The labeling effect of child benefit
Study on the effect of the labeling of child benefit on parents’ expenditure patterns

The government provides parents or caretakers financial support towards the costs of raising children on the basis of the General Child Benefit Act (AKW) and the Child-related Budget Act (WKB). The names of the allowances, ‘child benefit’ and ‘child-related budget’, indicate that the money is intended to benefit children. However, parents or caretakers are not obliged to spend the money on children.

The central question in this research is whether the labeling of the allowances increases the likelihood that the money is actually spent on children, and increases the effectiveness of the child support schemes (the policy). The study served as input for the policy review Child support schemes, which was presented to the Dutch Lower Chamber at the end of 2018.

Study methodology

To answer the research question, a literature study, a natural experiment and two controlled online experiments were conducted.

In 2015, the regulations regarding child-related budget have changed substantially. As a result, single parents receive more financial support for their children and couples less, on average. These changes can be regarded as a natural experiment; they make it possible to analyze to what extent changes in the amount of child-related budget go hand in hand with changes in the spending pattern of parents. Data from the Budget Survey of Statistics Netherlands (2012/2013 and 2015) were used for this analysis.

In order to gain more insight into the causal effect of the labeling of child budget on spending patterns, two controlled online experiments were carried out. The sample consisted of over 1000 parents of minor children in the LISS panel. In the experiments, parents read a scenario, in which the name and the amount of a part of their monthly household income was systematically varied (either a ‘general allowance’ of €200, or a ‘child allowance’ of €200, or a ‘child allowance’ of €450). Next, they made spending choices.

Key findings

In the experiments, no evidence was found that the labeling of child benefit affects parents’ child-related spending. Neither the total expenditures nor expenditures on specific child-related expenditure categories, such as clothing and shoes, hobbies, and pocket money, were affected by the naming or amount of child budget.

The most important and surprising finding of this research is that parents seem more inclined to put money aside when child budget is labeled as such. Parents who saw the label ‘child allowance’ (instead of “general allowance”) reserved less money for daily groceries and put more money aside. This shift was most pronounced for households with middle incomes and higher educated parents. Interestingly, the ‘extra’ money put aside was not saved explicitly for children, but rather concerned non-child-related savings.

What can explain these effects? ‘Mental accounting’, i.e. the setting of mental budgets (e.g. grocery budget, clothing budget) and the tracking of expenses against those budgets, is a mechanism that has been shown in previous research to underlie effects of the labeling of money. However, mental accounting does not seem to account for the current findings. If mental accounting would be the underlying mechanism, households and parents who are more inclined to keep mental budgets (such as lower educated parents and lower-income households) should be more sensitive to the label, which was not the case. Also, mimicking the accounting process by giving parents feedback on the total amount spent on children after each choice did not strengthen the labeling effect. Rather, the findings point to a ‘salience’ effect: exposure to the ‘child allowance’ label alone was sufficient to reduce spending on daily groceries and to promote saving behaviour. This pattern – making sacrifices in the present for the future – indicates that exposure to the label made parents more future oriented.

The results suggest that the ‘extra’ savings, even though the money was not explicitly set aside for children, was nevertheless driven by child-related considerations. More specifically, the labeling of child benefit as such yielded more saving behaviour among parents who reported to deliberately reserve child budget for their children, but had no effect on saving behaviour of parents who treat child budget as regular income.

The full report can be found here (in Dutch).

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