Chapter 4
School Finance as
Investment in Human Capital
Education
& The Economy
Throughout history, few believed that
educating all citizens would benefit the
society’s overall economy.
The Old Concept
• For the most part,
government limited
education to the
elite & not to the
masses
• Labor, the working
classes, and the
poor remained
largely uneducated
Early Times
Early civilizations
valued sheer
numbers of people for
protection, hunting, &
gathering.
Developing societies
prized individuals
first for how well –
and later for
how much – they
could produce.
Early U.S. View
• Adam Smith’s The
Wealth of Nations
(1776) included human
capital in the fixed
capital equipment of
manufacturing goods
• Society’s members’
acquired abilities as part
of the fixed resources
A revolutionary
concept for the
time, it followed
naturally from the
founding fathers’
discussions about a
literate society’s
importance to their
democratic republic
government.
A New Concept
Until Theodore W. Schultz’s work on
investment in human capital gained
popular acceptance in the 1960’s,
society valued labor primarily for their
physical rather than intellectual
attributes.
Theodore W. Schultz, “Investment in Human Capital,” American Economic Review 51 (March,
1961), pp. 1-17.
Now a Popular View
The World Development
Report of the World Bank &
other journal reports have
shown that
investment in
education
explains the sustained
development of many
countries & the lack of
development in others.
An Educated Citizenry Raises
Everyone’s Standard of Living
• Makes a better workforce
• Creates new products & services that
enhance quality of life
• Raises revenues for social programs
• Reduces social service programs’
costs for persons with increased
levels of education
• Creates safer neighborhoods
Education Level is Closely
Associated with Increased Earnings
High School Dropout
High School Diploma
Bachelor’s Degree
Master’s Degree
Doctorate Degree
Professional
$20,000/year
$30,000/year
$50,000/year
$60,000/year
$78,000/year
$93,000/year
Average Earnings, U.S., Age 25 & Older, Full-time Employment, 2000.
Source: U.S. Department of Commerce, Bureau of the Census, 2001.
Education & Lifestyle
An individual with a
bachelor’s degree,
on average, will
earn about 2 ½
times that of a high
school dropout.
The High School Dropout
• The high school drop out
earning approximately
$20,000 per year will
make $800,000 over his
working life
• If he pays a federal tax
rate of 10% of those
funds, he will have
contributed $80,000 in
federal taxes
• Income minus federal
taxes of $720,000 over his
lifetime
The College Graduate
• If the college graduate
earns approximately
$50,000 per year for the 40
years of his working life, he
will earn $2,000,000
• If she pays a federal tax
rate of 20% of those funds,
she will have contributed
$400,000 in federal taxes
• Income minus federal taxes
of $1,600,000 over their
lifetime
HS Dropout/College Grad
Economic Comparison
Dropout
Graduate
Annual Earnings $ 20,000 $ 50,000
Lifetime Earnings $800,000 $2,000,000
Total Fed. Taxes* $ 80,000 $ 400,000
Total Earning
Minus Taxes
$720,000 $1,600,000
* Over 40 years work life
More Education
Means a Better Economy
The highly
educated earner
spends and
contributes
significantly more to
the economy than
does the lesseducated earner.
Education Produces Money &
Stimulates the Economy
• More education
• More taxe.
• More discretionary income
• More $$$$ to stimulate the
•
•
•
•
economy
More $$$$ to the tax base
More $$$$ to charities
Fewer social programs
Less crime
% of Work Force Participation
by Education Levels
Ages 20-24
•
W/o Diploma
•
W/ Diploma
•
W/ AA Degree
•
W/ BA Degree
70%
82%
85%
84%
Ages 25 & up
•
W/o Diploma
•
W/ Diploma
•
W/ AA Degree
•
W/ BA Degree
43%
65%
78%
80%
SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, Office of Employment and
Unemployment Statistics, Current Population Survey, 2000.
A Lack of Education Has Negative
Effects on Individuals & Society
Those who do not
graduate from high
school:
• Earn less money than all
other groups
• Vote less frequently
• Receive incarceration at
much higher levels than is
either the general public or
the public grouped by other
levels of educational
attainment
Spending $$$ on Education
Reduces Crime*
 A significant part of
lower incarceration
rates results from
the higher wages
that high school
graduates earn as
compared to high
school dropouts
 A 1% increase in the
high school graduation
rate would save the
U. S. as much as $1.4
billion per year in
reduced crime costs
and would result in
$1,170 to $2,100 per
additional high school
graduate
*Lochner, L. and Moretti, E. “The effect of education on crime: Evidence from prison inmates,
arrests, and self-reports” 2001 Joint Center for Poverty Research, Policy Brief, vol. 4; no. 5, p. 26.
Education Increases a
Community’s Quality of Life
• Voting frequency
• Cultural activities
• Health insurance
• Childbirth inside or
• Volunteerism
• Charitable
contributions
• Leisure activities
before marriage
• Prenatal care
• Crime victimization
Voting Behaviors & Education
Individuals with
higher levels of
education vote
more frequently
than do individuals
with lower levels
of education.
