Social insurance programs, such as Medicare and Social Security, might reduce fertility rates by lessening the need to produce children as potential protection against poverty in old age. New research from Alberto Basso, Howard Bodenhorn, and David Cuberes — “Fertility and Financial Development: Evidence from U.S. Counties in the 19th Century” – supplements the “old age security hypothesis” by looking at the fertility impact of financial markets. From the paper:
Under this hypothesis the spread of banks offers alternative means to provide for old age security. Financial development can affect fertility through the possibility of borrowing resources from banks, which renders current consumption less dependent on current income.
If children were sent to work to provide additional resources to the household, the development of a banking system would then reduce parents’ optimal number of children because the child’s importance in providing contemporaneous income decreases. … After controlling for several factors likely to create cross-county variation in fertility levels and for potential spatial correlation, we find that the presence of a bank and the degree of financial development in a given county are strongly associated with lower children-to-women ratios. We find compelling evidence for the old-age security hypothesis.
And this finding has a policy implication for developing countries that still have high fertility levels:
Our results suggest that policies designed to provide access to banking services (or social security systems) may reduce parents’ incentives to have a large number of children, thus facilitating increases in standard of livings via the well-known child quantity-quality trade-off.