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The First Years: Investments That Pay

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The First Three Years: Investments that Pay

A Report by the
Council of Economic Advisers

April 17, 1997

Executive Summary

Experiences during the first three years of childhood can dramatically affect the rest of life. A growing body of research verifies that investments in young children nurture a child's physical and emotional development and that these investments can have big payoffs for families, government and society. Parents bear the ultimate responsibility for raising their children, but the government can assist families who need help making important investments.

Improving Children's Health

Physical health is essential to a child's growth and development and many programs have played an important role in improving children's health.

  • Expansions in Medicaid eligibility have reduced the incidence of low birthweight babies, decreased infant mortality, and increased the share of children who have at least one physician visit per year.

  • WIC participation reduces low birthweight incidence and decreases Medicaid costs during the first 60 days of a baby's life.

  • A home-based smoking cessation program saved $3 for every $1 spent.

  • Every $1 spent on diphtheria vaccinations is estimated to save nearly $30. Other vaccinations are also extremely cost-effective.

Improving the Emotional Well-Being of Children

Emotional well-being in early childhood lays the foundation for children to realize their full potential and develop their talents and capabilities.

  • During a recent 18 month period, 17 percent of workers took time off work for a reason covered by the Family and Medical Leave Act, which was enacted in 1993. The law provides these benefits without imposing large costs on employers.

  • Federal support for child care includes the Child and Dependent Care Tax Credit, the Child Care and Development Fund, and the Exclusion for Employer-Provided Dependent Care. Since 1980, child care support has almost doubled and has almost tripled for low income families.

  • Head Start provides preschool education and access to needed social services to over 750,000 low-income children and has favorable effects on cognitive development, nutritional intake, and health status. The 1994 expansions to Head Start established Early Head Start, targeted to pregnant women and low-income families with children under age 3. Early Head Start currently serves over 26,000 infants and toddlers.


Experiences during the first three years of childhood can dramatically affect the rest of life. Early childhood presents opportunities to improve a child's health and emotional well-being. Health can be supported by appropriate nutrition and care for pregnant and nursing mothers, and for their infants. Often very small investments -- like immunization against diseases or home-based smoking cessation programs -- yield large benefits. A stimulating and positive environment can promote emotional development and prepare the young for the challenges posed by school and later life.

Parents bear the ultimate responsibility for raising their small children -- including such important activities as holding, feeding, and talking to them -- but the government can assist these efforts when parents need help making the investments that produce human, social, and economic dividends. Through legislation like the Family and Medical Leave Act (FMLA), the government can help provide the opportunity for parents to spend time with their newborn babies. Similarly, the government provides information to pregnant women on the dangers smoking poses to the development of children. More broadly, the government supports basic research in the physical and social sciences (see Box 1), as well as evaluations of specific programs, and the development of new interventions. These efforts turn government resources into knowledge that can be used by parents, educators, and doctors to help children flourish.

Pregnant mothers in poverty and children growing up in poor families may lack the resources needed for appropriate nutrition, medical care, and child care.1 Programs like the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provide food, nutrition education, and access to health services for low-income women during and after pregnancy and to their young children. Medicaid now ensures that health insurance is available to pregnant women and young children who live in households with incomes up to 133 percent of the Federal poverty line. As discussed below, these programs make an enormous difference in the future of children and ultimately may save money because investments made during the first three years of life play a particularly important role in promoting subsequent physical health and emotional, social, and cognitive development.

Box 1. The Human Capital Initiative

An important building block of the Administration's efforts to support the well-being of young children is the Human Capital Initiative, an ambitious research program examining the effects of families, schools, communities, and the workplace on the formation of human capital. The Initiative was launched by leading professional associations in the behavioral sciences in the early 1990s and was endorsed by the Clinton Administration and Congress in 1994, with funding provided through the National Science Foundation. The goal of the Initiative is to apply a growing multi-disciplinary knowledge base to the challenges confronting families and children so as to create an environment where all American children can grow up to become healthy, educated, and productive citizens.

Research financed by the Human Capital Initiative can inform policy and promote services for young children. A psychologist at the University of Pittsburgh, for example, is exploring the role of social relationships at home in promoting early academic success among at-risk children; two economists at the University of California are examining the efficacy of early intervention programs in achieving long-term educational and social benefits; a University of Michigan anthropologist is investigating the principles used by young children to organize knowledge and the determinants of young children's social stereotypes; a University of Iowa psychologist is studying conscience development in the first four years of life; and a University of California psychologist is examining the mathematical competencies that children bring to their earliest preschool experiences.

Why are the First Three Years So Important?

In recent years, researchers have made large strides towards understanding the process of early development. Scientists have discovered physiological mechanisms that help to explain the importance of the first three years. Recent evidence suggests that the flurry of brain-building activity that begins in the womb and continues at a rapid clip through a child's early years is affected more by experience (as opposed to genetics) than was previously thought. This experience, in turn, depends on the health and emotional well-being of the child and also on the mother's health before giving birth.

When children are deprived of a stimulating environment early in life, their brains may not develop to their full potential. More specifically, scientists have identified a "window" of time when the brain is more malleable and children are best able to learn. Of course, this window does not open and close abruptly, and improvements are still possible after that time period has passed. Nonetheless, understanding how and when the brain develops helps target resources to children at the most effective times.

Early Investments Have Big Payoffs

A growing body of research, from psychologists, sociologists, physicians, educators, and economists has examined the effect of investments -- goods or services that have initial costs yet produce savings both in human consequences and money in the future -- on children. Such interventions contribute to the stock of "human capital" -- which includes ideas, knowledge, education, training, and problem-solving skills that make people productive contributors to the nation's well-being. The literature finds that investments in young children can have big payoffs for families, government, and society.2 These investments can reduce the need for more costly measures later in life and lead to increased productivity.3

Families Face Many Challenges

Many challenges confront families in making these important investments.

