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Low Income and Poverty Dynamics

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Many studies have shown there is a strong negative association between poverty and children’s developmental outcomes. The negative effects associated with low income and poverty carry a significant cost for individuals and families, as well as the broader community. There are also clear costs associated with children’s development and wellbeing—the impacts of which are likely to be amplified later in life for the children who experienced poverty and also the wider society. The relationship between financial disadvantage and children’s developmental outcomes is of particular interest to policymakers.

The existing evidence about the relationship between poverty and child outcomes suggests that it is not completely clear whether it is low income itself, or the complex set of circumstances that lead to poverty, that often results in poorer developmental outcomes. Improved knowledge of the mechanisms of this relationship will assist in determining the most effective way to improve the life chances of children whose families experience financial disadvantage.

This report uses data from the first five waves of the Longitudinal Study of Australian Children (LSAC) to examine the association between childhood poverty and a range of children’s developmental outcomes. Rates of poverty and financial disadvantage (defined as having equivalised combined parental income less than 50 per cent and 70 per cent of the median respectively) are calculated and the characteristics of children who have experienced relative income poverty and financial disadvantage are examined. Structural Equation Modelling is used to estimate the extent to which the influence of poverty on a range of cognitive, social and health outcomes is an indirect influence resulting from differences in parental investment in cognitively stimulating activities, or differences in parenting style. The key findings of this study are summarised below.

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