Six ways to turn education spending into investments with high returns

This page in:
Education is an investment: every year of schooling raises earnings by ten percent. Photo: Maxim Zolotukhin / World Bank

Last month, I joined a group of former education ministers and experts for a consultation on the key challenges facing ministries of education and how to formulate an appropriate curriculum.

I told my fellow participants that the returns to education are high and that education matters now more than it ever did.  Every year of schooling raises earnings by 10 percent. This rate of return is, in fact, higher than alternative investments, including bonds, stocks, deposits, and housing.
To turn education spending into investment with high returns, an education system needs to focus public investment on the poor, put an emphasis on the quality of learning, and expand higher education through alternative financing mechanisms.
Education systems reforms are needed in many countries. There are six ways they can do this:
 #1 Attract good teachers
Studies show that a good teacher—one who adds value to the learning process—can be effective in helping students learn. Top-performing systems recruit teachers from the top third of each graduate cohort.This is the case in the top-performing school systems in Korea, Finland, Singapore, and Hong Kong.
Shanghai sets clear expectations for teachers, especially by providing useful guidance on the use of teachers’ work hours, and attracts the best into teaching through entry requirements, competitive pay, appealing work conditions, and attractive career opportunities.In addition, good principals are expected to help not only their own schools improve but also other schools that may be failing.
#2 Assess students and schools
Countries that are unable to determine where their education system stands currently will find it difficult to make improvements or to reach their goals.

Jordan uses international tests for benchmarking and feedback loops to steer its national education reform program.  It made significant gains on international surveys of student achievement, with a particularly impressive gain of almost 30 points on the science portion of the Trends in International Mathematics and Science Study (TIMSS), a series of international assessments of the mathematics and science knowledge of students around the world.

#3 Make the system accountable 
Accountability increases time on task and academic achievement. An accountability-based system usually entails a shift of decision making authority from the government to the community.
In the Netherlands, a country that comes out near the top in international assessments, school evaluations are published. Interestingly, this has resulted into the increase of average grades and diplomas awarded after schools received a negative report card. 
Information on school quality- published by national newspapers- also affects school choice. Negative or positive school quality scores can decrease or increase the number of students choosing a school after the year of publication. An academic school track receiving the most positive score sees its inflow of students rise by 15 to 20 students.
#4 Provide autonomy
Empowering schools- giving them ownership, resources, and voice- enhances the quality of improvement. In the Netherlands, 94 percent of decisions for middle schools are made by individual school administrators and teachers. In exchange for their freedom, schools must show results.
Schools in the Netherlands are subject to independent evaluation through the Education Inspectorate (which reports to the central government) but all public and private schools still have considerable autonomy. They are able to hire and fire teachers, determine spending, set the school day, and as long as they maintain central standards, decide on how to teach.
In Chile, schools have more autonomy in using resources than most school systems in the Organisation for Economic Co-operation and Development (OECD).  Even in public schools, money follows students and schools are free to make decisions.
#5 Pay attention to early childhood development (ECD) and early reading
These programs may be the most cost-effective investments. Empirical evidence shows that quality ECD interventions increase educational success and adult productivity, and decrease public expenditures later on.
In Jamaica, there are substantial effects on the earnings of participants in a randomized intervention conducted in 1986-1987 that gave psychosocial stimulation to growth-stunted toddlers. The intervention consisted of weekly visits from community health workers over a two-year period. They taught parenting skills and encouraged mothers and children to interact in ways that develop cognitive and socio-emotional skills. 20 years later, a study showed that the intervention increased earnings by 25%, enough for them to catch up to the earnings of a non-stunted comparison group identified at the baseline (65 out of 84 participants).
#6 Awareness of culture
This is a bit too encompassing, but one example might be the need to accommodate distinct population groups.For instance, the use of the mother tongue as the language of instruction is one cultural area frequently disputed. In Guatemala, schools using mother tongues as the language of instruction have higher attendance and promotion rates, and lower repetition and dropout rates.  Bilingual students receive higher scores on all subject matters, including mastery of Spanish.
The efficiency of bilingual education is confirmed by a crude cost–benefit exercise. A shift to bilingual schooling would result in considerable cost savings because of reduced repetition. The higher quality of education generating higher promotion rates will help students complete primary education and will substantially increase completion rates at low cost. The costs saving due to bilingual education is estimated at $5 million, equal to the cost of primary education for 100,000 students.
The Importance of Measurement
To improve learning outcomes and prepare students for the world of work, countries must develop a system to determine current learning levels and future learning aims. Policy-makers need to consider each aspect of the education system in defining an appropriate reform that will provide an inclusive and holistic approach to improving education outcomes.
A focus on results will require new investments in education.  Many developing countries must expand enrollments while ensuring quality at the same time.  New sources of financing will be needed. While more efficient use of existing resources will help, aid, public-private partnerships (PPP) and innovative financing are necessary. 

The development of skills can be financed to a large extent through reallocations of spending priorities and innovative financing.  Exciting PPP opportunities exist, in Africa and elsewhere. .  Charter schools and vouchers in the USA can be effective if properly designed.  Vouchers and concession schools in Colombia have proven effective at increasing enrollment and improving quality, not just it he private sector, but at public schools as well. Innovative voucher programs in India have expanded opportunities and learning outcomes at a fraction of the cost of public programs.  Low-cost providers in Africa provide opportunities to learn what works in challenging contexts.
The importance of information
At every level of schooling, there is a need for information to guide individual, family, and institutional investments in learning. At the compulsory level, it is useful for improving the system, implementing accountability, and informing choice. An example might be the use of evidence from labor market returns to education to implement financial innovations—and use future earnings to finance higher education.
By focusing on results, using information, and investing in the education system, countries will definitely be able to turn education spending into investments with high returns.
Follow Harry Anthony Patrinos on Twitter at @hpatrinos.
Find out more about the World Bank Group’s work on education on Twitter and Flipboard.


Harry A. Patrinos

Senior Adviser, Education

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000