  • Both parents are often employed. In 1995, both parents were employed in more than 70 percent of married couples with children, an increase from roughly 60 percent in 1980.4

  • Many families are single-parent households. In 1995, more than 20 percent of families were single-parent households, compared to 13 percent in 1965.5

  • Children frequently lack health insurance. In 1995, 10 million children (14 percent of all children) had no health insurance, including over 3 million under age 6.6 Surprisingly, nearly nine out of ten uninsured children have at least one parent who works.7

  • Violence is prevalent. Many young children are exposed to violence. The number of children dying as the result of gunfire nearly doubled between 1983 and 1993.8

  • Many families with children live in poverty. About 16 percent of families with children under the age of 18 were in poverty in 1995, and around 25 percent of children under the age of 6 were in poor families.9

To help families meet these challenges, the Federal government provides a variety of services to families with young children. This paper discusses a long, but not exhaustive, list of these programs.10

Improving Children's Health

Physical health is essential to a child's growth and development and is influenced by the interaction of a complex set of factors including nutrition, access to medical care, and the environment. Some of the most important investments in health occur before birth and during the first three years of life. Maternal nutrition, lifestyle, and medical care during pregnancy have a serious impact on the health and development of infants and children. Poor habits or deficient health care during pregnancy can inhibit a child's growth, development, and well-being. Many of these effects last a lifetime, and some may even result in death.11 For example, smoking during pregnancy has been linked to 19 percent of low birthweight births, and heavy drinking is associated with a variety of birth defects and health disorders.12

In 1995, 7 percent of babies born in the United States were considered low birthweight.13 Low birthweight babies often require extensive medical attention early in life and may subsequently suffer from a variety of physical, emotional, and intellectual problems.

  • Health care costs in the first year of life for low birthweight babies are, on average, $15,000 higher than those for normal weight babies, and elevated medical expenditures continue throughout early childhood.14

  • Low birthweight children have higher incidence of cerebral palsy, deafness, blindness, epilepsy, chronic lung disease, learning disabilities, and attention deficit disorder.15

  • Children who were low birthweight babies are more likely to repeat a grade in school and are about 50 percent more likely to be enrolled in special education.16

Prenatal care plays a key role in the development of healthy children and includes three basic components: early and continuous risk assessment, health promotion, and needed medical and/or psychological intervention. The proportion of women receiving prenatal care in the first trimester rose substantially during the 1970s, leveled off in the 1980s, and then increased again during the early 1990s (from 76 percent in 1990 to 81 percent in 1995).17 Poor women and minorities are significantly less likely to receive early and comprehensive prenatal care.

  • Adequate prenatal care is associated with lengthened duration of gestation and reductions in low birthweight births, with some evidence of greater effectiveness for high-risk women.18

  • Prenatal care is a particularly cost-effective method of reducing neonatal mortality, when compared to alternative interventions such as the use of neonatal intensive care.19

  • Although we do not know the precise benefits of the various elements of prenatal care, some experts have concluded that particular services are likely to improve health outcomes: cessation of smoking, nutrition, and medical treatment of specific conditions.20

Ensuring that a baby is born healthy is only the first step. Access to medical care, good nutrition, and a healthy environment are instrumental to a young child's physical health and growth. Conversely, inadequate nutrition during these crucial years increases the likelihood that a child will develop a wide range of physical, mental, and emotional problems. Low vaccination rates may make young children prone to preventable diseases such as measles or mumps, and exposure to lead may impair the development of a child's nervous system. All of these issues are of particular importance during the first years of life.

Medical Care

Since 1965, the Medicaid program has provided health insurance for poor families. In 1995, nearly 30 percent of children under 6 were covered by Medicaid.20 Eligibility used to be closely tied to participation in the Aid to Families With Dependent Children (AFDC) program but was extended to other groups beginning in the middle 1980s. Pregnant women and children, up to the age of 6, living in households with incomes up to 133 percent of the Federal poverty line are now eligible for Medicaid.

Pregnant women receive special services under Medicaid including "enhanced" prenatal care in many states.22 Children are eligible for a wide variety of services including inpatient and outpatient hospital services, physician care, x-ray services and many others. In addition, under the Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) program, States provide screening, diagnosis, and treatment services to Medicaid-eligible children (and pay for treatment of conditions identified during EPSDT screens). Since 1993, States receive vaccines free of charge from the Federal government for Medicaid-eligible and some other categories of children.23

  • Recent national studies conclude that the expansions in Medicaid eligibility occurring during the late 1980s and early 1990s contributed to reduced incidence of low birthweight babies, decreased infant mortality, and increased the share of children who have at least one physician visit per year, as is recommended by pediatric guidelines.24


Poor nutrition during the early years can have profound and lasting effects on a child's health. Pregnant women with poor nutrition are more likely to have low birthweight babies, and children with poor nutrition often lack concentration and energy, experience dizziness, headaches, ear infections, and frequent colds.25 Iron deficiency can impede the development of problem-solving skills, motor coordination, concentration, and long-term cognitive development.26 Stunted growth, an indicator of poor nutrition, is associated with lower scores on tests of academic ability, even after controlling for socioeconomic characteristics.27

The Federal government has two major programs that help to ensure good nutrition for low-income pregnant women and young children: the Food Stamp Program and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). WIC targets pregnant women, infants, and young children at nutritional risk by providing supplemental foods, nutrition education, and access to health services. An average of 7.2 million women, infants, and children participated in WIC monthly during FY 1996, and the program had a budget of $3.7 billion.28

  • Participation in WIC is associated with lower probabilities of receiving inadequate prenatal care, a 1 to 3 percentage point reduction in the incidence of low birthweight, and a 2 to 4 percentage point decrease in preterm births.29

  • Participation in WIC reduces the incidence of iron-deficiency anemia among infants.30

  • WIC participants are more likely than nonparticipants to comply with nutritional guidelines in months 5 and 6 of the baby's life.31

An important study has highlighted some additional benefits of WIC (see Box 2).

Box 2. The Effects of Prenatal WIC Participation

WIC is an important government program that provides health care and social service referrals to low-income pregnant women and to children aged 5 and under. Participants also typically receive vouchers to purchase specific types of nutritious food (milk, cheese, eggs, infant formula, cereals, and fruit or vegetable juices) valued at an average of around $30 per month.

