Early childhood education ; Education - Economic aspects

Arthur J. Rolnick

Rob Grunewald

English

Research Papers in Economics

12   The Regional Economist  |  July 2010
E d u c a T i o n
I
nvestments in high-quality early child-
hood programs, particularly those 
targeted to children at risk, are not just a 
virtuous service, but can yield a large return 
for those paying the bill.  Study after study 
has proved that such programs, coupled 
with training for parents, result not only 
in economic gains for the children as they 
grow up, but sizable savings on taxes.  For 
example, graduates from these preschool 
programs are less likely to need special edu-
cation, end up being arrested fewer times 
and spend less time in prison (which means 
fewer crime victims), require fewer social 
services, are healthier and wind up paying 
more in taxes.
Although this may sound too good to be 
true, we’ve seen the evidence in our eight 
years following this issue as economists for 
the Federal Reserve Bank of Minneapolis.  
In particular, we’ve kept our eye on four 
early childhood programs in different parts 
of the country for which cost-benefit analy-
ses have been conducted with well-matched 
control groups. 
Children who attended the Perry Pre-
school in Ypsilanti, Mich., were tracked 
until they turned 40.  While 3 and 4 years 
of age, they attended the school half-day 
and their teachers visited their homes once 
a week to reinforce lessons learned in the 
classroom.  The two-year total cost per child 
was on average almost $19,000 in today’s 
dollars.  The total benefits reached $300,000, 
for a rate of return of about 18 percent.
1  A 
lengthier and more intense program (ages 
3 months through 4 years) was provided by 
the Carolina Abecedarian Project in Chapel 
Hill, N.C.  The total four-year cost per child 
was on average almost $43,000, and the total 
benefit was $162,000 with a rate of return of 
7 percent.
2  At the other two early childhood 
programs (another preschool program and  
one in which nurses visit the homes of 
expectant mothers who are at risk), returns 
were estimated as high as 20 percent.  Well 
over half of all these returns accrued to the 
nonparticipants, the public.
3
The Stumbling Blocks
If the benefits clearly outweigh the costs, 
why aren’t more disadvantaged children 
enrolled in early childhood programs?  
First, as noted by the price tag of the model 
programs discussed above, quality does 
not come cheap.  Successful programs 
require well-trained staff and low ratios of 
children to teachers.  One funding sugges-
tion is to shift taxpayer-financed incentives 
from other programs, such as the sort of 
economic development plan that pays a 
company to move from one part of the 
country to another, yielding no net benefit 
for the nation.
4  Others have suggested that 
when extra school funds are found, they 
be invested in early childhood education 
instead of at higher grades, when children 
are less receptive to the additional help.
Another hurdle to providing such pro-
grams for at-risk children is the difficulty in 
reaching low-income families; they are often 
on the move in their search for housing 
and jobs.  Among the other obstacles is the 
dearth of high-quality programs in low-
income neighborhoods. 
To help overcome these difficulties, we 
have proposed a “tuition plus” scholar-
ship program for all at-risk children.
5  A 
scholarship would cover tuition for the child 
to a qualified early childhood development 
program, starting at age 3 and lasting up to 
two years.  The “plus” would be a parent-
mentoring program, starting even before the 
child is born.  The scholarships and parent 
mentoring would be funded with a perma-
nent endowment led by state governments.  
In January 2008, a pilot project based on 
this model was begun in St. Paul with about 
$6 million raised by the Minnesota Early 
Learning Foundation.  The foundation was 
established with the help of business leaders 
in 2005; its mission is to sponsor demonstra-
tion projects that explore how Minnesota 
can cost-effectively invest in early childhood 
development with an emphasis on market-
oriented solutions.
6 
The St. Paul Early Childhood Scholarship 
Program has served about 650 children and 
their families with parent mentoring and/
or scholarships in two neighborhoods in 
St. Paul.  In December 2009, the two-year 
point of the pilot, the program evaluator 
noted that the scholarships were reaching 
especially poor children: 71 percent of the 
families had household income below the 
poverty level, which is about $22,000 for 
a family of four.  Prior to the availability 
An Early Childhood 
Investment 
with a High Public Return
By Rob Grunewald and Arthur J. Rolnick
One funding suggestion is to shift taxpayer-financed incentives 
from other programs, such as the sort of economic develop-
ment plan that pays a company to move from one part of the 
country to another, yielding no net benefit for the nation.
ariel skelley/blend images/getty imagesof scholarships, only about one-third of 
children in the pilot program attended a 
licensed early childhood program.  After 
the availability of the scholarships, children 
were attending a variety of high-quality 
