Report

Paying for Investments in Children

Isabel V. Sawhill

INTRODUCTION

Advocates for children are hoping that with a new administration and a new Congress in 2009, investments in children will get enhanced priority. Although not as high on the agenda as the economy or the war in Iraq, the need to invest more in the education and health of children and their families is supported by a large majority of the public. Moreover, unlike the short-term benefits of winding down the war in Iraq or reviving the economy, these investments can improve the future productivity of the nation. They speak to the concern among many that the next generation will not be as well off as the current one, and that the nation may even be in decline.

These concerns are being expressed at the same time as rigorous research has identified many proven and promising interventions that could enhance the educational success and future productivity of the youngest generation. Numerous studies have shown, for example, that greater investments in early childhood education bring society long-term benefits that greatly exceed their costs. All that seems to be lacking is the money to fund these promising initiatives and the leadership to make them a higher priority in the competition for funds.

In this essay, I argue that to address these challenges and opportunities, we first need to reframe the debate. Specifically, we need a new intergenerational contract that invests more in people when they are young, but then expects them to assume somewhat greater responsibility for their own support during their retirement years. If we make wise investments in the young, their ability to be more selfsufficient during their later years will be enhanced, as will their ability to finance the health care and retirement needs of those who have been less fortunate. But we need to start now. The longer we wait, the more likely it will be that today’s children will be incapable of supporting either themselves or their parents during the latter’s golden years.

The need to reframe the intergenerational contract is premised on a number of assumptions or principles. First, although tax increases and savings from ending the war can finance in a fiscally responsible way some of the needed investment in the youngest generation, they will not be sufficient. Second, linking investments in the young to reform of entitlements has bipartisan appeal. Third, the current allocation of resources between the young and the old is premised on outmoded assumptions about the relative needs of each. Generational equity requires a recalibration of the needs of different age groups. Fourth, the miracle of compound interest means that well-chosen investments in the young can produce a growth dividend and new revenues that would make any venture capitalist drool and that can make the revision of the intergenerational contract a positive sum game. Fifth, by phasing in any changes to the intergenerational contract slowly and paying careful attention to the genuine needs of the older population, no one need be seriously hurt in the process. If we start now, we can maintain commitments to current beneficiaries and provide a robust safety net for vulnerable groups into the future, while also gradually reallocating more public resources to the young.

View the entire volume: “Big Ideas for Children: Investing in Our Nation’s Future” »

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