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Policy: Economy

Poverty trap? New study shows little impact of financial windfalls for families

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Money Watch,Entitlements,PennAve,Joseph Lawler,Economy,Poverty

Are children’s economic fortunes limited by their parents’ financial circumstances? A new study examining the impact of a Georgia land lottery suggests that a lack of financial resources has little to do with kids’ success.

Hoyt Bleakley of the University of Chicago’s Booth School of Business and Joseph Ferrie of Northwestern University tracked the descendants of Georgians eligible to win the Cherokee Land Lottery of 1832. The lottery gave winners parcels of land worth about $700 — an amount almost equal to the median level of wealth at the time. Because winning wasn’t related to other characteristics of lottery winners, Bleakley and Ferrie treat the lottery as a natural experiment to examine the effects of boosting families’ income.

What they found, examining descendants of lottery winners in Census data, was that the windfall of winning the lottery had little effect on families a few generations on. Lottery winners were not more likely to send their children to school than lottery losers. They write: “Children of lottery winners did not have more wealth, literacy, or income as adults. Further, the grandchildren of winners were not more likely to be literate or attend school. Indeed, the sons of lottery winners actually have fewer children and, if anything, send their children to school less than the control-group sons.”

Bleakley and Ferrie’s paper, released Monday by the National Bureau of Economic Research, contrasts with a paper released last year by UC-Davis professor Gregory Clark that showed English family wealth persisting through many generations. Based on an analysis of surnames, Clark found that families that were rich in 1800 were likely to be wealthy more than 200 years later as well. In other words, there was “considerable persistence of status” for families with “rich” or aristocratic names over the course of many generations and changes in the surrounding environment and policy.

Bleakley and Ferrie’s results further suggest that, at least in the long run, family characteristics outweigh short-term financial considerations in determining economic success for children and grandchildren.

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Joseph Lawler

Economics Writer
The Washington Examiner