early childhood programs, including 
nonprofit and for-profit child care and 
preschools, Head Start, family-based child 
care and public school-based preschool 
programs.  About three-quarters attended 
full-day programs; the rest attended half-
day programs.
7 
The two-year report also shows the 
number of high-quality programs in and 
near the pilot area increased more than 50 
percent, from 14 programs to 22 between 
September 2008 and September 2009, as 
existing programs improved their qual-
ity and new programs opened in the area.  
Meanwhile, parents considered the program 
to be user-friendly and had strong posi-
tive opinions about the parent mentors and 
scholarships.
8  During the remainder of the 
pilot, the evaluators will measure the impact 
of the program on the school readiness of 
participating children. 
Lessons in Progress
Thirty-eight states provide state funds for 
prekindergarten programs.  In the Eighth 
District, five states fund pre-K; Indiana and 
Mississippi do not.  (See table.)  As these and 
other states consider starting or expanding  
pre-K or scholarship programs, lessons 
learned so far from the St. Paul pilot are 
applicable, particularly in reaching low-
income children, engaging parents and 
providing incentives to increase openings  
at high-quality programs.
As discovered in the St. Paul pilot, recruit-
ing low-income families can be challenging, 
particularly since these families tend to 
be highly mobile.  On the ground, person-
to-person recruitment and word of mouth 
were more effective than passive outreach 
efforts.  However, once parents enrolled in 
the program, they noted it was relatively 
easy to use and were enthusiastic about the 
scholarships, particularly when compared 
with government-administered child-care 
subsidies.
9  Combining parent mentors with 
the resources to choose a high-quality pro-
gram for their child seems to have helped 
engage parents in the education of their 
children.  On the program side, more open-
ings in high-quality programs have become 
available in part because the programs are 
paid at a higher rate than if they provided 
more-typical child care. 
Arthur J. Rolnick is a senior vice president and 
the director of research at the Federal Reserve 
Bank of Minneapolis.  Rob Grunewald is an  
associate economist there.  Go to www. 
minneapolisfed.org for more on their work.
ENDNOTES
  1  See Schweinhart et al.  A recent re-analysis of 
the Perry Preschool Program data by Heck-
man et al. shows a total rate of return between 
7 percent and 10 percent.
  2  See Masse and Barnett.
  3  See Heckman, Grunewald and Reynolds.
  4  See Grunewald and Rolnick (2003).
  5  See Rolnick and Grunewald (2006).
  6  More information about MELF, including 
a list of board members, is available at  
www.melf.us.
  7  See Gaylor et al.
  8  Ibid.
  9  Ibid.
REFERENCES
Erickson, Martha F.; and Kurz-Riemer, Karen. 
Infants, Toddlers and Families: A Framework 
for Support and Intervention.  New York: 
Guilford Press, 1999.
Gaylor, Erika; Spiker, Donna; Williamson, 
Cyndi; and Ferguson, Kate.  Saint Paul Early 
Childhood Scholarship Program Evaluation. 
Annual Report: Year 2.  SRI International, 
March 2010.
Grunewald, Rob; and Rolnick, Arthur J.  “Early 
Childhood Development: Economic Develop-
ment with a High Public Return.”  The Region, 
December 2003, Vol. 17, No. 4 Supplement, 
pp. 6-12.
Heckman, James J.; Moon, Seong Hyeok; Pinto, 
Rodrigo; Savelyez, Peter; Yavitz, Adam.  “The 
Rate of Return to the HighScope Perry Pre-
school Program.”  Journal of Public Economics, 
February 2010, Vol. 94, No. 1-2, pp. 114-28.
Heckman, James J.; Grunewald, Rob; and 
Reynolds, Arthur J.  “The Dollars and Cents of 
Investing Early: Cost-Benefit Analysis in Early 
Care and Education.”  Zero to Three, July 2006, 
Vol. 26, No. 6, pp. 10–17.
Karoly, Lynn A.; Greenwood, Peter W.; Evering-
ham, Susan S.; Hoube, Jill; Kilburn, M. Rebec-
ca; Rydell, C. Peter; Sanders, Matthew; Chiesa, 
James.  Investing in Our Children: What We 
Know and Don’t Know About the Costs and 
Benefits of Early Childhood Interventions.  
Santa Monica, Calif.: RAND Corp., 1998.
Masse, Leonard N.; and Barnett, W. Steven.   
A Benefit-Cost Analysis of the Abecedarian  
Early Childhood Intervention.  New Bruns-
wick, N.J.: National Institute for Early  
Education Research, 2002.
National Scientific Council on the Developing 
Child.  “Excessive Stress Disrupts the Archi-
tecture of the Developing Brain.”  Working 
Paper No. 3, Summer 2005.
Reynolds, Arthur J.; Temple, Judy A.; Robert-
son, Dylan L.; and Mann, Emily A.  “Age 21 
Cost-Benefit Analysis of the Title I Chicago 
Child-Parent Centers.”  Educational Evalua-
tion and Policy Analysis, Vol. 4, No. 24, 2002, 
pp. 267–303.
Rolnick, Arthur J.; and Grunewald, Rob.  
“A Proposal for Achieving High Returns on 
Early Childhood Development.”  Working 
paper, Federal Reserve Bank of Minneapolis, 
March 2006. 
Schweinhart, Lawrence J.; Montie, Jeanne; Xiang, 
Zongping; Barnett, W. Steven; Belfield, Clive 
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40.  Ypsilanti, Mich.: HighScope Press, 2005.
The Regional Economist  |  www.stlouisfed.org   13
Watch Video on This Topic 
 
