Editor’s note: In 2003, Rob Grunewald and Arthur Rolnick, economists at the Federal Reserve Bank of Minneapolis, coauthored “Early Childhood Development: Economic Development with a High Public Return,” published in the March issue of fedgazette (www.minneapolisfed.org/~/media/files/publications/studies/earlychild/abc-part2.pdf). Since then, the Minneapolis Fed has hosted four conferences on early childhood development, covering topics such as cost effectiveness, health and early childhood development, and sustaining early childhood gains. On October 5–6, the Center for Indian Country Development at the Minneapolis Fed will host a national conference on Early Childhood Development in Indian Country. Information about these conferences and papers, articles, and presentations on early childhood development are available at www.minneapolisfed.org/publications/special-studies/early-childhood-development and at www.minneapolisfed.org/indiancountry.

Experiences during the first few months and years of life create the foundation for learning and development. Supportive early environments help children succeed in school and in life, and provide many benefits that spill over into communities and society. Cost-benefit analyses of high-quality early learning programs show that the monetary benefits to society are much larger than program costs. Sustaining the gains children make in early childhood during elementary school and beyond is important to achieving these high returns.

Impact of the Early Years

Neuroscience and developmental psychology research describes the type of early experiences that help children thrive, including stable and nurturing relationships with caregivers, language-rich environments, and encouragement to explore through movement and senses. With supportive early experiences, children are more likely to arrive at kindergarten prepared to succeed in school.

Research also describes the experiences that hinder healthy development: poverty; exposure to violence, abuse, or neglect; and an incarcerated or mentally ill parent. Adverse experiences, or “toxic stress,” can lead to a brain wired for negligence or threat, which can impair learning, memory, or the ability to self-regulate.

The impact of early adversity is observed in children well before they arrive at kindergarten. One research study documented that, by the age of three years, children in high-income families have twice the vocabulary as children in low-income families.1

Early adversity not only affects school success, but it is also associated with mental and physical health issues later in life. According to an analysis of data collected in the Adverse Childhood Experiences study, adults who suffered multiple adverse experiences in childhood were more likely to suffer from heart disease compared with adults who did not have an adverse experience.2

The Importance of Early Childhood Development Programs

In response to research on this issue, early childhood development programs seek to nurture healthy development from the earliest years. Programs that offer enriched experiences for children and involve parents and other caregivers provide benefits for all children but have the strongest impact on children from disadvantaged environments.

Prominent studies of early childhood education, including those of the Perry Preschool Project in Michigan (ages 3–4 years), the Chicago Child–Parent Centers program (ages 3–4 years), the Carolina Abecedarian Project in North Carolina (ages 3 months through 4 years), and the Prenatal/Early Infancy Project in Elmira, NY (home visits by a registered nurse; prenatal to age 2 years), demonstrate that children from disadvantaged environments can make gains from participating in a high-quality early learning program, and that the benefits extend well into adulthood.3

Benefits include lower social costs (e.g., lower crime costs) and higher school achievement, educational attainment, and earnings. Analysis also shows health improvements, such as reductions in smoking and lower risk for heart disease and diabetes. Benefit–cost ratios from these projects range from $4 to as high as $16 returned for every dollar invested. In addition, across the four studies, public benefits from reduced societal costs and increased tax revenue were larger than private benefits to children and their families.4

Not only can investments in young children reduce societal costs and increase tax revenue, but they can boost future labor force productivity, a key ingredient of economic growth. The skills employers look for — including ability in math and language, working well in teams, critical thinking, self-motivation, and persistence — are shaped during the first few years of life. With demographic trends showing slower growth in the U.S. working-age population over the next few decades,5 the effectiveness of early learning, as well as primary, secondary, and postsecondary education, will be important to help meet demands for labor.

A high-quality early learning system also helps parents enter the workforce. And once they find a job, such a system makes it less likely that working parents will be absent or less productive because of unreliable child-care arrangements. In the U.S., 65 percent of children younger than 6 years old have all parents in the workforce,6 and research shows that parent absenteeism and productivity reductions due to child-care breakdowns cost U.S. businesses more than $3 billion annually.7

Funding Early Learning Programs

Family tuition payments comprise the largest share of funding — about two-thirds — in the early learning market (child-care and preschool programs). Government funding, which largely targets vulnerable children, comprises about one-third.8 Local, state, and federal governments help fund programs that start as early as the prenatal period (e.g., home visiting), as well as fund mental health programs, child-care subsidies, and preschool programs. Although policymakers across several government jurisdictions have increased funding levels in recent years, many vulnerable children and families continue to lack access due to insufficient funding.9

Pay for success (PFS) funding is an approach to government contracting that ties payment for service delivery to achieving measurable outcomes that demonstrate reductions in government costs. In this model, a government entity develops a contract with an intermediary and service provider to achieve particular outcomes. Private investors and philanthropists fund the project, therefore taking on the risk, and are paid back with interest only if outcome metrics are met.

