NOTES 80642 Child & Youth Development Investing in your country’s children and youth today: Good policy, smart economics With many competing demands for scarce funds, countries often do not fully recognize how critical young people are to their national economies, societies, and democracies – both today and in the future – and consequently dedicate too few resources to harness their productive capacity. Policymakers should treat expenditure on children and youth as a public investment that generates returns to society through higher economic growth, reduced social costs, and increased quality of life for all. Given the cumulative nature of human development, underinvestments in children and youth are difficult to reverse later in life, and the price for society is high. It is more effective to invest early in life than to repair later, when badly equipped adults turn out to be unskilled, unemployed, or unhealthy. Therefore, allocating sufficient public resources to child and youth development, even in times of economic stress and budgetary constraints, is a sine qua non for a country’s development and competitiveness. There are over 3 billion people under the age of 24 in the world today, comprising 47% of the world’s population. Nearly 90% live in developing countries and the challenges they face—poor health, low quality education, lack of marketable skills, high rates of unemployment, early pregnancy, social exclusion, and the highest rates of new HIV/AIDS infections—are costly to themselves and to society at large. Client demand for policy advice on how to tap the enormous potential of the world’s children and youth is large and growing. This series aims to share VOLUME IV, NUMBER 1 research findings and lessons from the field to address these important cross-sectoral topics. AUGUST 2010 www.worldbank.org/childrenandyouth The economic case for investing in Figure 1: Optimal versus Actual Investments in Human children and youth Capital throughout the Life Cycle This note argues that investing in children and youth (C&Y) is smart economics. Countries that produce a skilled, healthy, and productive workforce are better positioned in the global economy to achieve economic prosperity, political stability, and social well- being. Since capacities built during childhood and the youth period largely determine adult outcomes, effective investments in young people provide important returns not only to the individual and the community, but to society as a whole. In other words, child and youth investments are a crucial ingredient for an effective development strategy. Source: World Bank (2007), using fiscal accounts from Brazil, 2001-2004. “Either we do nothing – and risk alienating [youth] from the The cost of not investing mainstream and instilling in them a legacy of distrust and Failing to invest in children and youth triggers substantial economic, hopelessness – or we invest in the biggest source of human social, and political costs. Given the cumulative nature of human potential that the world has ever had, and reap the benefits of development, underinvestments in children and youth are difficult to that investment through greater growth and social well-being for reverse later in life, and the price for society is high. Negative outcomes generations to come.� resulting from misaligned investment strategies include truncated Lin/Cunningham (2010), in: The Financial Times1 human and social capital accumulation (e.g. school drop-out, poor labor market entry) and negative conduct (e.g. substance abuse, crime and violence, risky sexual behaviors). Moreover, evidence shows that Human and social capital investments are the foundation for economic such behaviors are likely to be transferred to the next generation, development and social wellbeing. The importance of human and social creating a vicious cycle of social exclusion and negative behaviors.6 capital for economic and social outcomes is widely accepted and a These outcomes and the resulting underutilization of human resources necessary complement to other factors of production.2 Education and are costly for the individual and society, and may have two types of cost job experience, as well as social networks, increase a person’s or group’s implications: productive capacity, income, and overall welfare. Policies enhancing n Direct expenditure: The costs associated with medical treatment, these human capabilities and networks, in turn, translate into higher special education programs, the criminal justice system, welfare productivity for the individual and society at large. spending, and other public subsidies to prevent or compensate for The accumulation of human and social capital must start at a young age. the effects of poor choices during adolescence and youth; and A large body of