To study the effect of this prenatal program on birth outcomes and Medicaid costs, Mathematica Policy Research, Inc. undertook a study for the United States Department of Agriculture in five States: Florida, Minnesota, North Carolina, South Carolina, and Texas. Mothers included in the study participated in Medicaid and gave birth in 1987 or 1988. To analyze the effect of WIC, birth outcomes and Medicaid costs of WIC participants were compared to those of income-eligible nonparticipants. Statistical techniques were used to control for observable differences between the WIC participants and nonparticipants. (However, the two groups may differ in ways which were not observed by the researchers.)

WIC participants were one-third to one-half less likely than nonparticipants to have received inadequate prenatal care. Participation in the program was also associated with an increase in birthweight (averaging between 25 to 68 grams), a lower incidence of pre-term births, and a longer gestational age. Medicaid costs were also lower for WIC participants. Every dollar spent on the prenatal WIC program was associated with savings in Medicaid costs during the first 60 days of a baby's life of $1.77 to $3.13 for newborns and mothers.

Cessation of Smoking

In 1993, an estimated 16 percent of pregnant women in the United States smoked.32 The harmful effects of smoking on fetal and child development are well-documented. Programs designed to convince women to quit smoking during pregnancy may be an exceptionally effective means of helping children.

  • A pregnant woman who smokes less than a pack a day is 53 percent more likely to have a low birthweight baby than a nonsmoker; a woman smoking more than a pack a day is more than twice as likely to do so.34

  • A baby born to a smoking mother is more likely to experience longer-term problems including higher risks of neurological abnormalities and poorer verbal skills.35

Smoking cessation programs for pregnant women are generally inexpensive and are likely to be cost effective. The cost-savings are most often associated with reductions in the incidence of low birthweight.

  • A study of a home-based smoking cessation program costing $11.75 per patient found savings of $3 for every $1 spent.36

  • Relative to general information on the adverse effects of smoking, materials focusing on smoking during pregnancy are more effective and have a lower cost per quit for pregnant women.37

Childhood Immunizations

[Figure 1] Childhood immunizations play an important role in preventing diseases such as polio, measles, rubella, diphtheria, and mumps. For example, the widespread use of vaccines has reduced the incidence of some diseases in the United States by more than 95 percent.38 In addition to securing the health of those immunized, vaccines may represent a particularly appropriate area for government involvement, since they indirectly protect those who are not vaccinated (by lowering disease risk for all individuals).

  • The Centers for Disease Control and Prevention estimate that every $1 spent on diphtheria vaccinations saves nearly $30 in future direct and indirect savings -- which includes savings from work loss, death, and disability; every $1 spent on measles, mumps, and rubella vaccinations saves over $20.39

  • Every $1 spent on polio vaccinations is estimated to save $6.40

In 1993, President Clinton signed the Comprehensive Childhood Immunization Initiative that created the Vaccines for Children (VFC) program to help uninsured, Medicaid-eligible children get vaccinated. The goal of this initiative is to fully vaccinate 90 percent of all two-year-olds by the year 2000. VFC provides all recommended vaccines free of charge to clinics and doctors who provide services to uninsured and Medicaid-covered children. In response to this initiative, the percent of all two-year-olds who were fully immunized increased from 55 percent in 1992 to 75 percent in 1994-1995 (see Figure 1). This increase in immunization rates is correlated with the 35 percent drop in the incidence of preventable diseases in children under 5 from 1993 to 1996.41

Home Visiting

Services are often particularly effective when provided to families in their own homes. The goals of home visiting programs vary considerably. Some programs link families with social services while others assess the safety of the home, encourage healthy habits, answer questions about pregnancy, childbirth, and child-rearing, or help parents set goals and make plans. Home visits are often made during pregnancy and through the first 1 to 2 years after birth. The more successful programs typically continue after the child is born and employ a comprehensive approach that addresses many of the above goals.42

More than 4,500 home visiting programs in the United States provide health, social, or educational services to families, sometimes in conjunction with organized child care programs. A variety of Federal government Departments (such as Education, Justice, and Health and Human Services) fund home visiting programs for families with young children. The Head Start program (discussed below) administers one of the largest home-based programs, mostly to children in rural areas who would have difficulty participating in center-based care. In 1990, 24 States used Medicaid funds to provide prenatal or postnatal care through home visiting programs.43

Studies have linked many home visiting programs to a variety of favorable child outcomes. The analyses differ widely in their assessments of these programs, in part due to immense heterogeneity in the intensity, scope, and focus of the interventions. An understanding of the specific differences among programs can help guide policy.

  • Home visiting programs aimed at persuading pregnant adolescents to stop smoking are found to decrease the risk of low birthweight babies.44 Studies of programs in Philadelphia and Baltimore suggest that the savings in medical expenditures associated with low birthweights may more than offset the cost of the programs.45

  • A South Carolina study where "resource mothers" (nonprofessional women with parenting experience and knowledge of their community) visited pregnant teens in rural areas showed improvements in prenatal care and reductions in cases of low birthweight.46

  • A study of home visiting programs for mothers of premature, low birthweight babies showed that the intervention improved IQ scores at age 3.47

  • The Prenatal and Early Intervention Program (PEIP) resulted in fewer emergency room visits for children, and decreased reports of child abuse. In addition, it had favorable effects for mothers, such as increases in schooling and reductions in future childbearing.48

  • A home visiting program in Elmira, New York lead to substantial reductions in government expenditures on low-income families, during the first four years of their children's life (see Box 3).49

Box 3. The Elmira, NY, Home Visitation Program

In the late 1970s and early 1980s, a randomized experiment was conducted in Elmira, New York to examine the effect of home visiting on health and social outcomes. The study included 400 teenage, unmarried, or poor women who were pregnant for the first time. The women were randomly assigned to one of four groups providing some combination of health screenings, free transportation to health providers, and home visits during pregnancy and (in some cases) through the child's second birthday. In the most intensive intervention, nurses made home visits once every two weeks during pregnancy and once a week immediately after delivery, decreasing in frequency to once every six weeks at the end of two years.

Home visitation was found to decrease smoking, improve diets and, for some groups, reduce the frequency of low birthweight or pre-term deliveries. Participants were also more likely to make use of the WIC nutritional supplementation program and to attend childbirth education classes. The home visits increased the involvement of family members and friends in the pregnancy, birth, and early care of the child.

