This digest, which is based on findings from a large variety of studies, reviews the known effects of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 on children to date and discusses the Act's possible future effects. Federal statistics show a positive trend in poverty reduction, though other sources are not optimistic that the trend will persist, noting that former welfare recipients often get jobs resulting in no more family income than welfare payments and offering none of the health care or other benefits previously available through assistance programs. Transitioning workers often cycle in and out of employment, leaving their families without any earned income for periods of time and ineligible for government assistance. Families need disposable income to provide children with educational and recreational enrichment at home and offset the negative effects of living in disadvantaged communities. Many researchers assert that of all the potential benefits of welfare reform, the most important by far is increasing family income. Important public and family resources needed to support child development include options for improving school readiness, availability of after-school and summer programs, and efforts to improve parenting skills in order to support children's learning. (Contains 10 references.) (SM)