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Investment in early childhood shows high rate of return.

It has long been known that children 5 and under are in the most vulnerable period of their lives in terms of forces that can hinder or promote social, psychological, and intellectual development. Montana has 63,347 children age 5 years and younger who are at this critical time in their development. Early childhood experts know that 85 percent of a child's core brain structure is formed by age 3. It is this remarkable growth that creates the opportunity and the increasing recognition that investing at this age has a high rate of return.

Current Situation for Young Children in Montana

Poverty rates for Montana's children from birth to age 5 are high, with 23 percent living in households that are below the federal poverty level and another 15 percent in households just above the poverty level (100 percent to 149 percent). Sixty-five percent of Montana children under age 6 have parents in the labor force, and 32 percent of children under age 6 live in working-poor families with income below 200 percent of the poverty level. In addition, 7 percent of children under age 6 have no parent working at all.


Poverty goes hand-in-hand with limited access to health care. Although we like to think most little children have health insurance or a public health program such as Medicaid or CHIP, the fact is there are 5,000 children from birth to age 5 who meet the poverty guidelines for such programs but do not have any access to health care--either from private insurance or public health care coverage (Figure 1).

Head Start and other educational opportunities for young children have become even more important for Montana's working poor families. These programs help kids prepare for the transition into kindergarten. But it is not just Montana's low-income families who benefit from access to high-quality preschool programs; all parents who work outside the home are faced with the challenge of finding a setting that is both affordable and effective in nurturing the academic, social, and emotional needs of their children.

The 19,000 Montana children under 6 who are in family-based child care represent 30 percent of this age cohort, slightly higher than the national figure of 27 percent. Family-based care is defined as "family, friend, and neighbor care" offered in a home-based setting outside a child's own home by both regulated and unregulated providers ( In Montana, there are 21 child care centers that are accredited by the National Association for the Education of Young Children (NAEYC) and the National Association for Family Child Care (NAFCC). These centers serve 1,421 children ( There are 11,580 children under age 6 who receive a child care subsidy through the Montana Department of Public Health and Human Services; eligibility for this program is income-based (

When looking at other programs in Montana for young children, there are 28 Head Start and Early Head Start programs serving 4,500 children. Of that number, there are seven Tribal Head Starts and three Tribal Early Head Starts. In Montana, the licensed and registered child care facilities (Montana Child Care Data Report, 2004) include 1,362 family child care homes, 635 group child care homes, and 262 child care centers.

Understanding the Economic Benefits

It is apparent that access to services and quality preschool programs for young children and their families is not universal. There is increasing evidence that investing in such services and programs for children between birth and age 5 might be the best investment in human capital a society can make. Internationally-renowned economists and social scientists have successfully made the argument for investing in early childhood development from a business perspective, the most notable being Nobel Laureate in Economics Dr. James Heckman of the University of Chicago.

Heckman began his research by investigating the economic return from job retraining programs for steelworkers. He realized that those programs were largely ineffective because it was more difficult for the steelworkers to learn new skills at a later age and because there were fewer years to recoup the cost of retraining. Then he made a surprising change in his thinking. Having started at one end of the age spectrum, Heckman soon ended up at the other. He analyzed the investment made in early childhood programs and learned that, at the same cost, there are far greater gains possible with young children. Heckman came to believe that one can make a bigger difference and have a greater impact with younger children because the social skills they learn early on set a pattern for acquiring life skills later. "On a purely economic basis," Heckman says, "it makes a lot of sense to invest in the young" (

Other reasons that Heckman and other economists have been looking at investment in early childhood education include:

* Both the quality and quantity of the labor force are not keeping pace with the demands of a skill-based economy.

* The work force is aging and will not grow in the near future as Baby Boom retirements put considerable stress on the fiscal system.

* Labor force quality has stagnated and has already reduced American productivity growth.

* U.S. labor force skills are poor. More than 20 percent of U.S. workers are functionally illiterate and innumerate. They are a drag on productivity and a source of costly social problems.

Likewise, the burden of crime on the American economy is significant, costing almost $1.3 trillion per year and $4,818 per person. Although crime rates have fallen recently, this decline has come at a great price.

A large fraction of our population is in prison, and spending on the justice system continues to grow (http://

There is undeniable evidence of the importance of cognitive skills (learning reading, writing, and arithmetic) and non-cognitive skills (learning to interact socially with people) in economic life. Both contribute significantly to leading productive lives. Families are the primary venue for producing both types of abilities, and the foundation they establish raises the child's productiveness in schools and jobs. Gaps that open up in education and social development tend to persist through life and are harder to close as the child becomes a young adult looking to succeed in college or employment.

