For Richer or Poorer: Kids Version

What do children understand about economics?

Posted Jan 13, 2018

Gail Melson
Source: Gail Melson

The recent passage of a massive set of tax cuts, aimed mostly at large corporations and wealthy individuals, has got me thinking. In the consensus view of most economists, this law is predicted to further worsen economic and social inequality in the U.S. In addition, postmortems of the recent presidential election have focused on areas and populations within the U. S. left behind economically despite nearly full employment and decent GDP growth. For most of the adult working population, wages have remained stubbornly stagnant. In short, economics dominates the news, invades our thinking, and for many, keeps us up at night. As James Carville, Bill Clinton’s campaign manager during the 1992 presidential race, famously said: “It’s the economy, stupid.” 

The developmental psychologist in me wonders what children and teens make of all this. Do children have a sense of their (and by extension, their family’s) place up or down the economic ladder? Do children see the rungs above them as easy to climb or out of reach? Do they fear slipping down a few rungs? Are they optimistic about the climb, or hopeless about their economic future? In other words, what is the status of the American dream—economically speaking—in the minds of children?

These questions lead to others. A sense of place within social and economic stratification raises issues of fairness and justice. As a society becomes one of a relative few “haves” and far many more “have-nots,” how does one judge the moral underpinnings of the system? Do wealthy children (like their parents) perceive their advantages as fair, just, and deserving? Do children in economically struggling families view their situation as their own fault? Are economic issues viewed through a moral lens at all?

My fellow psychologists have paid too little attention to such issues. To be sure, psychological research on the impact of economic well-being or distress on children has a long and distinguished history. Glen Elder’s classic studies of the Great Depression documented how economic loss affected children in complex ways. It mattered how hard times affected parents, changing the dynamic of the family. For example, if fathers became more rejecting and punitive, children suffered more. In addition, children’s own individuality played a role. Some children became more resilient, others more vulnerable. A child’s age, gender, and even physical attractiveness influenced the way they weathered the economic crisis. More recently, the Great Recession of 2007–2010 allowed psychologists to examine the impact on childrens' well-being. For example, using a nationally representative sample of 9-year-olds, Schneider and colleagues showed that when adults felt increased economic uncertainty and insecurity, as measured by the National Consumer Sentiment Index, boys (but not girls) exhibited greater aggression, anxiety/depression, alcohol/drug use, and vandalism. This association was especially marked in single-parent families.

What we don’t know from these studies is children’s own understanding of their economic situation. What are their feelings about their personal economic well-being? Do children take into account contextual factors, such as their family’s relative well-being compared to others or to the past or the anticipated future (i.e., economic loss or gain)? Which others form a child’s reference group, with respect to evaluating economic status? For example, are children attuned to the economic well-being or distress of their classmates or neighbors? Do they use media figures, such as celebrities or sports stars, as economic reference points?

Another area of psychological inquiry that might help us approach these questions focuses on children’s moral reasoning. From an early age, children start to think about economic concepts. Such ideas are infused, from the beginning, with moral judgements of fairness and justice. For example, preschoolers form judgments about ownership of resources. Even 3-year-olds assume that human-made objects are likely to be owned by someone, in contrast to natural objects such as pinecones on the ground. Young children assume the first person to possess an object must be the owner, and coached by adults, preschoolers accept ownership (“It’s mine”) as conferring rights to an object.

Beyond economic ownership, children begin to form distributive justice ideas from an early age. That is, children think about the principles that should underlie the just and fair distribution of resources. If four children are presented with a box of eight cookies, how should they be distributed? Most studies find a developmental progression. Preschoolers tend to endorse the principle of equality. Everyone should get the same amount. Older children increasingly consider two additional principles: equity and need. Equity mandates that those who produce more or work harder should get proportionally more reward. For example, if each child had to work for a cookie, say by doing a chore, those who did more work would deserve to get more cookies. The principle of need leads one to give more to those more in need. This sometimes could conflict with the principle of equity. For example, using the principle of need, a child who had not eaten all day might deserve more cookies than a child who had just eaten several cookies at home before coming to school. The principle of need is connected to that of benevolence, i.e., the notion that giving to those in need is a virtuous act.

In the small economic world of the classroom, children are sensitive to the moral implications of reward and punishment. Even 4-year-olds are attuned to principles of fairness and deservedness. These young philosophers, for example, view collective rewards—everyone gets a cookie, regardless of effort or behavior—as more just than collective punishment—everyone is deprived of cookies because of one child’s misbehavior. However, children, like adults, are not immune to biases. For example, 6th graders in one study said they would give more money to a needy good friend than to an equally needy stranger. Other research has documented preferences for in-group rewards.

Overall, children as young as 3 years of age consider the moral dimensions of core economic activities, such as the distribution of rewards. This is consistent with a large body of research documenting the distinction children make between the moral domain—what is just, fair, and right—versus the social conventional domain—socially accepted rules. Thus, children as young as three view hitting another child as morally wrong, but failing to eat using a fork or spoon as violating a social convention but without moral implications.

Do children see such implications in the wider world of economic and social stratification? Do economic horizons widen, beyond the classroom and neighborhood, as children grow into adolescence and young adulthood? What influence do parents and teachers have in framing economic issues? When politicians describe the U.S. polity in terms of “makers” and “takers,” with the former deserving and the latter undeserving, how is this view (as well as opposing ones) assimilated by our young citizens and future political actors?

As the U.S. political system becomes ever more polarized, basic assumptions about who deserves the fruits of the U.S. economy are coming into question. How are developing children and adolescents understanding and ultimately contributing to these trends? There is no more important question.


Schneider, W., Waldfogel, J., & Brooks-Gunn, J. (2015). The Great Recession and behavior problems in nine-year old children. Developmental Psychology 51, 1615-1629.

Smith, C., & Warneken, F. (2016). Children's reasoning about distributive and retributive justice across development. Developmental Psychology 52, 613-628.