Long-term Economic Costs of Psychological Problems During Childhood

Childhood psychological conditions including depression and substance abuse are a growing concern among American children, but their long-term economic costs are unknown. This paper uses unique data from the US Panel Study of Income Dynamics (PSID) following groups of siblings and their parents for up to 40 years prospectively collecting information on education, income, work, and marriage. Following siblings offers an opportunity to control for unobserved family and neighborhood effects. A retrospective child health history designed by the author was placed into the 2007 PSID wave measuring whether respondents had any of 14 childhood physical illnesses or suffered from depression, substance abuse, or other psychological conditions. Large effects are found on the ability of affected children to work and earn as adults. Educational accomplishments are diminished, and adult family incomes are reduced by 20% or $10,400 per year with $18,000 less family household assets. Lost income is partly a consequence of seven fewer weeks worked per year. There is also an 11% point lower probability of being married. Controlling for physical childhood diseases shows that these effects are not due to the co-existence of psychological and physical diseases, and estimates controlling for within-sibling differences demonstrate that these effects are not due to unobserved common family differences. The long-term economic damages of childhood psychological problems are large-a lifetime cost in lost family income of approximately $300,000, and total lifetime economic cost for all those affected of 2.1 trillion dollars.