literature documents the importance of the early years n Opportunity cost: The potential benefits that could have been in determining adult cognition, motivation, and health.3 In fact, early achieved in the absence or reduction of undesirable behaviors. childhood and adolescence are the periods when the brain is in rapid For instance, teenage pregnancy, HIV/AIDS, early school drop- development, learning and experimentation are at their peaks, and out, or unemployment can be associated with lower economic life-long patterns of behavior are established. Moreover, cognitive and production and lower lifetime earnings. non-cognitive skills and health capabilities at one stage of childhood In many countries the overall damage to society amounts to several enhance the effectiveness of investment at later stages.4 percent of GDP per year. Although it is impossible to put a value on Investing in programs tailored to children and youth therefore advances a human life or on the range of positive and negative externalities socio-economic development, by establishing a strong foundation that generated by young people, rough estimates show that preventable promotes individual opportunity, social mobility, and good citizenship. risky behaviors induce losses to society that reach into the billions of This is especially relevant among vulnerable populations, whose living dollars. In Latin America and the Caribbean as a whole, total risky conditions put them at a particular disadvantage in accessing human youth behavior reduces economic growth by up to 2 per cent annually.7 and social capital and ultimately in making choices that are beneficial Findings from the United States, where the cost of child poverty is to themselves and society. estimated at almost 4 percent of annual GDP, suggest these results are in a feasible range.8 Figure 2 illustrates cost estimates of negative However, many countries underinvest in young people. Given the outcomes in several countries.9 For example, in: evidence, an optimal social expenditure scheme would invest generously in childhood and youth to reduce the need of later n Jordan, if youth unemployment rates were equal to adults, the investment. Yet, as Figure 1 illustrates for the example of Brazil, actual country would generate additional output equivalent to 1.8 public expenditure is often skewed towards the adult population (>25 percent of current GDP; years), mainly reflecting pensions and health care costs.5 Even though n Jamaica, youth crime and violence incurs public and private costs school and university expenditure can be significant, this spending equivalent to 3.2 percent of current GDP; hardly reaches vulnerable children and youth, who are not, or only to a n Uganda, if girls with only a primary education finished secondary lower extent, participating in the formal education system. school, over their working lives they would contribute economic 2 Child & Youth Development Notes | August 2010 benefits to their country equivalent to one-third of current year Target influencing factors beyond the young person: At each stage of the GDP. life cycle, people are a product of the social and economic influences that surround them. Thus, some of the most effective child and youth Figure 2: The estimated cost of not investing in children development is achieved by influencing those factors that help shape & youth, as % of current GDP (for selected negative behaviors, such as families, communities, schools, the media, the legal outcomes)* system, and social norms. Jordan Jamaica Ugandaa Indiaa Invest on grounds of empirical evidence: Investments in children and Unemployment 1.8 1.4 .. 0.6 c youth can be more cost-effective by focusing on programs with proven impact and high benefit-cost ratios. Reflecting the experience from both School Dropout b 1.5 3.0 34.0 0.3 OECD and developing countries, Box 1 provides a list of programs that Teen Pregnancy 3.1 1.3 19.2 3.1 meet these criteria and can guide public investment decisions.11 These HIV/AIDS .. 0.7 .. .. include a range of interventions, such as early childhood development Crime & Violence .. 