Short-term Benefits

Research has shown that there are short- and long-term benefits of investing in quality early childhood programs. Over the short term, child care programs have had a substantial economic impact on states. Montana's neighbor, South Dakota, conducted an analysis and found that:

* Licensed and registered child care creates 4,410 jobs in South Dakota.

* Licensed or registered child care in South Dakota generates more than $100.6 million in gross annual receipts.

* By investing in child care, South Dakota leverages more than $11.4 million in federal funds at a ratio of $2.82 to $1.

* Child care programs yield $124.5 million in direct economic activity and $177.6 million in economic activity, with multiplier effects (

Early childhood programs provide jobs, employing 3 million people nationwide. The employees spend wages and pay taxes and the centers purchase goods and services, enabling employers to attract and retain employees and increase productivity.

Long-term Benefits

The long-term benefits of early childhood education have been the recent focus of economists. The success of preschool programs was once judged solely on gains in children's cognitive skills, and these gains leveled out and faded during elementary school. However, once the gains in non-cognitive skills were brought into the equation, there were significant long-term benefits associated with preschool enrichment programs. In a recent interview with the Minneapolis Federal Bank, Heckman noted that "the greatest benefits of these programs are their effects on socialization and not those on IQ. Social skills and motivation have large payoffs in the labor market, so these programs have the potential for a large payoff" ( studies/earlychild/).

Robert G. Lynch of the Economic Policy Institute did a comprehensive analysis of the longitudinal results in investments made on four preschool enrichment programs. These programs were selected because they represent examples of well-conceived programs. They all had long-term follow-up studies that analyzed the outcomes, they covered a broad range of possible ages for the participants, and they took place in a wide variety of areas from rural to small town, to small city, to large urban inner city. Lynch also looks at Head Start, because of the significant differences between that program and the other early childhood development programs he analyzed.

This article looks only at the outcomes from the individual preschool programs. As can be seen from the tables, the participating children have a significant advantage over their peers who did not participate. The studies looked at children who had participated in these programs, then followed them for a number of years; Perry Preschool Project until age 41, Prenatal/Early Infancy Project until age 15, Abecedarian Early Childhood Intervention until age 29, and Chicago Child-Parent Center Program at several different ages through 22.


These programs point to the following overall outcomes:

* lower cost for remedial and special education and grade repetition;

* more school completion and skills;

* better job preparedness and ability to meet future labor force demands;

* higher incomes and tax payments from those who complete school;

* lower criminal justice and prison costs; and

* fewer welfare payments.

Some of the common characteristics of these programs are that they target economically disadvantaged children and their families and offer services at community centers, schools, or in-home. Most importantly, the majority of them offer a wide variety of other services, such as health, nutrition, social and emotional development, parenting instruction, adult education, and job-hunting education for parents. So in looking at the small number of programs that have been studied, the $64,000 question is: Can we extrapolate to all children if the investment returns on early childhood programs were calculated for economically disadvantaged children?

According to Heckman's research in "The Productivity Argument for Investing in Young Children" (http://, it would be unnecessary to extend any type of universal access to preschool enrichment programs. Most higher-income children do well and many parents have the means to get children the help they need. Research shows that the majority of upper-income children do better than their lower-income peers. Investing in low-income younger children is not necessary because they are not as smart as wealthier children, but because of their families' financial situation they have fewer options open to them.

Extending the program to all of the 4 million children under age 5 who are currently living under the poverty line would yield an estimated private net benefit of $4.6 billion for boys and $97.8 billion for girls. For the general public, the estimated net benefits are $254.4 billion and $154.8 billion, respectively. The difference between the public and private returns is driven largely by the increased earning potential for girls; the decrease in expenditures for boys is driven by the reduction in male crime rates. The private gains are those that accrue to the individual, while the public gains accrue to society as a whole.

However, Heckman suggests it would not even be necessary to offer universal enriched preschool programs to all 4 million American children under the age of 5 whose families fall below the federal poverty line. He bases his estimates on simply increasing the number of low-income children accessing these programs to a number similar to those attending Head Start, or approximately 800,000 children. This would bring down the total dollar amount but not the rate of investment-to-benefit. He also cautions that extrapolating research from older, smaller and local programs to a larger national one is "precarious business" and that any subsidized programs should be targeted carefully.

A 2005 study by the MIT Workplace Center, Alfred P. Sloan Foundation Center (, summarizes studies on investment in early childhood programs with the following overall conclusions:

* High quality early care and education is a wise investment.

* Quality matters.

* $1 invested in universal early childhood education saves taxpayers $13+/- over the next few decades.

* Tax collections increase in the long term.

* The early care and education industry are economically important.