Program costs were compared with changes in government expenditures during the first four years of the child's life. For low-income families (but not for their higher income counterparts) the measured benefits of frequent home visitation outweighed the costs -- costs averaged around $6000 (1996 dollars), while the savings were over $6,300. The savings resulted from lower AFDC, Food Stamp, Medicaid, and Child Protective Service expenditures, and increased maternal employment. Almost one-third of the savings (among low-income families) was due to the reductions in the number of subsequent pregnancies. This study may underestimate the gains from the program, since neither nonmonetary benefits nor savings after age 4 are taken into account.50

Abatement of Lead

Lead ingestion is particularly hazardous for young children because they absorb lead more readily than adults, and their developing nervous systems are more susceptible to its effects.51 High levels of lead in the blood can cause coma, convulsions, and death. Even at lower levels, it is associated with reduced intelligence, learning disabilities, impaired hearing, behavioral problems, and slowed growth.52 Many of the harmful effects are irreversible and result in substantial financial and human costs.

Restrictions on lead in gasoline, food canning, and other uses have reduced blood lead levels by over 80 percent during the last 20 years.53 Today, the risk of lead poisoning is highest for low-income households, inner city residents, and persons living in older homes. Current efforts focus on reducing exposure to lead-based paint and lead-contaminated dust.

  • The Department of Housing and Urban Development recently estimated that the cost of lead abatement in some federally-owned housing units would be around $450 million and that benefits would be between $500 million and $1.5 billion.54

  • A new law requires that information about lead-based paint hazards be provided to home buyers and renters, and that purchasers of residences built before 1978 have a 10-day period to test their dwellings for lead paint.55

Improving the Emotional Well-Being of Children

Emotional well-being in early childhood lays the foundation for children to realize their full potential and develop their talents and capabilities. Emotionally healthy children enter school with the skills to communicate with their peers and teachers and the confidence to make friends; they have high self-esteem, knowledge of socially acceptable behavior, and motivation to learn. When children are prepared to enter school, their early educational experience can be fruitful, enjoyable, and productive.

Parenting During The First Months of Life

To ensure emotional health, children need daily nurturing and guidance from trustworthy and caring adults. In the first years of life, children need love and care from adults who listen and respond to their needs. Infants are dependent upon adults for touching, rocking, feeding, and warming, as well as stimulation through reading and talking.56 Substantial interactive parental contact during the earliest months helps babies form secure and loving attachments with adults, develop confidence and competence, and establish the basic trust necessary for psychological development throughout life.57 For this reason, as well as to allow ample time for mothers to recover from childbirth and parents to adapt to the changes surrounding the birth, many experts believe that several months of parental leave play an important role in promoting healthy infant development.58

Even when employed, most new parents typically take some time off work to care for their babies.59 However, this often creates tensions between the demands of the workplace and those of the home. To support families in their efforts to strike a workable balance between these competing demands, President Clinton signed into law in 1993 the Family and Medical Leave Act (FMLA). The FMLA grants 12 weeks of unpaid job-protected leave to new parents with qualifying employment histories working for covered employers.60 This legislation provides employed parents with the time to nurture their newborns and to develop their parenting skills.

  • During the 18-month period ending in the summer of 1995, approximately 17 percent of workers took time off work for a reason covered by the legislation.61

  • Over 90 percent of covered establishments reported that the FMLA had either no noticeable effect or a positive impact on their business performance. Larger percentages indicated positive rather than negative effects on employee productivity, turnover, and career advancement.62

Quality Child Care for Infants and Toddlers

The emotional, social, and cognitive development of infants and toddlers is promoted by their having close and stable relationships with a small number of adults in safe and intimate settings. Traditionally, such relationships have been provided by parents, particularly mothers, who stayed at home with their children. However, as women increasingly work outside the home and more children grow up in single parent households, full-time parental care is becoming less typical.

Accompanying this trend is the increased use of professional child-care. In 1993, about 30 percent of children under 5 in families with employed mothers were cared for in centers, compared with only 13 percent in 1977 (see Figure 2). However, children in poor families with employed mothers were one-third less likely to receive care in centers as were children in non-poor families. Another option for care outside the home is family day care -- care by nonrelatives in another home -- which accounted for an additional 17 percent of the care received by children under 5 with working mothers.63 Among child care arrangements, a bewildering array of options exist with respect to environment, cost, hours spent per week and per day, and services provided. Parents also often face considerable uncertainty regarding the quality of child care provided. Moreover, as is to be expected, the quality of the care received matters greatly.64

[Figure  2]

  • Children who receive care in quality centers tend to be less distracted and more task-oriented, considerate, happy, and socially competent in elementary school. They are more self-confident, proficient in language, advanced in cognitive development, and make better academic progress. Conversely, children in poor quality programs risk the development of poor school skills and heightened aggression.65

  • The Syracuse University Family Development Research Program provided extensive child care, home visits, and health and nutrition resources to 108 low-income families with children aged 0 to 5. Participation was associated with decreased number, severity, and chronicity of juvenile justice problems.66

  • Project CARE, an intensive combination of center- and home-based intervention and health care, serves children beginning at birth. Participation is associated with significant increases in measured intelligence.67

The care received by many children is inadequate. For example, the child development environment in more than one-third of classrooms surveyed in the National Child Care Staffing study was rated less than "minimally adequate", and only 12 percent of the classrooms received a score which met or exceeded the standard associated with "good" practices.68 Evidence from several studies suggests that economically disadvantaged and psychologically stressed families are more likely to enroll their children in child care arrangements that are of relatively low quality.69 Cost is often a substantial barrier to obtaining quality child care.70 The Federal government plays an important role in alleviating this financial burden. Since 1980, Federal support has doubled and has almost tripled for low-income families.71

  • One of the largest Federal child care assistance programs is the Child and Dependent Care Tax Credit. In FY 1997, this program will provide an estimated $2.7 billion of tax relief to tax-payers who are working or are seeking work and have a qualifying dependent under the age of 13. Tax-payers can receive a credit of up to $2,400 per year for one qualifying dependent and $4,800 for two or more qualifying dependents.72

  • Under the newly established Child Care and Development Fund, the Federal government has made $2.9 billion available to States for FY 1997, an increase in child care funding of over $550 million over the previous fiscal year.73 This program, authorized by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, will assist low-income families and those transitioning on and off welfare in obtaining child care so that they can work or receive training or education. The program combines four previous Federal child care subsidy programs and allows States to design comprehensive, integrated service delivery systems to meet the needs of low-income working families. At least 4 percent of these funds must be spent on quality improvements in child care.