James Heckman 
from the University 
of Chicago spoke 
recently at the  
St. Louis Fed on  
the economic  
case for early child-
hood education for 
disadvantaged children.  See excerpts from his 
address, which was delivered at the Missouri 
Business Leaders Summit on Early Childhood 
Investment.  To watch the eight-minute video, go 
to the multimedia page on www.stlouisfed.org.  
The exact URL is http://www.stlouisfed.org/
newsroom/multimedia/video/20100308-
childhood-investment.cfm
  Percent of 3- and 4-year-olds  
enrolled in pre-K
Ranking among  
50 states
Total state pre-K 
spending
State pre-K spending  
per enrolled child
Illinois 25.0 7th $327,024,460 $3,438
Arkansas 24.6 9th $111,000,000 $5,421
Kentucky 19.1 13th $75,127,700 $3,497
Tennessee 11.2 19th $83,000,000 $4,520
Missouri 2.9 34th $13,156,901 $2,880
Indiana no Program    
Mississippi no Program    
Pre-K Spending in the Eighth District, 2009
sOUrCe: national institute for early education research

A Benefit-Cost Analysis of the Abecedarian Early Childhood Intervention.

A Proposal for Achieving High Returns on Early Childhood Development.” Working paper, Federal Reserve Bank of Minneapolis,

Annual Report: Year 2.

Early Childhood Development: Economic Development with a High Public Return.” The Region,

Infants, Toddlers and Families: A Framework for Support and Intervention.

Lifetime Effects: The High/Scope Perry Preschool Study through Age 40.

The Dollars and Cents of Investing Early: Cost-Benefit Analysis in Early Care and Education.” Zero to Three,

The exact URL is http://www.stlouisfed.org/ newsroom/multimedia/video/20100308-childhood-investment.cfm Percent of 3- and 4-year-olds enrolled in pre-K Ranking among 50 states Total state pre-K spending State pre-K spending per enrolled child

The Rate of Return to the HighScope Perry Preschool Program.”

An early childhood investment with a high public return

http://stlouisfed.org/publications/pub_assets/pdf/re/2010/c/childhood_education.pdf

An early childhood investment with a high public return

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