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Private Spending on Children’s Education: Low-Income Families Pay Relatively More

Press Release of February 18, 2015

DIW study takes broader approach to expenditure on education: in addition to spending on child daycare services and schools, expenditure on non-formal educational provisions such as leisure activities is also captured – researchers recommend linking contributions to income

Families who spend money on their children’s education face a heavier financial burden, the lower their income: while the corresponding share of monthly income in the lower fifth of the income distribution is around four percent, it drops to just over three percent for higher-income families. If families spending no money on education, either because they do not use the provisions or because they are exempt from paying contributions, are also included, the share of expenditure on education, however, increases with income. These are the findings of a new study by the German Institute for Economic Research (DIW Berlin), which is based on data from the Socio-Economic Panel (SOEP) study and the SOEP-related study Families in Germany (Familien in Deutschland, FiD). According to the researchers’ calculations, each family in Germany with children under the age of 16 – including the 23 percent of families who spend no money on education – spends an average of approximately 93 euros per month on various educational provisions such as child daycare, private tuition, or leisure activities such as sports clubs or music lessons. Those families with expenditures for such provisions spend around 120 euros per month. “Families pay a considerable share of spending on education out of their own pocket. This is all the more true if the concept of education is broadly defined. The broad definition includes spending on formal educational provisions such as child daycare services and fee-paying schools and on informal and non-formal provisions such as in-home daycare providers or sports clubs and music lessons,” say the authors of the study Carsten Schröder, C. Katharina Spieß, and Johanna Storck.

German Institute for Economic Research (DIW Berlin)

The German Institute for Economic Research (DIW Berlin) is one of the leading economic research institutions in Germany. Its core mandates are applied economic research and economic policy as well as provision of research infrastructure. As an independent non-profit institution, DIW Berlin is committed to serving the common good. The institute was founded in 1925 as Institut für Konjunkturforschung (Institute for economic cycle research). Since 1982, the Research Infrastructure SOEP (German Socio-Economic Panel Study), a long-term study, is affiliated to DIW Berlin. Thematically, the scientific work of the Institute is divided into nine Research Departments: Macroeconomics; Forecasting and Economic Policy; Development and Security; Energy, Transportation, Environment; Climate Policy; Firms and Markets; Competition and Consumers; Public Economics and Education and Family. The institute has been headquartered in Berlin since its founding. As a member of the Leibniz Society, DIW Berlin is predominantly publicly funded.

Only a small number of low-income families spend money on leisure activities and private tuition for their children

Families spend the most on child daycare services, amounting to a share of 60 percent of their total expenditure on education, while 27 percent goes toward leisure activities and seven percent each on fee-paying schooling and/or informal educational and care provisions such as in-home daycare providers. Provided they actually spend money, the relative expenditure of families with lower incomes is higher, and this applies to virtually all the educational provisions considered, i.e., not only spending on a child daycare services but also on leisure activities and private tuition. Poorer families are less likely to spend money on education and on the last two provisions in particular: only 30 percent of the lowest-income households spend any money at all on leisure activities and only seven percent on private tuition. If they do invest money in these areas, with shares of expenditure of 2.5 and five percent respectively, they are comparatively more burdened than the highest-income households (share of income is a good one percent).

While spending on education for low-income households is almost independent of the number of children, in higher-income households it rises considerably as the number of children increases. Moreover, families in which at least one parent has an academic qualification spend considerably more on education. “This finding is also worth discussing in respect of unequal educational opportunities because children who already have better opportunities thanks to their parents’ education benefit further from higher spending on education,” according to Schröder, Spieß, and Storck. “In order to be able to make better use of children`s educational potentials, it would be worth considering a social policy that alleviate the financial burden of poorer families to a greater extent by pegging fees for costly educational provision more closely to income than has been the case to date.”

For the very first time, DIW Berlin’s study analyzes private spending against the background of a broadly defined concept of education which also includes informal and non-formal provisions. These expenditures are not included in the official statistics. DIW Berlin’s study takes into account all family households, i.e., single parents as well as couple households, with at least one child under the age of 16, in the SOEP and FiD datasets from 2012. Researchers at DIW Berlin used multivariate analyses to ensure that the findings of the study also remain valid if other potential influential factors such as number and age of children in a household, place of residence, or parents’ educational qualifications are taken into consideration.