Investing in Our Children is Wise and Will Bring High Returns on Investment: A Close Look Into the Socioeconomic Status of Children in California
- Dr. Jamshid Damooei
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The phrase “children are our future” is not a mere political slogan. It is a reality. This study looks at the status of children in California with an emphasis on children under five years of age (First Five). It shows that a majority of children in California enter their childhood with the clear disadvantage of being under the poverty line or living in a family with an even lower income (below 200% of the federal government’s defined poverty level). It argues that socioeconomic disadvantages and disparity in the early part of children’s lives may lead to unbridgeable gaps in their ability to learn and become successful in their adulthood. It shows that investing in children has the highest rate of return. The return on investment (ROI) comes in multiple cost savings such as the cost to criminal justice system, the cost to victims of crimes, welfare payments, higher tax revenues, greater lifetime earnings, etc. It is simple; when children have better childhoods, they earn more, pay more taxes, do not need government help, commit less crime, and raise successful families. The paper argues that unlike business investments, a society cannot postpone its investment in youth. Lack of investing in youth should be considered a disinvestment with high social and economic costs.
Key Words: Children, Investment, Poverty, Socioeconomic Status, Return on Investment (ROI), Public Policy.
California was the world’s ninth-largest economy in 2011 as Brazil moved past California and into 6th place in the rankings. According to U.S. Department of Commerce estimates, California’s GDP (Gross Domestic Product) was slightly less than $2.0 trillion. In terms of size, the California economy ranked just behind Italy and ahead of the Russian Federation in 2011. The next four largest economies were India ($1.8 trillion), Canada ($1.7 trillion, Spain ($1.5 trillion) and Australia ($1.4 trillion). With a population of 38 million and a per capita income of $44,980 in 2012, California is ranked 15th among the fifty states in the United States. On the basis of per capita GDP, California is far ahead of countries such as France and the U.K. and equal to other countries such as Germany or Japan. However, California has one of the worst records when it comes to the state of its children. Based on the latest information, the overall rank of California for the state of children among 50 states is 41st. This rather obvious and somewhat strange contrast brings a number of important questions that we need to ask our policymakers and ourselves as people who elect policymakers and empower them with the ability to influence our lives and pave or obstruct the way for a better future for all of us:
- What are the systemic problems that have caused such lack of attention to the state of the children?
- How sustainable can the continuity of the prosperity of the state be when, according to the latest data available, 23% of its children (some 2,085,000 children) live below the poverty line and 67% of them (2/3) live either below poverty or in low-income families (low income families are families with family income of 200% or less than the poverty income level.
- What are the positive economic impacts of investing in children and consequences of disinvestment?
2) A Broad Look at the State of Children In California
The following four charts show the state of children based on the latest available information in the State of California.
Source: 2013 Kids Count Profile, Children Now of California, The Anne E. Casey Foundation
The above chart shows the difficult situation that millions of children are facing in the State of California. California ranks 46th in terms of the economic wellbeing of children among the 50 states.
Source: 2013 Kids Count Profile, Children Now of California, The Anne E. Casey Foundation
This above chart shows many children in the State of California go through school with insufficient education, which makes a great number of them functionally illiterate.
Source: 2013 Kids Count Profile, Children Now of California, The Anne E. Casey Foundation
Low birth, relatively high teen pregnancy, and death rates among children and teens and alcohol and drug abuse statistics are all indicative of the inadequate care and attention we offer to our children. Much of the lack of the attention is not a choice that parents make, but rather it is forced upon many of them because of the prevailing socioeconomic conditions and lack of sufficient investment in our children and their families.
Source: 2013 Kids Count Profile, Children Now of California, The Anne E. Casey Foundation
Finally, the above chart shows that children in California live in families with significant economic vulnerability and challenges. Budget cutbacks and reducing government expenditures on the backs of families and children who need the support of their societies and communities cause such problems. The problem is the prevailing shortsightedness of these policies and the inability to see the big picture and the ensuing consequences over time.
3) Current State of California’s Investment in Its Children
California is home to 3.2 million young children, ages 0-5. California’s zero-to-five population is ethnically and racially diverse: 53% are Latino, 28% are white, 10% are Asian and 6% are African American. In California, 694,000 (22%) children ages five and younger live in poverty. Nearly 1.4 million (45%) live in low-income families (below 200% of the federal poverty level, or $44,100 annually for a family of four). 67% (nearly 7 out of 10) of children age five and younger in California live in families below the poverty level or who are considered low-income.
