Blogs & Comment

How to raise an entrepreneur

More siblings equals economic success.

This term I assigned a creative writing project for my economic history class. It was designed to get my students to think about the people who lived the economic stories we have been discussing. I anticipated that my students would be excited by the novel approach to learning and, so, was surprised when one student raised his hand in class to ask: “What’s my alternative to doing this assignment?” When I pressed him on why he needed an alternative, he said: “I’m not very creative.”

To which I responded: “If you don’t try, how will you know?”

During the 10 years that I have been teaching, I have seen many changes in the behaviour of students, but the one change that stands out is the increasing unwillingness of students to take chances—my students are becoming risk averse.

But risk is integral to our economic life, whether individual or collective. People who are ready to face the possibility that they might be wrong engage in the more entrepreneurial, and innovative, activities that are the engines for modern growth. When young adults lose their capacity to be creative, not only is their future welfare affected, but potentially the future welfare of the nation.

So, why might the current generation of students be less risk averse than the previous generations? One explanation is that they grew up in significantly smaller families.

The well-documented decline in family size in Canada over the past 40 years has had two major effects on children. The first, and perhaps most obvious, is that when family sizes declined from an average of 2.7 children in the early 1970s to 1.7 in the early 1990s, the share of children who were first-born children necessarily, and significantly, increased. First-born children might be more academically ambitious, but they also tend to be more risk averse than those born later in the birth order.

The second effect is that far more children today are the only children in their families. This trend toward single-child families that started, surprisingly, during the baby boom has accelerated in Canada in recent years. The share of families with only one child present in the home increased to 45% in 2011 from 40% in 2001.

New evidence supports the view that children who are raised in single-child families tend to be more risk averse. In fact, we have a unique testing ground: China’s one-child policy.

A team of researchers, led by Lisa Cameron in the Department of Econometrics at Monash University in Victoria, Australia, tested Chinese adults on a variety of personality traits, including risk aversion, based on their birth cohort. The subjects were all born in Beijing either shortly before the implementation of the policy (1975 and 1978) or immediately following (1980 and 1983).

Their findings demonstrate just how effective the policy was at reducing birth rates in Beijing: 24% of their subjects born in 1978 were only children; 91% of the 1983 cohort were.

The beauty of this project is that the implementation of the one-child policy controls some important variables. Under the policy, the number of children born into the family was no longer a function of the family characteristics; it was externally imposed by government. That means we don’t need to worry that risk-averse parents chose to have fewer children, then passed that trait on to their kids.

The study finds that relative to those born before, children born after the one-child policy was implemented were significantly less trustworthy, less competitive and more risk averse: all traits that suggest they are, generally, less entrepreneurial than those in bigger families.

This suggests that as first-born and only children begin to make up a greater proportion of Canada’s population, finding ways of fostering entrepreneurialism will become even more important. Maybe having a brood isn’t strictly necessary; I believe the capacity for creative thinking can be learned by anyone. But it means as parents and as teachers, we have to challenge, not coddle, the next generation.

Marina Adshade is a professor in the University of British Columbia’s Vancouver School of Economics and author of Dollars and Sex: How Economics  Influences Sex and Love