Long-term health effects of childhood parental income

While research on the link between socio-economic status and health spans several decades, our understanding of this relationship is still severely constrained. We estimate the long-term effects of parental income from birth to age 18 on health and risky health behaviors in adulthood. We use over 4 decades of data from the Panel Study of Income Dynamics, from 1968 to 2017, to construct a unique data set that links 49,459 person-year outcomes in adulthood, to several parental and family level variables when they were born and throughout their childhood. To mitigate concerns that parental income is likely correlated with unobserved factors that determine children's outcomes in adulthood, we estimate an instrumental variables model. We construct a simulated income variable that is used to instrument for parental income. This approach breaks the link between an individual's own parental income and unobserved characteristics that are possibly correlated with their health in the long run. We find that a $10,000 increase in annual parental income increases the likelihood of very good or excellent health in adulthood by 3.7%, reduces the likelihood of physical limitation by 10.3%, and reduces the likelihood of smoking and the number of cigarettes smoked per day by 12.7% and 16.7%, respectively. We also find that the pathways by which income improves health are increased education, employment, annual hours worked, pre-tax hourly earnings and pre-tax annual earnings. Our results highlight the lasting impact of economic resources in childhood and the importance of growing up in a financially stable environment.