Children growing up in households with few financial resources lag behind in cognitive development already before they enter school. In this paper, we make three contributions to enhance the understanding of the underlying mechanisms of these disparities: First, we investigate which processes drive social disparities in competences by parents’ financial resources among pre-schoolers in Germany. We consider the family investment model, the family stress model, neighborhood effects, childcare arrangements, and educational norms. Second, we evaluate whether there are differences by parental net worth, too, and whether these are mediated by the same factors as parental income. Third, we extend the existing literature by explicitly modeling the interrelations between the different mediators. We find substantial differences in children’s math, science, and PPVT test scores by both, parental income and net worth. These differences mostly occur at the lower end of the respective distributions. The indirect effects through all mediators together account for around one-third of the differences by parental income, but at most one-sixth of differences by parental net worth. Parents’ investment is by far the most important mediator, followed by neighborhood effects. Family stress, pro-educational norms, and childcare arrangements play only a minor role. Furthermore, we find important interrelations between the mediators, especially for parents’ educational norms. Yet, these interrelations hardly affect the contribution of the different mediators.
Revisiting the Family Investment Model with Longitudinal Data: The Earnings Growth of Immigrant and U.S.-Born Women