Home Investments in Children

By the time children enter first grade, significant differences in verbal and mathematical competence exist among them.'These differences reflect variations in (1) inherent ability, and (2) the amounts of human capital acquired before the children reach the age of six.2The stocks of acquired human capital reflect, in turn, varying inputs of time and other resources by parents, teachers, siblings, and the child.The process of acquiring preschool human capital is analogous to the acquisition of human capital through schooling or on-the-job training.Assuming a constant rental rate for human capital, earnings can be interpreted as a measure of capital stocks at later ages.The IQalso can be interpreted as such a measure of human capital stocks.It is related to some commonly used inputs of human capital, for it is well known that measured IQ is not independent of years of schooling acquired before the age of testing.At preschool ages IQmeasures should be related to human capital inputs in early childhood as well as to inherent genetic ability.Viewing measured ability as an index of the stock of human capital puts a different light on earnings functions which include ability and schooling.If contemporaneous ability and schooling measures are used to predict earnings (as itt Hansen, Weisbrod, and Scanlon 1970), it is not surprising to find that earnings are more closely related to an ability measure, which