* Developing the skill base of early childhood workers must be part of any economic development strategy

* The return to taxpayers on early childhood program investment is greater than many current economic development programs.

* Multiple funding streams, including public, private, and philanthropic dollars are needed.

Policy and Budgetary Implications

Now to move from some of the macro-economic and social reasons for researching investment in young children to some of what has been learned about the current levels of investments. A 2004 report by Voices for America's Children and the Child and Family Policy Center shows that while 85 percent of a child's core brain structure is formed by age 3, less than 4 percent of public investments are spent on education and development by that time.

Indeed, many state investments in early childhood education and development are a small percent of public education expenditures, with many states allocating less than 1 percent to early childhood. On a national level, public investment in education and development during the school-aged years (kindergarten through 12th grade) is $5,410 per child, during college-aged years is $3,664 per young person, but is just $740 during the early learning years. So for every dollar society invests in the education and development of a school-aged child, it invests 13.7 cents in that child during the earliest--but perhaps most significant--learning years.

Figure 2 illustrates these points. The study was conducted for 12 states, and the composite is illustrated in the graph. There were no outlying states among the 12, and it would be safe to say that Montana would look pretty much the same.

The Economic Policy Institute examines the budget effects through the year 2050 of launching a government-financed, permanent, high-quality early childhood development program that targets 20 percent of all three- and four-year-olds--roughly all of them living in poverty. His analysis considers budget effects on all levels of government--federal, state, and local--as a unified whole. Figure 3 shows his conclusions.

The MIT study recommends the following as next steps for the future:

* Additional cost-benefit analysis is needed of early childhood education, including both the short- and long-term benefits.

* Additional policy analysis and options for new financing mechanisms, and a strong business case, is needed to provide alternative sources of public and private investment.

* Broad public education is needed for policymakers and citizens to frame the issue of early childhood education as important to the development of children and, equally, to the development of the economy.

* High-quality and effective, efficient delivery of services requires improving existing early childhood education while expanding the reach to more children.

* Regular national and/or regional conferences are needed, both in person and electronically, to share information, strategies and lessons learned.



Daphne Herling is director of community research for Montana KIDS COUNT and BBER.
Table 1
Statistically Significant Benefits of the Perry School Project

 Preschoolers Preschoolers

Grade retention or special
 education, age 10 17% 38%
High school graduation, age 27 71% 54%
Arrested five or more times 7% 35%
Arrested for drug-related offenses 7% 25%
Earn $2,000 or more per month, age 27 29% 7%
Employment rate 71% 59%
Average monthly earning, age 27 $1,219 $766
Home ownership 36% 13%
Own second car 30% 13%
Receive Welfare or social services 59% 80%
Receiving public assistance, age 27 15% 32%
Single mothers 57% 83%

Source: Barnett (1993), Schweinhart (1993), and Karoly (1998, 2001)

Table 2
Statistically Significant Benefits of the
Prenatal/Early Infancy Project

 High Risk Control

Percent arrested, child age 15 24% 53%
Child abuse or neglect, age 15 29% 54%
Months on food stamps, mother 46.7 83.5
Mother arrested, child age 15 18% 58%
Mother conviction, child age 15 6% 28%

Source: Karoly (1998, 2001)

Table 3
Statistically Significant Benefits of the
Abecedarian Early Childhood Intervention

 Preschool Control

Special education, age 9 25% 48%
High school graduation, by age 19 67% 51%
Years of education, age 21 12.2 11.6
Employed in high-skill jobs, age 21 47% 27%
Enrolled in four-year colleges, age 21 36% 14%
Smoked marijuana regularly, age 21 39% 55%

Source: Masse and Barnett (2002), Campbell et. al. (2002).

Table 4
Statistically Significant Benefits of the
Chicago Child-Parent Center Program

 Center Non-Center
 Students Students

Special education 12% 22%
Years in special education, age 18 0.7 1.4
Serious criminal charges 17% 25%
Violent offenses charges 9% 15%
High school graduation, age 20 50% 39%
High school graduation, age 22 65% 54%

Source: Karoly (1998, 2001), Reynolds et. al. (2001, 2002).

Figure 1
Uninsured Rates for Montana Children
Ages 5 and Under by Federal Poverty Levels,
2000 Census

 % Without Health Insurance

 Below Poverty Level Above Poverty Level

<200% FPL 10% 27%
<150% FPL 14% 25%
<125% FPL 16% 21%
<10% FPL 16% 19%


Note: Table made from bar graph.
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Comment:Investment in early childhood shows high rate of return.
Author:Herling, Daphne
Publication:Montana Business Quarterly
Geographic Code:1U8MT
Date:Sep 22, 2006
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