How Children with Special Needs Affect Household Investment Decisions

We study the effect of children with disabilities on household investment decision making. Child disability is a growing issue in the United States as more children are suffering from mental disabilities. A total of 13 - 20 percent of children living in the United States experience a mental disorder in a given year. While childhood disabilities related to physical health concerns have decreased relative to the early 2000s, disabilities due to neuro-developmental and mental health problems increased dramatically between 2001 and 2010.

It is estimated that nearly six million children had a disability in 2010 - an increase of almost 1 million from the 2001 estimates (American Academy of Pediatrics, 2013). Thus, mental disorders among children are an important public health issue in the United States, with an estimated total annual cost of $247 billion (Perou et al., 2013). From the household perspective, families with children with mental disabilities have significantly higher annual health care expenditures (Sices et al., 2007; Guevara et al., 2003). Yet, little is still known about the other economic effects of children's health problems, specifically child mental disability issues on household portfolio choice decisions.

We construct a simple theoretical and empirical model of household financial and education investment. Each household faces a tradeoff between savings for future consumption of the child and education cost, which improves the child’s future wage income to support themselves. We use the Panel Survey of Income Dynamics (PSID), 1997 – 2011, along with the three waves (1997, 2002, and 2007) of the Child Development Supplement (CDS). The CDS contains health information of 3,563 children in the 2,380 households. Household financial information for each child is linked through the head of household. We estimate several logit, linear probability, Tobit, and hurdle model regressions using investment decisions as the dependent variable responding to observable household level characteristics including child mental health disability status. We define a childhood mental health disability as one of the following diagnosis: autism, Autism, Lead Poisoning, Mental Retardation, Pervasive Developmental Delay, or Speech Language Delay/Disorders. We find that having a child with disability reduces participation in stock investments by 2%. Conditional on participating in the market, households with special needs children invest a larger part of their wealth in the stock market. These results still hold (although with less precision) even when considering households with only one child.

Next steps including replicating our results using the Survey of Income and Program Participation, which also has household level wealth variables and health status. Then utilizing the adoption of Medicaid waivers by some states that allow household to participate in Medicaid regardless of income level if the child has a disability. These policies can affect both the household decision to invest in therapy as well as the stock market.