  • A major purpose of the Social Services Block Grant is preventing neglect, abuse, or exploitation of children and adults. Some of the funding for the grant goes to child care services in almost all States.74

  • Since 1981, employees have generally been allowed to receive an Exclusion For Employer-Provided Dependent Care from their gross income on their tax return. The tax relief to tax-payers from this provision is an estimated $830 million in FY 1997.75

Early Education

Early education programs help many 3 to 5 year olds develop motivation, inquisitiveness, positive social behavior, and self-confidence. Preschool enrollment has risen substantially over time (see Figure 3). The programs vary dramatically on many dimensions -- hours per day and days per week, type of curriculum, services included, and cost. Some programs incorporate health care by encouraging immunizations, hearing and vision screenings, and home visits.

[Figure  3]

Some of the literature finds that compensatory preschool programs initially increase IQ scores but that the effect fades over time.76 Consequently, it is frequently asserted that preschool has no permanent effect on cognitive skill. However, research examining other outcomes, such as educational attainment, behavior, and health status finds continued benefits to preschool. These long-term benefits are believed to result from children entering elementary school with more experiences and advantages. School learning is viewed by many as a "cumulative process" where early advantages improve later performance.77

  • A comprehensive review finds that compensatory preschool education improves long-term school performance, as measured by grade retention, special-education enrollment, and high school graduation.78

  • Early education programs, in combination with family support programs, have been found to reduce antisocial behavior and delinquency.79

  • Preschool participants are more likely to receive immunizations.80

The Perry Preschool Study, which randomly assigned 3- and 4-year-old children into the preschool program, has provided noteworthy evidence of favorable outcomes over a variety of dimensions (see Box 4).

Box 4. The High/Scope Perry Preschool Project

In the 1960s, concern for the intellectual development of young children living in poverty spurred research on the ability of early education programs to break the link between poor school performance and family poverty. The High/Scope Perry Preschool Project, which began in 1962, was designed to test the hypothesis that good preschool would help young children move from the home into the classroom, and thus raise these children's educational ability and attainment. Children living in a predominantly black neighborhood of Ypsilanti, Michigan were randomly assigned to either the treatment group, which attended preschool, or the control group, which did not. A total of 128 African-American children entered the project, and 123 completed the preschool years.

The 58 children in the treatment group received a daily 2 hour classroom session. In addition, the children and their mothers received a weekly 1 hour visit in the home from the child's teacher. Over three-quarters of these children attended the classroom session for two academic years, with the rest attending one year. The program cost roughly $8,000 per child per year (in 1996 dollars). For comparison, Head Start costs around $4,500 per child annually.

The 123 children completing the program were interviewed annually from age 3 to 11, and at ages 14, 15, 19, and 27. Benefits associated with the intervention include: higher IQ levels at age 7, better school achievement at age 14, greater educational attainment and general literacy at age 19, higher monthly earnings and home ownership at age 27, lower levels of social service receipt from age 17 to 27, and reductions in arrests by age 27.81 Every dollar spent on Perry Preschool is estimated to have returned roughly $9 in benefits due to reduced costs of special education, public assistance, and crime later in life.82

As with child care for infants and toddlers, financial constraints make it difficult for many families to send their children to preschool. In 1990, only 24 percent of children from families in the bottom fifth of the income distribution attended preschool versus 52 percent of children in the top fifth of families.83 Through the Head Start program, the Federal government plays a key role in assuring that low-income children between the ages of 3 and 5 can receive preschool education and access to social services.

Since Head Start's formation, the program has served over 16 million children and their families; over 750,000 children were enrolled in FY 1996.84 Most programs are center-based but may vary in terms of the number of days per week and hours per day. However, Head Start currently has slots for only about 40 percent of eligible children. The restricted availability represents a lost opportunity to invest in our children and, as a result, the President has proclaimed the goal of serving one million children by 2002.

  • A survey of 72 studies of Head Start concluded that the program had substantial, favorable effects on children's cognitive development at the end of the program year.85

  • A randomized study in four counties revealed that Head Start raised access to health care, increased the receipt of basic health services, improved diets, and led to better health status.86 The Head Start participants also had more fully developed and coordinated motor skills.

  • Parent-child communication has been found to be positively affected by Head Start in some studies.87

  • Research comparing siblings participating in Head Start to those who did not found that program participation increased test scores significantly for some children and also reduced the probability of being retained in grade.88

The 1994 expansions to Head Start established Early Head Start, which is targeted to low-income pregnant women and children under age 3. Early Head Start employs a "two-generation" approach that is designed to serve parents and children simultaneously by providing intensive health and nutrition services during the prenatal period and the first three years of the child's life.

  • Early Head Start grants have been awarded to 142 localities across the nation, and the program now serves around 26,000 infants and toddlers.89 Randomized experiments are being conducted to allow accurate evaluation of the success of the program.


Scientists and educators have identified the first three years of life as a time when children have "fertile minds". Efforts to help children during these years are especially fruitful. Because of the long-lasting effects, early investments can have big payoffs. They avert the need for more costly interventions later in life, and so contribute to happier, healthier, and more productive children, adolescents, and adults.

Parents play the largest role in meeting the needs of children. However, the government can assist in a variety of important ways. Families, communities, and the government are making considerable investments in young children. These investments are important because our youngest children are, in a very real sense, the future of America.


1 Children in low-income households are at greater risk of virtually every adverse outcome. Poor children are more likely to have low birthweight, experience stunted growth, suffer ill health, have learning problems and low educational achievement, and to exhibit extreme behavioral problems (Children's Defense Fund, Wasting America's Future. Boston: Beacon Books, 1994)> Family income seems to be a significant contributor to the well-being of children primarily because of the resources it makes available: medical care, nutrition, parental advice on child development, quality child care and preschool, neighborhood safety and housing quality. One recent study finds that income during the first five years of life has larger impacts on outcomes than that during any other time of childhood (Greg Duncan, et al., "Does Poverty Affect the Life Chances of Children?" American Sociological Review, forthcoming.)

