• By Kevin Mount
  • Posted on Tuesday 21st October, 2008

Compounding the public interest in children

The language seemed compelling until a few months ago: in the eyes of an economist, parents are investors, children are their portfolios, and the key questions are: how much and when is the best time to invest to maximize return? The potential return, in this case, is well-educated children who are self-sufficient, contributing members of society. These are the types of questions that Nobel Prize winning economist and University of Chicago economics professor, James Heckman, addressed in a recent article in the Annals of the New York Academy of Sciences.Heckman starts by discussing the “ability gap” between children of different means. Children from low income families begin school with a handicap that puts them further and further behind their more affluent counterparts as they grow. The most effective efforts to reduce the gap, he says, are those that supplement family environments so that poor children receive the nurturing and stimulation more commonly found among better-off families.Unfortunately, the world of parenting is not a perfect “free market”. Children can’t choose the best parents. They are saddled with the ones who bore or adopted them. And parents are limited by their incomes when they invest in their children. They can’t borrow against their own future income or that of their children. An economic calculus can nevertheless be derived, Heckman says, for when and how much the government (or private charities) should invest in preschool programs (such as Head Start and Sure Start) designed to reduce the ability gap.Money makes money. It’s a basic economic idea. Heckman argues – more rashly as things have turned out – that a dollar or pound invested today will be worth exponentially more in twenty years than in five years as the interest compounds. The same idea applies to children, he says, because their brains are more malleable – or able to learn when they are very young than when they become adolescents. Moreover, early learning makes the mind more efficient at later learning. So, as with the theory of compound interest, there’s a multiplier effect. Heckman crunches the numbers to show that the government would have to invest 35 percent more in an adolescent program than in a preschool program to earn the same “return” on the investment. The best strategy, however, is to make a big investment in preschool programs but also to make smaller investments in programs for older children and adolescents. Later investments help children to maintain and build on their earlier progress, according to Heckman.&bold: Summary of “Role of Income and Family Influence on Child Outcomes” by James J. Heckman in Annals of the New York Academy of Sciences, 2008, Volume 1136, p. 307-323.

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