United States President Barack Obama recently said the highest return available on any investment was the one made by parents in their children's educations. Everyone sort of knows this, but can this assertion be quantified?
In parents' minds, it probably can - especially during the summer months, when they have to make decisions about their children's education and how to pay for it. In education-obsessed Hong Kong, it is hardly necessary to tell parents that an investment in schooling brings rewards in both a monetary and a social sense. However, the data on this matter is not straightforward; benefits are not as predictable as people might think.
With these caveats in mind, let's start with the good news. A 2005 Rand Corporation study used a cost-benefit analysis to conclude that every US dollar invested in education produced returns of US$2.50 to US$16. Most other studies have findings that cluster around the midway point of this range, suggesting that every dollar invested yields a return of US$8-10.
The bigger macroeconomic picture, contained in a 2006 Brookings Institution study, found that over a 40-year period US output had grown annually by an average of 3.5 per cent, and the productivity of labour increased by an annual average of 2.4 per cent. Improved education accounted for between 13 and 30 per cent of that gain.
Most academic studies looking at the cost of education and its impact on economic development focus on poor nations, or poor people within rich nations. There are reasons for this, but basically researchers have been impressed by how education transforms the lives of the poor. There is considerable evidence that shows this is the way of alleviating poverty that costs the least.
The returns of educational expenditure are much higher among the poor than among the rich, despite the rather obvious fact that those with more money spend more on education.