In Salt Lake City and Chicago, private investors and philanthropists funded preschool expansions with the goals of reducing the need for special education in both projects and increasing kindergarten readiness and third grade literacy in the Chicago project. In South Carolina, a PFS project is expanding Nurse-Family Partnership, a nurse-based home visiting program for first-time and at-risk mothers.10

Sustaining Early Childhood Gains

Long-term benefits from investments in young children depend on sustaining gains from early childhood programs into school and adulthood. The Minneapolis Fed featured this topic at a conference in 2015.11 Researchers at the conference noted that high-impact early learning programs, supportive transition paths to kindergarten, and parent engagement are features consistent with sustaining early gains.

Early childhood researchers are working on identifying the characteristics of early learning programs that lead to positive child outcomes. For example, research has shown that teachers are positively related to child outcomes, yet researchers are still investigating the specific characteristics of teachers that matter most to student learning.12 At the conference, researchers noted that aside from teacher effectiveness, research-backed curriculum, accountability, and strong leadership are features of early learning programs consistent with strong child outcomes. In addition, early learning programs that are effective in facilitating language development cultivate key skills children need to succeed in school.

For children who have attended an early learning program, the transition to kindergarten can affect how well benefits continue into the early grades. Research presented at the 2015 conference highlighted the benefits of facilitating understanding about expectations and coordinating professional development across early learning programs, kindergarten classrooms, and early elementary classrooms. Finally, strategies to engage parents either through home visits or activities at an early learning program can help parents understand key child development milestones and enrich the home environment. Parent engagement during the early years can lead to ongoing parent involvement as children enter school.

Looking Forward

While neuroscience and developmental psychology research, long-term evaluations of early learning programs, and research on sustaining early childhood gains provide a solid basis for making informed investments in early childhood development, there is more to learn about how to build quality programs, identify best practices, and investigate effects on other sectors. To further this discussion, the Federal Reserve System’s 10th biennial Community Development Research Conference, March 23–24, 2017, will feature the theme, “Strong Foundations: The Economic Futures of Kids and Communities.”13 The conference will explore recent research findings on the connection between child and youth development and building strong communities as well as implications for the economy and workforce.

The views expressed here do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.

[1]Betty Hart and Todd R. Risley. Meaningful Differences in the Everyday Experience of Young American Children. Baltimore: Brookes Publishing, 1995.

[2]Maxia Dong, Wayne H. Giles, Vincent J. Felitti, et al. “Insights into Causal Pathways for Ischemic Heart Disease: Adverse Childhood Experiences Study,” Circulation, 2004, 110(13), pp. 1761–1766, available at http://circ.ahajournals.org/content/110/13/1761.full.

[3]James J. Heckman, Rob Grunewald, and Arthur J. Reynolds, “The Dollars and Cents of Investing Early: Cost–Benefit Analysis in Early Care and Education,” Zero to Three, July 2006, 26(6), pp. 10–17.

[4]See Heckman et al.

[5]U.S. Census Population Division. Population Projections, available at www.census.gov/population/projections/.

[6]U.S. Census Bureau, 2014 American Community Survey, 1-Year Estimates, available at www.census.gov/programs-surveys/acs/technical-documentation/table-and-geography-changes/2014/1-year.html.

[7]Karen Shellenback. “Child Care and Parent Productivity: Making the Business Case,” Linking Economic Development & Child Care Research Project, Cornell University, December 2004.

[8]Elaine Weiss and Richard Brandon. The Economic Value of the U.S. Early Childhood Sector. Partnership for America’s Economic Success, Pew Center on the States, July 2010, available at http://readynation.s3.amazonaws.com/wp-content/uploads/The-Economic-Value-of-The-U.S.-Early-Childhood-Sector.pdf. Karen K. Lynch. “Trends in Child Care Spending from the CCDF and TANF.” Congressional Research Service, June 2016, available at www.fas.org/sgp/crs/misc/R44528.pdf. Author’s calculations show that philanthropic funding for early childhood development programs comprises about 1 percent of total funding.

[9]See Nathaniel Borek's article, "Pre-K Debate Shifts from Effectiveness to Scale" in this issue of Cascade.

[10]See the Pay for Success Learning Hub, www.payforsuccess.org. Readers may also be interested in two articles that appeared in the No. 89, Fall 2015 issue of the Philadelphia Fed’s Cascade publication: Noelle S. Baldini, “Pay for Success: Financing Research-Informed Practice,” available here, and Marvin M. Smith, “Spotlight on Research: Lessons Learned from Pay for Success Programs,” available here.

[11]Rob Grunewald. “Sustaining Early Childhood Education Gains,” Community Dividend, Federal Reserve Bank of Minneapolis, February 25, 2016, available at www.minneapolisfed.org/publications/community-dividend/sustaining-early-childhood-education-gains.

[12]Greg Camilli. “Teacher Influences, Teacher Effects, and Program Effectiveness in Early Childhood Education,” Rutgers University, October 2015, available at www.humancapitalrc.org/~/media/files/events/2015-conference/teacher_influences_camilli_10-6-15.pdf.

[13]For more information about the conference, visit www.minneapolisfed.org/community/community-development/tenth-biennial-federal-reserve-system-community-development-research-conference.