Perspectives (February 2017)
Last week I was at the Emerging Issues Forum in Raleigh on the economics of early childhood investment.
Sara Merz, Director
As an MBA, I am struck by ROI numbers. At least 15 years ago, Art Rolnick, who was director of the Minneapolis-based multi-state state Federal Reserve region, researched the economic impact of early childhood education. At that time, his conservative estimate was that the ROI for early childhood investments was 17—a $17 return for every $1 spent. His analysis resulted in the state making a substantial increased investment in early childhood, birth to 5. In addition to state government increased investments, business leaders have been raising $60 million/year to fund this work. They’re doing it not just because it tugs their heartstrings, although it does, but also because it makes economic sense.
Last week in Raleigh, two Federal Reserve leaders emphasized the economic impact of early childhood education. Given my roots, I was especially proud of a Minneapolis region economist, Rob Grunewald, who shared specific numbers at the Emerging Issues Forum. He referenced other reports showing ROIs ranging as high as 12. While this is not as high as Art’s early data, these are still returns that businesses should not leave on the table. The savings are in multiple categories, including reduced criminal justice costs, increased taxes paid when those kids grow up, and the intuitive (and measurable) reductions in education, health and more.
Interestingly, the biggest funders of the areas where there are both funding, and cost savings, are federal, state and then county government. Cities and school systems also both invest in early childhood education, and reap the financial benefits of effective services.
Thanks to all the leaders doing this work, and measuring it. Early childhood investment is shown to improve health, reduce health care costs, and even increase home ownership rates. We could predict a lot of this…and it may prove that a more compelling argument to bring substantial investment is including the reduced costs in areas beyond health.