3.2 .. .. programs and parenting programs, comprehensive job training, or providing key risk prevention messages in school and through the Migration 0.2 .. .. .. media. * Estimates are not comparable across countries given methodological differences. They also cannot be added up because of the concurrence of Box 1: Selected effective policies for child and youth development negative behaviors which would lead to double counting. a refers only to adolescent girls, b before the end of secondary school, General c unemployment and inactivity. n Early childhood development Sources: Chabaan (2008), Chabaan (2009), Chabaan/Cunningham n Parenting programs (forthcoming), Cunningham et al. (2008a). n Financial incentives to promote good decision-making n Life skills training These numbers are an underestimate since many costs remain n Mentoring programs unquantifiable, such as psychological distress, poorer health, less n Birth certificates for the undocumented * civic participation, or intergenerational effects. Moreover, given Education demographic trends of rising absolute numbers of children and youth n Secondary school completion in many countries, the total cost of risky behavior is likely to rise in n Education equivalency programs the future. Since the opportunity costs greatly outweigh the direct Employment expenditure, a large part of this cost remains invisible, which is one n Comprehensive job training that include a mix of technical skills, life skills, and internships of the reasons why countries often fail to sufficiently invest in this age n Youth service programs or public sector internships group. n Employment services n Comprehensive entrepreneurship programs “The later in life we attempt to repair early deficits, the costlier Health n Key risk prevention messages in schools and media the remediation becomes.� n Reproductive health services targeted at young people James Heckman, Nobel Laureate in Economic Sciences n Higher-price and lower availability of tobacco and alcohol* n Access to contraception* Non-violence The way forward: Smart investments today n Safe neighborhood programs* for future returns n Reduced availability and use of firearms* n Rehabilitation and second-chance opportunities for young Given the opportunity cost of underinvestment, policymakers have a offenders* responsibility to allocate sufficient public resources in child and youth n Anti-violence messages in all media* development, with particular attention to vulnerable groups. Further, * Non-children- or youth-specific policies with disproportionate effect on effective policy aimed at preventing and treating negative behaviors young people. would help to eliminate many direct social expenditures, thus freeing Source: Cunningham et al (2008), Cunningham/Wuermli/Sanchez-Puerta (forthcoming), Naudeau et al (forthcoming), PAHO/GTZ (2009), WHO up public resources to be spent on other initiatives. The following (2006). principles can guide public investment decisions: Provide the foundations at an early age: Prevention, in terms of Many are low-cost relative to the benefits of investment. For example, spending now to avoid the onset of expensive social and economic implementing a conditional cash-transfer program like Progresa/ problems later, is widely considered to be the most economically Oportunidades in Mexico, which has proven to increase school efficient strategy.10 Abilities, preferences, and behavior are formed attendance by 10 percent, would cost a country like Jamaica 0.3 percent starting at birth, so programs to promote human capital formation per GDP, but generate an estimated 0.5 percent gain in annual GDP.12 and prevent risky behavior need to start at an early age. Focusing on For such gains to materialize, however, the quality of programming is early childhood development does not rule out later investment in key. Moreover, due to a paucity of evaluations that measure program adolescents and youth, but the need for second chances will be reduced impact, it is necessary to prioritize learning, via new evaluations, to if investments are made earlier in life. This means combining short- identify those interventions that can have an impact and in which and long-run policies. settings these programs can be successful.13 Child & Youth Development Notes | August 2010 3 Close the investment gap by reallocating resources and seeking Conclusion appropriate additional funding: Scaling down popular but ineffective, or detrimental programs, such as �get tough� strategies, boot camps, Complementing traditional arguments of demographics and human abstinence-only programs, or building youth centers (rather than rights, this note provides an economic rationale to focus on the young using existing spaces)14, will provide fiscal space to invest in effective generation. Countries that invest in their young people reap the and promising programs. Re-prioritizing the national investment benefits of that investment through greater growth and social well- strategy to emphasize the early years in the life-cycle of an individual being for generations to come. It is more effective to invest early in would increase the size of the child and youth investment portfolio. life than to repair later, when badly equipped adults turn out to be In addition, governments can raise money through bonds or external unskilled, unemployed, or unhealthy. Governments should therefore funders when it is used for investments where “returns� exceed the cost make children and youth part of the national investment strategies and of paying off the loan. provide sufficient resources for policies and programs that have proven effective in achieving their intended goals and that have the greatest impact per dollar spent. References: 1 Lin, J.Y. and Cunningham, W. (2010), “Seizing opportunity now will make the world fairer and safer,� Financial Times, January 29, Special Report. 