2 A diverse set of techniques has been developed for evaluating the gains from interventions targeted to children. ideally, experimental designs are used, whereby individuals willing to participate in the intervention are randomly assigned to the "treatment" group, which participate in the program, and the "control" group, which does not. The two groups are then carefully monitored to see if individuals receiving the treatment have superior outcomes. Random assignment can be done by the toss of a coin or using computerized randomization procedures. A key advantage of random assignment is that the treatment and control groups are likely to have similar characteristics, increasing the confidence that any observed difference in outcomes is due to the intervention. In the absence of such an experimental design, participants typically choose to enroll in the program while nonparticipants choose not to, often resulting in difficult-to-observe differences between participants and nonparticipants.

Since randomized experiments are often expensive and have small sample sizes, social scientists have developed a variety of alternative evaluation methods. Most importantly, statistical techniques are used to account for observable differences between participants and nonparticipants in characteristics such as income, education, and family status. Researchers are also increasingly attempting to obtain information from natural experiments, where participation in the intervention is largely unrelated to individual characteristics or preferences.

3 An excellent survey of the effects of investments in children, including those made after the first three years, is provided by Robert Haveman and Barbara Wolfe, "The Determination of Children's Attainment: A Review of Methods and Findings," Journal of Economic Literature 33, no. 4, December 1995: 1829-78.

4 Tabulations from the Annual Demographic Survey of the Current Population Survey (March), U.S. Department of Commerce, Bureau of the Census, various years.

5 Ibid.

6 Ibid.

7 Children's Defense Fund, The State of America's Children Yearbook, 1997. Washington, D.C.: Children's Defense Fund, 1997.

8 Ibid.

9 Tabulations from the Annual Demographic Survey of the Current Population Survey (March), U.S. Department of Commerce, Bureau of the Census, various years.

10 For instance, we do not discuss safety/injury prevention programs (such as those promoting the use of car safety seats) or screening programs testing for newborn metabolic disorders.

11 The Future of Children Staff, "Analysis," The Future of Children 2, no. 2, Winter 1992: 7-24.

12 J. Kleinman and J.H. Madans, "The Effects of Maternal Smoking, Physical Stature, and Educational Attainment on the Incidence of Low Birth Weight," American Journal of Epidemiology 121, no. 6, June 1985: 843-55; E.M. Ouellette, et al., "Adverse Effects on Offspring of Maternal Alcohol Abuse During Pregnancy," New England Journal of Medicine 297, no. 10, 1977: 528-30.

13 Harry M. Rosenberg, et al. "Births and Deaths: United States, 1995," Monthly Vital Statistics Report 45, no. 3 (S)2, October 4, 1996: 1-40.

14 Eugene M. Lewitt, et al., "The Direct Cost of Low Birth Weight," The Future of Children Vol. 5, no. 1, Spring 1995: 35-56.

15 S. Nigel Paneth, "The Problem of Low Birth Rate," The Future of Children 5, no. 1, Spring 1995: 19-34.

16 Ibid.

17 Harry M. Rosenberg, et al., "Births and Deaths: United States, 1995"; National Center for Health Statistics, Health, United States, 1995. Hyattsville, MD: Public Health Service, 1996.

18 Institute of Medicine, Preventing Low Birthweight. Washington D.C.: National Academy Press, 1985: 132-49.

19 T.J. Joyce, et al., "A Cost-Benefit Analysis of Strategies to Reduce Infant Mortality," Medical Care 26, no. 4, April 1988: 348-60. Although not a full benefit-cost analysis, this research finds that the costs of providing prenatal care are more than offset by reductions in first-year hospital and medical expenses resulting from averting low birthweights.

20 Institute of Medicine, Preventing Low Birthweight; Greg R. Alexander, and Carol C. Korenbrot, "The Role of Prenatal Care in Preventing Low Birth Weight," The Future of Children 5, no. 1, Spring 1995: 103-20.

21 Tabulations from the Annual Demographic Survey of the Current Population Survey (March), U.S. Department of Commerce, Bureau of the Census, 1996.

22 Christopher Trenholm, "The Impact of Prenatal Medicaid Programs on the Health of Newborns," unpublished, University of North Carolina at Chapel Hill, November 1996.

23 The Federal government funds a variety of programs that promote the health of children and their families. The Title V Federal-State Partnership Block Grant provides funding for programs that build state and community health care systems and provide health care to children and their families. The Maternal and Child Health Block Grant (MCHB), and all other programs under Title V, employ a three part strategy of health promotion, prevention, and protection. MCHB serves more than 17 million women and children. Other federal support includes funds provided to community and migrant health centers under the Community and Migrant Health Center Program. For a review of these programs see Ian T. Hill, "The Role of Medicaid and Other Government Programs in Providing Medical Care for Children and Pregnant Women," The Future of Children 2, no. 2, Winter 1992: 134-53.

24 Janet Currie and Jonathan Gruber, "Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women," Journal of Political Economy 104, no. 6, December 1996: 1263-96; Janet Currie and Jonathan Gruber, "Health Insurance Eligibility, Utilization of Medical Care and Child Health," Quarterly Journal of Economics 111, no. 2, May 1996: 431-66. Studies of Medicaid expansions in Tennessee and Massachusetts failed to uncover improvements in prenatal care, birthweight, or neonatal mortality (J.S. Haas, et al., "The Effects of Providing Health Coverage to Poor Uninsured Pregnant Women in Massachusetts" Journal of the American Medical Association 269, no. 1, January 1993:87-91 and J.M. Piper, et al., "Effects of Medicaid Eligibility Expansion on Prenatal Care and Pregnancy Outcome in Tennessee," Journal of the American Medical Association 264, no. 17, November 1990:2219-23).

25 Children's Defense Fund, Wasting America's Future.

26 Ibid.

27 Ibid.

28 Tabulations provided by the Office of Management and Budget. Another Federal program that provides food to children and adults is the Child and Adult Food Care Program. This program generally operates in child day care centers, family day care homes, and some day care centers for functionally impaired adults. The program provided meals to more than 2 million children and 45,000 adults in June of 1996 and has a budget of $1.7 billion for FY 1997.