Over one-third (39%, or 4 out of 10) of California’s age 0-5 population live in families where the most knowledgeable adult does not speak English well. California is the nation’s 5th least affordable state for center-based infant care. Cost of infant care is more than 40% of the median income for a single-parent household. In California, less than 4% of public investments in education and development are targeted at children from birth to age four, while 85% of children’s core brain structure is developed by age four. This can be seen in the following graph which presents the inherent lack of understanding and true appreciation of what the State of California really needs and how inappropriate its budgetary allocation has been thus far. The problem is the lack of any serious and focused attention to the fact that investment in children cannot wait like real estate or any other business-related investment decision for the right time to come. Not investing in early childhood can only cause a problem that is hard if not impossible to reverse.
Development over time in children and allocation of Public Spending Rate of return in investment on Human Capital
Source: Children Now, 2011 http://www.childrennow.org/index.php/learn/early_learning_and_development/
According to the research presented in the above (Children Now 2011 Report):
“When young children lack basic nutrition in the prenatal period, during infancy and in early childhood, the effects on their brain development can be devastating and long-lasting. By the age of two, children spoken to often will have learned almost three hundred more words than children spoken to less often, as language development is a foundation for future learning. Moreover, children who receive sensitive, responsive care from their parents and other caregivers in their first year are more likely to develop healthy emotional attachments and are likely to be better equipped to overcome adversity in adulthood Proving all children age 0 - 5 with the health and education support services they need to get the most out of their early years pays a lifetime of dividends to all of us.”
The above chart shows that more than 85% of children’s brain development occurs before the age of 4 and only 4% of total human capital investment is allocated to this age group. Nationally, less than 10% of investment in education and development are spent on children ages four or younger.
Looking deeper into the existing conditions in California shows a clear and undeniably imposed disparity on children from low income families. The consequences of this unconscious and likely unintentional discrimination are enormous.
When entering kindergarten, the average cognitive score of the nation’s most affluent children is 60% higher than that of the nation’s poorest children. By age three, children in more affluent families will have heard 30 million more words, on average, than children in low-income families. This difference is likely to contribute to future achievement gaps, as children’s vocabulary development by age three has been shown to predict school achievement in third grade. Research suggests that more than half of the achievement gap between lower- and higher-income students can be explained by unequal access to enriching summer activities. When enter kindergarten, children from low-income families are typically 12-14 months behind the national average in pre-reading and language skills.
California’s public K-12 education system comprises roughly 9,900 schools in 1,043 districts and serves approximately 6.2 million students. For the first time ever, the majority of California’s K-12 students are Latino (50%), while 27% are white, 9% are Asian, 7% are African American, 3% are Filipino, 2% are non-disclosed, 2% are two or more races, 1% are Native American and 1% are Pacific Islander. California public K-12 education performance is far less than satisfactory level:
- 50% below proficiency level in English-Language Arts (ELA)
- 54% below proficiency level in Mathematics
- 64% below proficiency level in Science
Looking at the student performance in California shows a resistant and dangerous gap in academic achievements of our children across the socioeconomic status of children that is, at this juncture of time, aligned with ethnicity of the students. What is clear is the socioeconomic status of children that closely correlated to the ethnic structure of our children. Latino and African American students, economically disadvantaged students, and other vulnerable youth, such as those in foster care, are much more likely to lag behind their peers in school. Among California’s high school graduates, 23% of African Americans, 23% of Latinos, 40% of whites and 59% of Asians completed the coursework to qualify for the state’s post-secondary education system. 
California ranks near last among the 50 states on a number of measures of education spending:
- California’s educational spending as a percentage of its personal income is 3% and ranks 46th in the nation (the national average is 4%).
- With a budget of $49.7 billion in 2010-11, it was still $4.1 billion short of the state’s “minimum constitutional guarantee” on educational spending. 
- In 2009, California ranked 47th out of the 50 states in eighth grade mathematics testing performance.
- Budget cuts have led to lower in-state acceptance rates into the University of California (UC) system. Despite increases in the number of applicants in the last two years, acceptance rates have dropped nearly 4%. 