2 See for example Becker, G. S. (1993), Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Chicago ; Mankiw, N.G., D. Romer and D.N. Weil (1992), “A contribution to the empirics of economic growth,� Quarterly Journal of Economics, 107, 407- 437. ; Knack, S., Keefer, P. (1997), “Does Social Capital Have An Economic Payoff? A Cross Country Investigation,� Quarterly Journal of Economics, 112/4, 1251-1288. 3 See for example Shonkoff, J. P. and Phillips, D.A. eds. (2000), From Neurons to Neighborhoods: The Science of Early Childhood Development, National Research Council and Institute of Medicine ; Carneiro, P. & Heckman, J. J (2003), Human Capital Policy, IZA Discussion Papers 821 ; Heckman J. J. & Masterov, D. (2007), The Productivity Argument for Investing in Young Children, NBER Working Papers 13016. 4 Heckman J. J. (2007), The Economics, Technology and Neuroscience of Human Capability Formation, IZA Discussion Papers 2875. 5 World Bank (2007), Youth at Risk in Brazil, Volume 1: Policy Briefing, Washington DC. 6 See for example Bird, K. (2007), The intergenerational transmission of poverty: An overview, ODI Working Paper 286, London. 7 Cunningham, W. et al (2008a), Youth at risk in Latin America and the Caribbean – Understanding the causes, realizing the potential, World Bank, Washington DC. 8 Holzer, A.J. et al. (2007), The Economic Costs of Poverty in the United States: Subsequent Effects of Children Growing Up Poor, National Poverty Center Working Paper Series 07�04. 9 Chabaan, J. (2008), The cost of youth exclusion in the Middle East, The Middle East Youth Initiative working paper, Washington DC. ; Chabaan, J. (2010), Costs and benefits from investing in youth in the CARICOM member states, CARICOM, manuscript; Chabaan, J. and Cunningham, W. (forthcoming), Measuring the economic gain of investing in Girls: The girl effect dividend, World Bank Policy Research Working Paper, Washington DC . 10 Action for Children & New Economics Foundation (2009), Backing the future: why investing in children is good for us all, London. 11 Cunningham, W. et al (2008b), Supporting Youth at risk: A policy toolkit for middle-income countries, World Bank, Washington DC ; Naudeau, S. et al. (forthcoming), Investing in Young Children: An ECD Guide for Policy Dialogue and Project Preparation, The World Bank ; Cunningham, W. , Wuermli, A. and Sanchez-Puerta, M.L. (forthcoming), Active Labor Market Policies for Youth: A framework to guide youth employment interventions, Employment Policy Primer, HDNSP, The World Bank ; World Health Organization (2006), Preventing HIV/AIDS in young people – A systematic review of the evidence in developing countries, UNAIDS/UNFPA/UNICEF/WHO, WHO Technical Report series 938, Geneva ; GTZ/ PAHO (2009), Preparados, Listos, Ya! Una síntesis de intervenciones efectivas para la prevención de violencia que afecta a adolescentes y jóvenes, Washington DC. 12 Chabaan (2009), ibid. 13 Cunningham, W. et al (2008b), ibid. 14 Ibid. Further recommended reading: n Canoy, M. et al (2007), Investing in Youth: from Childhood to Adulthood, Horizons stratégiques 2007/2, n° 4, p. 91-110. n Cunningham, W. and Correia, M. (2003), Caribbean Youth Development: Issues and Policy Directions, The World Bank, Washington DC. n Knowles, J.C. and Behrman, J.R. (2005), The economic returns to investing in youth in developing countries: A review of the literature, The World Bank, Washington DC. n Levine, Ruth et al. (2008), Girls Count, Centre for Global Development, Washington DC. n UNFPA (2005), Making the case for investing in young people as part of a national poverty reduction strategy, New York City, NY. n World Bank (2006), World Development Report 2007: Development and the Next Generation, Washington DC. Children & Youth Unit, Human Development Network, The World Bank www.worldbank.org/childrenandyouth This note was prepared by Kevin Hempel (Consultant, HDNCY) and Wendy Cunningham (Coordinator, HDNCY). The authors wish to thank the HDNCY team, Phillip Hay (Communications Advisor, HDN), Kelvin Dalrymple (Alternate Executive Director), Alejandro Gamboa (Senior Advisor to the Executive Director) and 4 Michael Herrmann (UNFPA) for their valuable comments. Child & Youth Photo Development credit: Notes Charlotte Kesl. The | August views 2010 in expressed this note are those of the authors only and do not necessarily reflect the view of the World Bank.