Voting Behavior By
Educational Attainment
1-3 years
4 years
4 years
High School
High School
College ++
25%
13%
42%
31%
59%
57%
61%
29%
27%
76%
49%
50%
86%
75%
79%
US Congress
1974
1994
Presidential
1964
1984
1992
Health Insurance & Education
Individuals with
higher levels of
education tend to
have health
insurance compared
to those of lower
levels of education.
Health Insurance & Education,
cont.
In 1999 those who had a college degree
or higher were 300% more likely to have
health insurance as compared with
those who did not have a high school
diploma.
Health Insurance & Education,
cont.
 Those with health
insurance tend to
maintain health with
regular checkups and
healthy lifestyles
 They also place less of
a burden on social
service networks and
public hospitals
People Without Health Insurance
by Education Level, 1999
W/O Health Insurance
No HS Diploma
27%
HS Graduate
18%
Some College
15%
AA Degree
13%
Bachelors or Above
8%
Source: U.S. Census Bureau, Current Population Survey, March 2000.
Education & Health
• Current research
is finding
biological proof of
education’s
possible protective
effect on a
person’s health
• A recent study finds a
correlation between the more
years of formal education & the
less likely individuals were to
exhibit Alzheimer’s disease
symptoms of dementia
• People with 22 year of formal
education, showed less effects
of the disease while living & the
disease had less effect on their
cognitive test scores
Volunteers & Education
Those with
higher education
levels tend to
volunteer more
frequently than
those with lower
education levels.
They provide
important services
to neighbors and
their children that
would otherwise
either go undone
or would have to
be paid through
increased taxes or
fees.
Volunteers & Education
• 2/3 of the college
graduate population
performed some
sort of volunteer
work during a year
compared with
somewhere
between 30% and
43% of high school
drop outs
Percent of Adult Population
Doing Volunteer Work, 1998
% of Population
Volunteering
30%
43%
43%
Elementary School
Some High School
HS Graduate
Trade, Technical,
Business School Grad
College Graduate
54%
68%
Average #
Hours/Week
--3.9 Hours
2.8 Hours
3.5 Hours
3.1 Hours
Source: Saxon-Harrold, Susan K.E., Murray Weitzman, and the Gallup Organization, Inc. Giving and Volunteering in
the United States: 1999 Edition. (Copyright and published by INDEPENDENT SECTOR, Washington, D.C., 2000.
Charitable Contributions
& Education
Persons with lower levels of income
tend to donate fewer total dollars but a
larger percentage of their incomes to
charities.
Charitable Contributions by
Household Income, 1998
Household Income
Under $10,000
$ 10,000 – 19,999
$ 20,000 – 29,999
$ 40,000 – 49,999
$ 75,000 – 99,999
$100,000 & up
All Contributing Households
Average $$$$
% of Household Income
329
495
552
951
1394
2550
5.2%
3.3%
2.2%
2.1%
2.6%
2.2%
Charities Impact
Quality of Life
• Arts, Culture,
•
•
•
•
•
•
Humanities
Education
Environment
Health
Human Services
Public, Societal
Benefit
Youth Development
Charitable Contributions, 1998
% of
Type of Charity
Arts, Culture
Education
Environment
Health
Human Services
Public,Social Benefit
Youth Development
Households
11.4%
12.6%
12.4%
20.8%
27.3%
11.1%
21.4%
Average
$$$ Contribution
$221
$382
$194
$234
$250
$134
$174
Leisure Spending Impacts
Quality of Life
• Well-educated
people seek and
bring free time
activities to their
locales
• They also work at
maintaining and
improving their own
homes
Leisure Spending
Leisure time spending
 Stimulates the economy
 Increases home assessments &
local tax revenues
 Provides more jobs & employment
 Improves the quality of life – for
neighbors locally and nationally
% of Participation in Leisure
Activities by Education, 1997
Education Level
Attendance/Participation
Movies Sports Exercise
Grade School
Some HS
HS Graduate
Some College
College Graduate
14%
52%
62%
78%
82%
13%
25%
38%
48%
59%
46%
66%
74%
81%
87%
Home Improvem’t
40%
59%
65%
71%
76%
Source: U.S. National Endowment for the Arts, 1997 Survey of Public Participation in the
Arts, Research Division Report No. 39, December 1998.
Spending on Leisure Activities
 Individuals with more
education spend more time
in sporting & leisure
activities
 They spend more on the
consumer goods related to
their recreational hobbies
 This leisure spending helps
stimulate the economy
Education & Leisure
Higher levels of
education are
associated with
spending in leisure
activities that
stimulates both the
economy and the
cardio-vascular
system.