29 Anne Gordon and Lyle Nelson, "Characteristics and Outcomes of WIC Participants and Nonparticipants: Analysis of the 1988 National Maternal and Infant Health Survey," unpublished, Mathematica Inc., March 1995.

30 Barbara Devaney, et al., "Programs that Mitigate the Effects of Poverty On Children," The Future of Children 7, no. 2, Summer/Fall 1997, forthcoming.

31 Anne Gordon and Lyle Nelson, "Characteristics and Outcomes of WIC Participants and Nonparticipants: Analysis of the 1988 National Maternal and Infant Health Survey." However, not all nutritional outcomes are favorable. In particular, WIC participants are less likely to breast-feed their babies. This may occur partly because infant formula is provided to WIC participants. The reduction in breast-feeding rates may be reversible, however, with some evidence that WIC participants who are given advice to breast-feed do so more frequently than income-eligible non-participants (J. Brad Schwartz et al., "The WIC Breast-Feeding Report: The Relationship of WIC Program Participation to the Initiation and Duration of Breast-Feeding," unpublished, Research Triangle Institute, September 1992).

32 National Center for Health Statistics, Health, United States, 1995.

33 Barbara Devaney and Allen Schirm, "Infant Mortality Among Medicaid Newborns in Five States: The Effects of Prenatal WIC Participation," unpublished, Mathematica Inc., May 1993.

34 Select Committee on Children, Youth, and Family, Opportunities for Success: Cost-Effective Programs for Children, Update, 1990, 101st Cong., 2nd sess., Washington, D.C.: U.S. Government Printing Office, 1990. This review summarizes a variety of studies evaluating programs targeted towards children.

35 Ibid.

36 Jeffrey Mayer, et al, "Health Promotion in Maternity Care," in A Pound of Prevention: The Case for Universal Maternity Care in the U.S., edited by Jonathan B. Kotch, et al., Washington, D.C.: American Public Health Association, 1992, cited in Select Committee on Children, Youth, and Family, Opportunities for Success: Cost-Effective Programs for Children, Update, 1990.

37 R.A. Windsor, et al., "A Cost-Effective Analysis of Self-Help Smoking Cessation Methods for Pregnant Women," Public Health Reports 103, no. 1, January/February 1988:83-88.

38 Centers for Disease Control and Prevention, U.S. Department of Health and Human Services, "CDC Immunization Information," unpublished, March 1995.

39 Tabulations provided by Martin Landry, National Immunization Program, Centers for Disease Control and Prevention, U.S. Department of Health and Human Services.

40 Ibid.

41 Children's Defense Fund, The State of America's Children Yearbook, 1997.

42 U.S. General Accounting Office, Home Visiting, (HRD-90-83). Washington, D.C.: U.S. General Accounting Office, July 1990.

43 Ibid.

44 David Olds and Harriet Kitzman, "Review of Research on Home Visiting for Pregnant Women and Parents of Young Children," The Future of Children 3, no. 3, Winter 1993: 53-92.

45 Jeffrey Mayer, et al., "Health Promotion in Maternity Care," cited in Select Committee on Children, Youth, and Family, Opportunities for Success: Cost-Effective Programs for Children, Update, 1990.

46 Henry C. Heins, "Social Support in Improving Perinatal Outcome: The Resource Mothers Program," Obstetrics and Gynecology 70, no. 2, August 1987: 263-66.

47 The Infant Health and Development Program, "Enhancing the Outcomes of Low Birth Weight, Premature Infants," Journal of the American Medical Association 263, no. 22, June 1990.

48 Jeffrey Mayer, et al., "Health Promotion in Maternity Care," cited in Select Committee on Children, Youth, and Family, Opportunities for Success: Cost-Effective Programs for Children, Update, 1990.

49 David L. Olds, et al., "Effect of Prenatal and Infancy Nurse Home Visitation on Government Spending," Medical Care 31, no. 2, February 1993: 155-74. Preliminary analysis of a 15-year follow-up of the Elmira intervention indicates additional benefits for low-income participants, including reductions in childbearing, substances abuse, and crime for the mothers, lower rates of child abuse, and decreased overall arrests rates for the children (David Olds, et al., "Long-Term Effects of Home Visitation on Maternal Life Course, child Abuse and Neglect, and Children's Arrests: A 15-Year Follow-Up of a Randomized Trial," unpublished, University of Colorado, 1997). A recent replication of the intervention to primarily African-American women in Memphis, Tennessee, indicates that home visiting leads to fewer complications in pregnancy and fewer health problems for the children during the first two years of the child's life (Harriet Kitzman, et al. "Randomized Trial of Prenatal and Infancy Home Visitation by Nurses on the Outcomes of Pregnancy, Dysfunctional Care giving, Childhood Injuries, and Repeated Childbearing Among Low-Income Women with No Previous Live Births," unpublished, University of Colorado Health Sciences Center, 1997).

50 David L. Olds, et al., "Effect of Prenatal and Infancy Home Visitation on Government Spending."

51 Centers for Disease Control and Prevention, U.S. Department of Health and Human Services, Morbidity and Mortality Weekly Report 46, no. 7., February 21, 1997.

52 H.L. Needleman, et al.,"Bone Lead Levels and Delinquent Behavior," Journal of the American Medical Association 275, no. 5, February 7, 1996: 363-9.

53 Office of Lead Hazard Control, U.S. Department of Housing and Urban Development, Moving Towards a Lead-Safe America: A Report to the Congress of the United States. Washington D.C.: U.S. Department of Housing and Urban Development, February 1997.

54 U.S. Department of Housing and Urban Development, "Regulatory Impact Analysis of the Proposed Rule on Lead-Based Paint," unpublished, June 1996.

55 U.S. Department of Housing and Urban Development and U.S. Environmental Protection Agency, "Requirements for Disclosure of Known Lead-Based Paint and/or Lead-Based Paint Hazards in Housing: Final Rule," unpublished, March 1996.

56 Carnegie Task Force on Meeting the Needs of Young Children," Starting Points: Meeting the Needs of Our Youngest Children. New York: Carnegie Corporation of New York, 1994.

