how that compared with what you actually found.

Rebecca Dizon-Ross: They expected, probably not too surprisingly, they expected the conventional wisdom to hold. They expected that us giving this information to parents that their kids were likely to be removed, they thought that would have a big positive effect on how much parents would spend on their kids' education, just like we had thought when we designed the study. That really contrasted with the precise zero effect that we actually found on spending. They really overestimated what the impact would be. That really highlights that it was quite different from the conventional wisdom.

I think these expert surveys are actually becoming more and more popular, and I think one nice thing is that they just help codify what the conventional wisdom is, so that you can compare your results with it. Because I feel like when people are actually reading studies, they sometimes manage to convince themselves that they knew the answer beforehand. You explain and they're like, "Oh, I already knew that that was going to happen." And so, I think having an expert survey, you can be like, "Well, you probably didn't because most people expected this other thing." It's just a good way to be able to contrast what people would've expected with what actually happened.

Hal Weitzman: Your research then has big implications for conventional wisdom in various areas about incentives in general?

Rebecca Dizon-Ross: Yeah. I think, in particular about this dynamic effect of the social safety net on kids earlier, or you mean through this idea of having these expert surveys.

Hal Weitzman: Yeah. Did you go back to the experts and say, "Well, this is what we found. How do you make sense of this?"

Rebecca Dizon-Ross: Yes. Actually, I don't think we actually did that. We should do that, but so yeah, there's this great platform that is what we used, which is researchers I think based out of Berkeley originally started this platform for doing these types of expert surveys. And so, they're becoming more and more common in economics, at least to do them, to be able to contrast your work with them.

Hal Weitzman: Let's talk beyond, as you say, beyond just this population, beyond just this research. What do you think the implications are for policymakers?

Rebecca Dizon-Ross: The conventional wisdom suggests that redistribution through the social safety net might have a big cost. If you are giving safety net benefits in adulthood to people who need them, the conventional wisdom is that, well, but actually that might be hurting some kids because their parents aren't investing as much because they know their kid can just earn benefits if they don't get prepared. Our research suggests that that's not happening. It actually suggests that redistribution has less of a cost than we might've thought, and so, it means that the optimal level of redistribution is higher than people would have thought under the conventional wisdom. It essentially suggests policymakers should be redistributing more than they are because potential-

Hal Weitzman: There's not that disincentive that we always hear about when we talk about benefits.

Rebecca Dizon-Ross: Exactly. It doesn't have this disincentive effect on kids, which could have been a really bad disincentive because it's hard to make up for things education spending later. It doesn't have that disincentive, and so we should do more of it.

Hal Weitzman: You said you're continuing with this line of research. Briefly, tell us what's next.

Rebecca Dizon-Ross: Our work suggested there's very important non-financial benefits of education and of work, and so, our next project is looking at trying to understand exactly what are some of the non-financial benefits of work and among this population, among people who are sort of on the margin of getting benefits or working, how important are the non-financial benefits of work, and does receiving benefits actually make these non-financial benefits more important? For example, you can imagine, if you're receiving SSI, then there's maybe some stigma attached to that, and that makes it actually more important to work for you to work, because you're reestablishing your place in society. If that's the case, then it could explain that social safety benefits don't have as big a disincentive effect on adult work in this case. And so, we're trying to explore those connections and understand the impact of receiving benefits in adulthood on the reasons you might want to work or your take-up of different job opportunities.

Hal Weitzman: Fascinating. Well, thank you so much, Rebecca Dizon-Ross, for coming back on the Chicago Booth Review Podcast.

Rebecca Dizon-Ross: Ah, thanks so much for having me, a delight as always.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research. This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.