The Most Overlooked Investment

While I cringe at categorizing child care (a.k.a. early childhood development programs) as a “women’s issue,” the rest of society seems to classify it as such. Yet evidence presented by the Federal Reserve Bank of Minneapolis indicates that investments in high quality child care and early education programs outperform anything that can be achieved in the private market.

Arthur Rolnick has been studying the economic impact of early childhood development programs for several years. In his most recent report, Early Intervention on a Large Scale (Jan. 4, 2007), he writes:

“Careful academic research demonstrates that tax dollars spent on early-childhood development provide extraordinary returns compared with investments in the public, and even private, sector. Some of these benefits are private gains for the children involved, in the form of higher wages later in life. But the broader economy also benefits because individuals who participate in high-quality early-childhood-development programs have greater skills than they otherwise would, and they’re able to contribute productively to their local economies.

The promise of early-childhood programs is based on fundamental facts about early human development. A child’s quality of life and the contributions that child makes to society as an adult can be traced to his or her first years of life. From birth until about the age of 5, a child undergoes tremendous development. If this period of life includes support for growth in language, motor skills, adaptive abilities, and social-emotional functioning, the child is more likely to succeed in school and to later contribute to society. Conversely, without support during these early years, a child is more likely to drop out of school, depend on welfare benefits, and commit crime—thereby imposing significant costs on society. Early-childhood-development programs recognize this potential—and this risk—and seek to nurture healthy development from the earliest years.

Several longitudinal evaluations essentially reach the same conclusion: The return on early-childhood-development programs that focus on at-risk families far exceeds the return on other projects that are funded as economic development. Cost-benefit analyses of the Perry Preschool Program, the Abecedarian Project, the Chicago Child-Parent Centers, and the Elmira Prenatal/Early Infancy Project showed returns ranging from $3 to $17 for every dollar invested. This implies an annual rate of return, adjusted for inflation, of between 7 percent and 18 percent.”

Sure, the annual rate of return is not quite the same dollar-in-your-wallet as if you had bought some stake in a company. Except that it is. If you hate paying “high” taxes, this would potentially eliminate a portion of your tax burden because of social costs that would no longer be incurred. Of course, there is always the concern that money saved through reduced juvenile justice costs, prison lock ups, welfare payments, special education expenses, etc., would just be shifted over to another cause, but chances are that this other cause (environmental conservation or the arts, for example), would be a worthy one. There will never be enough resources to adequately cover everything.

In addition to the social benefits of investing in early childhood programs, an actual, if modest, profit can take place. It is not easy to invest in early childhood programs directly. While they are small businesses, the economics of the market are not such that most child care operators actually make money, particularly if they provide care for the poorest and most at-risk children, which is what we need if we are to reap the highest social rates of return. (One great national chain to consider, however, is Bright Horizons, a publicly-owned company that offers some of the highest quality care out there). It is a labor intensive, real estate intensive business. Most parents are unable to pay rates that cover the true cost of high quality child care, and as a result, the businesses operate in a highly dysfunctional manner.

Due to the poor operating margins of high quality child care, there is a severe shortage. Addressing this deficit requires better public investments in understanding the true cost of care and funding these programs appropriately, but it also opens a window of opportunity for private investors to get involved from the real estate perspective. Providing affordable capital to the child care field is critical if there are to be enough quality, developmentally appropriate buildings for these programs. A group of community development financial institutions, the National Children’s Facilities Network (NCFN), is working to create public-private vehicles to enable the development of child care facilities. Members of NCFN cover a broad swath of states, so investors can target their local communities.

Part of the reason that early childhood development programs are rarely spoken of through the lens of economic development, is because they are relegated to the status of “women’s issues,” but I’ll never understand why properly caring for, educating, and preparing our youngest members of society is of concern only to women. Let’s remind elected officials that we all need to be concerned about kids. This isn’t just an issue of morality – it’s also an issue of economics.

Dr. Dimitra Takos is a Newport Beach Psychologist specializing in the treatment of adolescents and adults suffering from depression, anxiety, and trauma-and stressor-related disorders.