% of Sporting Goods
Purchases by Education, 1998
Household Head’s
Education Level
Less than HS
High School Grad
Some College
College Graduate
Jogging
Shoes
3%
14%
33%
50%
Camping
6%
20%
37%
37%
Exercise
5%
18%
36%
41%
Golf
1%
13%
35%
51%
Source: National Sporting Goods Association, Mt. Prospect, IL, The Sporting Goods
Market in 1999.
Education & Cultural Activities
There is a direct
increase in cultural
activities participation
as the level of
education increases.
Arts bring music,
theatre, dance, and
fine arts to a
community.
People Who Attend Cultural
Events Boost the Economy
• By eating in restaurants
near their entertainment
venue
• By purchasing gasoline for
the trip, buying new
clothes to wear for these
occasions
• By providing employment
for the artists and service
providers
Cultural Events Attendance &
Education Level, 1997
Attendance at least once in past 12 months
Jazz
Grade School 2%
Some HS
3%
HS Graduate
7%
College Grad 21%
Grad. School 28%
Opera
Theatre
--2%
2%
10%
14%
3%
7%
9%
28%
37%
Art Museum
6%
14%
25%
58%
70%
Source: U.S. National Endowment for the Arts, 1997 Survey of Public Participation in
the Arts, Research Division Report No. 39, 1998.
Child Bearing & Education
• Almost 2/3 of first
births for high
school dropouts
were premarital
• Fewer than 10% of
first births before
marriage for those
with a college
degree or higher
Child Bearing & Education,
cont.
• ONLY 25% of the
children born to high
school dropouts were
conceived after
marriage.
• More than 87% of
children born to college
educated individuals
were conceived after
marriage.
Childbearing Statistics Have
Large Economic Implications
 Two-parent families form more stable
environments to raise children
 They have more money & other resources to
meet their children’s and own personal, health,
social, & educational needs
 They are more likely to raise children who

value education
 have fewer special learning needs
 develop good work habits
 prepare for well-paying careers
 contribute to their community
Marital Status of Women, 15-44
Years, At First Birth by Education
Education
# Births
% Premarital % Conceived
(per 1000)
Births
After Marriage
Not HS Grad.
HS Graduate
Some College
BA, or Graduate
Degree
1304
2612
2192
1751
64
39
31
7
26
47
57
87
Source: U.S. National Center for Health Statistics, Fertility, Family Planning, and Women’s Health; New data
from the 1995 National Survey of Family Growth, Vital and Health Statistics, Series 23, No. 19, 1997.
Prenatal Care & Education
• Receiving adequate
prenatal care impacts the
baby’s birth weight and
overall health
• Healthier babies have
fewer learning problems
& make fewer demands
on education & social
service agencies
Prenatal Care & Mother’s
Education, 1991-1995
Months Pregnant When Starting Care
Less than
3-4 Months 5 Months +
3 Months
or No Care
No HS Diploma
79%
7%
14%
HS Diploma/GED
89%
6%
5%
Some College
95%
3%
3%
BA Degree or
94%
2%
4%
Higher
Education Level
Source: U.S. National Center for Health Statistics, Fertility, Family Planning, and Women’s Health: New Data
From the 1995 National Survey of Family Growth, Vital and Health Statistics, Series 23, No. 19, 1997.
Crime Victimhood & Education
Persons with higher
levels of education
are less likely to be
victims of crime.
We infer from
previous data that
higher education
brings higher
income.
Crime Victim Status
& Education
• For those making
$60,000/year (the average
salary for an individual with
a Masters degree) about
1/3 are victims of a crime
• For high school dropouts in
the lowest income
categories, between 1/2 almost 2/3 are crime
victims
Crime & Education
Quality of life has to do with
where & how we live. If education
helps individuals live in nicer &
safer neighborhoods, it means that
those with higher levels of
education are less likely to live near
or associate with individuals who
commit crimes and, consequently,
are less likely to become a victim of
one.
Crime Victimization by Family
Income (Education)
Income
Rate per 1000 persons, age 12 and up
All Crimes
Robbery
Assault
Theft
Less than $7500
$7500 – 14,999
$15,000-24,999
$25,000-34,999
$50,000-74,999
$75,000 & above
66%
51%
41%
43%
33%
34%
6.6%
5.8%
3.6%
6.9%
2.8%
2.9%
54%
41%
34%
28%
28.5%
29%
1.7%
1.8%
1.3%
1.6%
1.1%
1.0%
Source: U.S. Bureau of Justice Statistics, Criminal Victimization, Annual; and Criminal Victimization
1998, Changes 1997-98 With Trends 1993-98, Series NCJ-176353 (Revised 25 August 1999).
Education as a
Wise Investment
• Education, more than any
other social investment,
raises the standard of
living by increasing
employability & income
level, thereby increasing
tax revenue to support
even more education
• The interaction between
education and economic
health creates a synergy
• Education also
increases many
quality of life issues,
not only for the
educated individuals
themselves, but
throughout the
entire community
Education Is a
Wise Investment
The money spent for
education pays clear
dividends in human
capital that any
financial analyst
would envy in a longterm investment
portfolio