Coming up for Air: How Parents use Child-Related Tax Credits To Rise above Day-to-Day Economic Stress and Pursue a Brighter Future for their Children

The percentage of families with children enduring economic stress grew during the recent recession from levels that were already of concern. Research indicates that family income and assets interact with non-economic factors to influence children's well being. Child-related tax expenditures, particularly the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), play a growing role in supporting low and moderate-income families. This study explores how the expectation and use of tax credits directly and indirectly influence children. Guided by family investment theory, family stress theory, and asset theory, the study investigates how tax credits contribute to children's improved learning environments; reduced parent stress; family economic stability; and accumulation of assets. Qualitative, semi-structured interviews were conducted with the parents of 35 Massachusetts families who receive tax refunds made up largely of the EITC and CTC. Results indicate that parents place a high priority on using tax refunds to invest in children. The administrative simplicity and flexibility of tax refunds enable parents to distribute these funds among multiple obligations and goals. Parents report shifting greater attention and resources from meeting day-to-day needs toward planning and preparing for their children and family's future as a result of the social and economic impacts of receiving annual tax refunds. A portion of tax refunds are used to invest in children's learning environments and cultural capital, such as child care, summer care, and enrichment activities. Nearly 1 in 10 families made deposits to children's savings accounts. Results highlight how tax refunds alleviate parent stress and increase parent self-efficacy, improving their ability to provide for children's current care and pursue goals for their future. Lump sum tax refunds provide unique opportunities to purchase and maintain durable goods, particularly vehicles; pay short and long-term debts; and accumulate savings. Although tax refund savings are typically used within the year of receipt, they serve to absorb expected and unexpected economic shocks during that time. The study provides evidence to support increasing the size and scope of refundable child-related tax credits, as well as expanding complementary policies and programs to improve financial literacy for parents, young adults, and children.