Published on Development Impact

Do we need a preschool bond?

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When you think about preschool, you probably think about children playing with toys and running around colorful classrooms; we’re guessing you’re not thinking about returns on investment. This is a mistake.

In these classrooms, children are picking up cognitive skills and what economists call “non-cognitive skills” – or skills related to motivation, focus, and interpersonal relations – that will put them on a better trajectory for picking up skills later in life, for completing more education, for avoiding criminal behavior, and for relying less on social assistance. Why then is preschool coverage so far from universal, especially in low-income countries, where on average only 20 percent of children attend some form of preprimary education? We argue that despite its high returns, preschool investment needs a financing instrument that better aligns its costs (incurred today) with its returns (earned primarily once individuals reach an age when they can work).

The returns to pre-primary education are very high.

Though demonstrating effectiveness of a policy with high-quality studies is important, it isn’t sufficient information for advising in favor of implementation. First, we would want to know how much evidence is out there and whether the demonstrated effectiveness would generalize to a country that is considering the policy. Second, we want to know about returns. Do the benefits outweigh the costs?

We tackle both these questions for the case of investment in pre-primary education in our preschool meta-analysis (joint with Magdalena Bendini and Iva Trako). We aggregated all the experimental and quasi-experimental studies we could find in both high-income and in low- and middle-income countries that examined either the expansion of preprimary education or quality improvements to existing services and that measured children’s skills or progression through school. Using robust-variance meta-analysis to aggregate study-level estimated effects, we find significant average effect sizes of preschool interventions on outcomes measured during preschool – around 0.15 standard deviations for cognitive skills and around 0.12 standard deviations for social-emotional skills and behavior.  

Next, to see whether these estimated benefits are worth their cost, we then take our sample of studies from low- and middle-income countries and restrict our attention to those that provided sufficient information for us to back out the cost per child of the pre-primary intervention. To convert these average effects into a monetary value, we looked to a few longitudinal studies that could estimate how much earnings in adulthood increase when cognitive skills increase during the early childhood period. With this conversion factor, along with other empirically informed assumptions, our most conservative calculations suggest benefit-to-cost ratios ranging from 1.7 to 14.2. That is, in all cases where we had data, benefits outweighed the costs. Returns were certainly positive.

Then why is there under-investment?

Despite these high returns, it isn’t too difficult to understand why there is under-investment in a service like preschool. Though a government would have to front the costs today of expanding preschool or improving its quality, it is only in the future that the government would realize most of its monetized return once children enter the labor market as adults. That is, the returns could lag the costs by about 15-20 years. With political cycles and attention spans much shorter than this, getting preschool on any agenda would be a challenge. There are of course short-term benefits that are socially and economically important. In the United States, for example, public preschool has been shown to increase maternal employment and earnings. However, unlike the evidence of preschool’s impacts on children, this evidence is still scarce.

How would a bond help?

Governments, corporations, and institutions like the World Bank issue bonds when they want to raise funds; these debts are then repaid with interest in the future. From the perspective of an investor, bonds tend to be “safe assets” – though their interest rates are not high, repayment is usually guaranteed. Indeed many individuals’ investment portfolios are a mix of stocks and bonds.

The World Bank’s Treasury also raises funds to support the Bank’s work through Sustainable Development Bonds - $43 billion worth in 20 different currencies last year – which have had a AAA rating since 1959. They also have cause-specific bonds such as green bonds and bonds focused on women’s empowerment and on health and well-being.  

Why shouldn’t we add a preschool bond to the list? From a global perspective, investors have learned that it is possible to earn respectable returns on bonds that focus on public investment and society. In this case, they can also be assured that there is substantial evidence demonstrating that preschool generates high returns.  From the perspective of a government issuing its own bond, it would be a “safe debt” - the savings incurred when preschool educated cohorts commit less crime and rely less on social assistance and the increase in tax revenues when preschool educated cohorts earn higher wages could support repayment when bonds mature.

Now that we have the evidence that preschool makes economic sense – even in low doses and even when implemented by a low-skilled workforce, it’s time to start developing financing instruments that help overcome the misalignment in timing of preschool’s costs and its lifetime benefits.


Lelys Dinarte-Diaz

Research economist in the Human Development Team of the World Bank's Development Research Group

Alaka Holla

SIEF Program Manager

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