57 Ibid.

58 E.F. Zigler and M. Frank (eds.), The Parental Leave Crisis: Toward A National Policy. New Haven: Yale University Press, 1988.

59 Jacob A. Klerman and Arleen Leibowitz, "The Work-Employment Decision Among New Mothers," Journal of Human Resources 29, no. 2, Spring 1994: 277-303, show that 73 percent of employed women with one-month-old infants and 41 percent of employed women with two-month-old infants were on leave from their jobs, rather than working, during the 1986-1988 period.

60 For further details on the FMLA, see Christopher J. Ruhm, "Policy Watch: The Family and Medical Leave Act," Journal of Economic Perspectives, Spring 1997, forthcoming.

61 Commission on Family and Medical Leave,A Workable Balance: Report to Congress on Family and Medical Leave Policies, Washington, D.C.: U.S. Department of Labor 1996.

62 David Cantor, et al., "The Impact of the Family and Medical Leave Act: A Survey of Employers," unpublished, Westat Inc., October 1995.

63 Tabulations from the Survey of Income and Program Participation, U.S. Department of Commerce, Bureau of Census.

64 Quality care is best measured by the warmth and interaction between the provider and the child, but assessing these dimensions is necessarily a subjective, timely, and expensive exercise. As a result, researchers and regulators tend to focus on more easily observable specific structural measures, such as child-teacher ratios, group sizes, and staff training. The available evidence suggests that changes in these structural factors have the potential to improve the quality of child care, if they are accompanied by broader changes in the way child care is delivered, although there are smaller benefits if they occur in isolation (e.g. David M. Blau, "The Production of Quality in Child Care Centers," Journal of Human Resources 32, no. 2, Spring 1997: 354-87.)

65 John M. Love, et al., "Are They In Any Real Danger? What Research Does -- And Doesn't -- Tell Us About Child Care Quality and Children's Well-Being," unpublished, Mathematica Inc., May 1996; Suzanne W. Helburn and Carollee Howes, "Child Care Cost and Quality," The Future of Children 6, no. 6, Summer/Fall 1996: 62-82; NICHD Early Child Care Research Network, "Mother-Child Interaction and Cognitive Outcomes Associated With Early Child Care: Results of the NICHD Study," unpublished materials for the Poster Symposium of the Biennial Meeting of the Society for Research in Child Development, Washington D.C., April 1997. 66 Hirokazu Yoshikawa, "Long-Term Effects of Early Childhood Programs on Social Outcomes and Delinquency," The Future of Children 5, no. 3, Winter 1995.

67 Donna Bryant and Kelly Maxwell, "The Effectiveness of Early Intervention for Disadvantaged Children," in The Effectiveness of Early Intervention, edited by Michael Guralnick. Baltimore MD: Paul H. Brookes Publishing Co., 1997: 23-46.

68 Marcy Whitebook, et al., Who Cares? Child Care Teachers and the Quality of Care in America: A Final Report: National Child Care Staffing Study. Oakland, CA: Child Care Employee Project, 1989.

69 John M. Lowe, et al., "Are They In Any Real Danger? What Research Does -- And Doesn't -- Tell Us About Child Care Quality and Children's Well-Being."

70 Average weekly child care costs were $74 in 1993 for families with employed mothers that purchased care (Lynne M. Casper, "Waht Does It Cost To Mind Our Preschoolers? Current Population Reports, no. P70-52, Washington, D.D.: U.S. Department of Commerce, September 1995.)

71 D.S. Phillips, ed., Child Care for Low-Income Families: Summary of Two Workshops. Washington, D.C.: National Academy Press, 1995.

72 House Committee on Ways and Means, The 1996 Green Book, 104th Cong., 2nd sess. Washington, D.C.: U.S. Government Printing Office, 1996; Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 1998.

73 Administration for Children and Families, Department of Health and Human Services, "Child Care and Development Fund," unpublished, December 1996.

74 House Committee on Ways and Means, The 1996 Green Book.

75 House Committee on Ways and Means, The 1995 Green Book; Office of Management and Budget, Analytical Perspectives, Budget of the United States Government, Fiscal Year 1998.

76 For a review of the literature see W. Stephen Barnett, "Benefits of Compensatory Preschool Education," Journal of Human Resources 27, no. 2, Spring 1992: 279-312.

77 Ibid.

78 Ibid. The author notes that some of these studies may not have sufficient control groups since they were self-selected or drawn from different populations.

79 Hirokazu Yoshikawa, "Long-Term Effects of Early Childhood Programs on Social Outcomes and Delinquency," The Future of Children 5, no. 3, Winter 1995: 51-75.

80 Janet Currie and Duncan Thomas, "Does Head Start Make A Difference?" American Economic Review, 85, no. 3, June 1995: 341-64.

81 Lawrence Schweinhart, et al., Significant Benefits. Ypsilanti, MI: High/Scope Press, 1993. However, the results of the Perry Preschool study may not be generalizable to other preschool programs that may provide higher or lower levels of services or monetary investment.

82 Lawrence Schweinhart, et al., Significant Benefits.

83 Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, Trends in the Well-Being of Children and Youth: 1995. Washington D.C.: U.S. Department of Health and Human Services, 1996.

84 Head Start Bureau, U.S. Department of Health and Human Services, "Head Start Statistical Fact Sheet," unpublished, February 1997.

85 Barbara Devaney, et al.,"Programs That Mitigate the Effects of Poverty on Children."

86 Abt Associates Inc., "The Effects of Head Start Health Services: Report of the Head Start Health Evaluation," unpublished, Cambridge, MA, 1984.

87 R.L. McKey, H. Ganson Condelli, et al., The Impact of Head Start on Children, Families, and Communities: Final Report of the Head Start Evaluation, Synthesis and Utilization Project. Washington, D.C.: CSR, Inc., June 1985.

88 Janet Currie and Duncan Thomas, "Does Head Start Make A Difference?" American Economic Review; Janet Currie and Duncan Thomas, "Can Early Childhood Education Lead to Long Term Gains in Cognition?" Policy Options, forthcoming.

89 Head Start Bureau, U.S. Department of Health and Human Services, Improving Head Start: A Success Story," unpublished, November 1996; additional tabulations provided by the U.S. Department of Health and Human Services.

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