Are we preparing our children for a successful and productive life in the global economy of the future? Nine out of the ten fastest-growing occupations require at least a bachelor’s degree and significant training in math or science. Gender plays an important role in the confidence of our children to embark on job searches requiring preparation in math and technology. Despite growing demand for math training, based on the existing information, only 54% of California’s tenth-graders who took the California High School Exit Exam (CAHSEE) in 2009-10 scored proficient or above in mathematics. Despite similar levels of math achievement, only 15% of female college freshman students plan to major in a STEM (Science, Technology, Engineering and Math)-related field compared to 29% of male college freshman.
Equality and offering good quality education to all children should be an important feature of the educational opportunity that we offer to our children. The existing information shows that this may not be the case for many of our children. 23% of new teachers in the U.S. graduated in the top third of their college class, whereas only 14% of new teachers in high poverty schools graduated in the top third of their college class. Low-income children in the nation’s schools have only a 10% chance of experiencing high-quality instruction throughout their critical years in elementary school.
In California, 40,000 children live in foster homes. Educational attainment among youth in foster care is statistically low. Only 54% of California’s children who live in foster care end up completing high school. While 70% of our children in foster homes hope to go to college, less than 3% go on to earn a four-year degree.
The crime rate spikes upwards dramatically with the highest rate of violent juvenile crimes occurring when youth leave schools between the hours of 3:00 and 4:00 PM. Over 7 million children in the U.S. lack adult supervision during after school hours. Throughout California, only 53% of fifth to seventh graders are regularly supervised after school.
4) Return on Investment in Our Children
The return on investment in our children is one of the highest returns compared with any economic or social investment in the private or public sector. Early childhood investment has one of the highest possible returns according to various studies. Similarly, investment in high-risk children brings the highest return. Return comes in multiple cost savings such as the cost to criminal justice system, the cost to victims of crimes, welfare payments, higher tax revenues, greater lifetime earnings, etc.
It is simple; children earn more, pay more taxes, do not need government help, commit less crimes, and raise successful families. According to existing long term studies, the return on investment in educational programs for 3- to 4-year-old children of low income families can reach as high as more than 17 times, when they reach age 40 (Perry Preschool). A summary of the return on investment on some nationally recognized early childhood investment programs are shown below.
Note: WIC is a federally-funded health and nutrition program for women, infants, and children. WIC helps families by providing checks for buying healthy supplemental foods from WIC-authorized vendors, nutrition education, and helps families to find healthcare and other community services.
Moving from early childhood to adolescents and older stages of child development, the existing research provides us with a convincing set of proven studies that show that investing in children is highly productive and far more economically meaningful than letting the opportunity fade away. The following evidence leaves no doubt for anyone with an objective mind, human heart and concern for the common good of our communities.
The total cost associated with California’s 120,000 high school dropouts per class year is $46.4 billion, or nearly 3% of the gross state product. The achievement gap that exists among various racial and ethnic groups has been likened to “a permanent national recession,” costing the nation between $310 billion and $525 billion each year.
Parents whose children are not in an afterschool program miss an average of eight days of work per year compared to three days for parents whose children are in an afterschool program. Decreased worker productivity related to parental concerns about afterschool care costs California businesses up to $300 billion a year.
For every $1 spent on afterschool programs, between $5 and $7 is generated in public savings.
Providing simple and affordable preventive care is enormously cost effective: $1 in preventive care saves as much as $50 in restorative and emergency care.
A study in 2010 on the Economic Impact of Boys & Girls Clubs in Ventura County showed that for every $1 spent on the Boys & Girls Clubs, nearly $12 is generated in terms of increase in high school graduation rates, reduction in teen pregnancy, reduction in juvenile crimes, increases in the ability of parents to work and keep their jobs, and an increase in regional output through the collective regular and capital expenditures and volunteer work.
In an earlier study of the Boys & Girls Clubs of Greater Oxnard and Port Hueneme, we found that for every dollar spent on the Club, $4.5 dollars was saved through the expected reduction in costs of juvenile crime to the State of California.
