Parental risk tolerance matters in shaping children’s intelligence

By: Dr. Romi Bhakti Hartarto

A child’s intelligence, usually measured by cognitive abilities, is one of the outcomes of education. This intelligence is acquired through the learning process and serves as the foundation of human resources. Children with low intelligence levels are likely to face more difficulties in the labor market with lower future incomes. Overall, a country benefits from higher standards of living and economic growth when its human resources are intelligent, competent, and of high quality. Unfortunately, some ASEAN countries such as Malaysia, Brunei, Thailand, Indonesia, and the Philippines ranked in the lowest quartile of the 2018 PISA (Program for International Student Assessment) scores, which measure children’s abilities in mathematics, science, and reading. Only two ASEAN countries, Singapore and Vietnam, ranked at the top.

A child’s intelligence is undoubtedly related to the characteristics of parents, as decisions regarding children are made by parents, especially in matters of education. Investment in a child’s education is not without risks and often carries a high level of risk due to uncertainty about potential future income and job opportunities. Unlike financial investments, all the risks associated with human resource investment cannot be guaranteed and cannot be shared. Education also requires long-term commitment because it takes years of investment before its benefits can be realized. Since the returns on investment are spread throughout a person’s working life, the risks they face are related to the variability of lifetime income. Therefore, a higher return on investment is needed as compensation for such risky investments.

Considering that the value of an investment depends on the estimated return and risk, the risk tolerance behavior of parents can affect the accumulation of their children’s resources because parents are the ones who fund and choose schools, especially at an early age. Parents with low-risk tolerance behavior tend to enroll their children in lower levels of education and have low expectations for their children to complete their education. One reason for this is that the abilities and motivation of children to succeed academically are uncertain. Therefore, there is an unseen risk of children failing in school, such as not advancing to the next grade or even dropping out. This situation can hinder parents from investing in their children’s education.

Previous studies have revealed that time preferences are closely related to risk tolerance behavior. Impatience with time is related to behavior that tends to avoid risks, which is why parents are reluctant to invest in their children’s education. They are not patient enough to wait for the returns from education, and this contributes to lower child intelligence. This is further supported by findings in Indonesia that parents play a crucial role in their children’s intelligence through their tolerance behavior towards risk. Similar studies in the United States also show that parents who frequently avoid risks tend to have children with low academic achievements. High risk-avoidance behavior of parents can be a barrier for them to invest in their children’s education, especially in low-income households.

Interestingly, the influence of parental risk avoidance behavior is more pronounced in girls, strengthening the suspicion that education is primarily a risky investment for females. In the context of Asian countries, the education of girls is often overlooked. Girls are expected to get married and raise children rather than work, so some families consider their investment in girls’ education a loss because they won’t have the opportunity to enjoy the returns. This means that more boys are sent to school than girls in families, especially those with low incomes. In this case, socio-cultural factors become important in shaping parents’ risk-avoidance behavior, in addition to the return on investment in human resources.

Considering the time and financial constraints of parents investing in their children’s education, policymakers need to formulate policies that can reduce the risk associated with education. First, education for parents is needed to understand the financial and social benefits of investing in their children’s education. Providing scholarships can reduce this risk. Then, through the use of guarantees and job opportunities, usually through mandatory service after reaching a certain level of education. Finally, the socio-cultural context needs to be more considered when formulating education policies, especially for females.

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The author is a Postdoctoral Research Fellow at the Ungku Aziz Centre for Development Studies, Universiti Malaya; and Assistant Professor at the Department of Economics, Universitas Muhammadiyah Yogyakarta, Indonesia.