5) Possible Policy Questions and Implications
It is clear that investment in our children has the highest rate of return on our investment, which is far greater than any investment in the private sector. The benefits of such investments go to everyone in the society, although at various levels, and the ultimate outcome is a prosperous economy with healthy and productive individuals and families. Any government with such objectives is a true pro-family government.
The inevitable outcomes of such investments are increases in the quality of life, productivity, and therefore reductions in future public expenditures and a lesser need for tax revenue in the years to come. The most effective and long-lasting element for fiscal stability and prosperity is people who are productive and do not need public assistance. The question is: why are we are not taking advantage of this opportunity to build the foundation of a strong, fair, and just society that has educated, productive and successful people?
Any serious public policy debate should bring up the following questions and try to answer them:
- Do we suffer from the lack of a budget, or misguided policy objectives and spending priorities?
- Can we really do better as a society by balancing our budget on the backs of our low-income families and denying a productive future to our young?
- How can we trust the free market and believe that “it will take care of everything only if we let it be free”?
- How free is this “free market economy” when we have all the elements of market failure and its dysfunction, such as existence of externalities, “too big to fail” policies, asymmetry of information, and massive needs for provision of public services that are essential for investing in our own people.
- Can we ignore the future of our nation by not seeing the relationship between our investment in our youth today and their better future in the days to come?
We should be clear about our priorities and long-term consequences of our actions, and in the case of investing in youth, our inactions. The following principals are important to observe and propagate:
- The creation of a future economy which is productive, sustainable, just, peaceful, and fiscally sound.
- A focus on the long-term outcomes by making smart investments for the creation of better human capital and increased economic capacity.
- Policies should encourage individual and group innovation and economic and social entrepureship.
- Policies should be transparent.
- Create greater social cohesion and shared values within the country with people who are motivated to bring improvement to their communities.
- Value and assist businesses that value the improvement and betterment of the lives of people in their regions and their residents through their support systems.
 About the Author: Jamshid Damooei is Professor of Economics and Chair of the Department of Economics, Finance and Accounting and Co-Director of the Center for Leadership and Values at California Lutheran University, USA.
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 World Bank Indicators http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
 See Children Now, 2013 Kids Count Profile, The Anne E. Casey Foundation.
 See US Census Bauru, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
 See National Center for Children in Poverty, Mailman School of Public Health, Columbia University, California Early Childhood Profile (New York: National Center for Children in Poverty, 2010), http://www.nccp.org/profiles/pdf/profile_early_childhood_CA.pdf
 This is based on 2010 census data. There are clear indications that the new data for the children poverty this rate has marginally increased and the final data will be available shortly.
 National Center for Children in Poverty, Mailman School of Public Health, Columbia University, Demographics of Young, Low-Income Children: California (New York: National Center for Children in Poverty, 2009), http://www.nccp.org/profiles/state_profile.php?state=CA&id=8
 Children Now analysis of data from University of California, Los Angeles, Center for Health Policy Research, AskCHIS, “How well does child’s most knowledgeable adult speak English,” ages 0-5, California Health Interview Survey 2007, http://www.chis.ucla.edu/main/default.asp
 National Association of Child Care Resource & Referral Agencies, Parents and the High Cost of Child Care: 2010 Update (Arlington, VA: National Association of Child Care Resource & Referral Agencies, 2010), http://www.naccrra.org/membership/parents-and-the-high-cost-ofchild-care.php
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 See Children Now, 2011 http://www.childrennow.org/index.php/learn/early_learning_and_development/
 States: Early Learning Guidelines and Assessments,” Child Trends Early Childhood Highlights 1 (2010): 1-12, http://www.childtrends.org/Files/Child_Trends-2010_06_18_ECH_SchoolReadiness.pdf .
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 Catherine Hill et al., American Association of University Women, Why So Few? Women in Science, Technology, Engineering and Math (Washington, D.C.: American Association of University Women, 2010), http://www.aauw.org/learn/research/upload/whysofew.pdf
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 Jamshid Damooei, Alidad Damooei, The Boys & Girls Clubs in Ventura County: Serving the economic interests of the region while providing a positive place for kids, (April 2010), http://www.damooei.com/PDF/VBGC.pdf
 Jamshid Damooei, Economic Impact Study of the Boys & Girls Club of Greater Oxnard and Port Hueneme on the Community: A Study of the Return in Investing in Our Children, 2008.