A Valuable Lesson: Education Must Pay Off for US

Friday, 15 Oct 2010 08:11 AM

By Barry Elias

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The United States spends more money per student than any country in the world: roughly $35,000 total for primary, secondary and tertiary education.

In 2006, the United States was ranked 32nd and 22nd in math and science, respectively, out of 52 countries. This was based on testing by the Program for International Student Assessment (PISA) at the Organization for Economic Development and Cooperation (OECD).

Implication: Another poor return on investment by the United States.

My recent dialogue with Nobel Laureate Dr. James Heckman (Economics, 2000) focused on a different paradigm and methodology to deliver education that may serve society more productively and efficiently.

In recent weeks, I have described various manifestations related to the financial crisis, role of government, healthcare, pensions, and Social Security. Education remains the underlying prescription to alleviate these malfunctioning systems.

Dr. Heckman strongly advocates early intervention to provide a positive learning environment for the child. It is critical that the caregiver empower the child to develop an effective requisite skill set prior to formal schooling (e.g. 0-5 years). These skills include cognitive and noncognitive areas, such as social and emotional intelligence.

A central attribute involves perseverance. This is encouraged by accepting challenges as opportunities, which foster positive exploration, learning, and growth. Recognizing and reinforcing work effort with specific, tangible observations are also critical.

Dr. Heckman has identified a synergistic mechanism that occurs during skill development, whereby growth in one area positively effects growth in other areas. In addition to increased future productivity, early intervention reduces the demand for remediation, incarceration, and rehabilitative resources later in life.

As a result, Dr. Heckman observes the return on investment is significantly higher with earlier intervention.

Anecdotal evidence abounds as well. A recent chess grandmaster notes the average person can double their skill level in chess with a persistent, strong work ethic. On a recent Newsmax cruise, Dick Morris made a prescient observation: Some of his extremely successful former classmates may not have been the absolute brightest students (although quite talented, I am certain). This characteristic is aligned with individuals who have developed a risk tolerance to explore, learn, and transform errors into growth opportunities. Dr. Carol Dweck of Stanford University is also a strong advocate of this flexible mindset to stimulate creativity and innovation.

The figure cited earlier, $35,000 annual expenditure per student, includes $10,000 for primary and secondary education combined. Using Dr. Heckman's model, the cost of early intervention may not be much greater than this, but future benefits (e.g., greater productivity and lower correctional interventions) will be much greater, resulting in a high positive yield.

Moreover, tertiary education, which consumes $25,000 per year, may be inflated and possible to reduce. Ironically, the expansion of government financial aid may actually enable an unwarranted increase in the cost structure of tertiary education.

Currently, the annual cost of a highly selective university (tuition, room, and board) exceeds the median family income of $50,000: this defies normal market forces. One analyst projected these costs can be reduced more than 50 percent while preserving very high quality.

The increased cost structure places additional demand on endowments to seek higher yields that finance cash flow requirements. This typically increases the portfolio risk structure (e.g., alternative investments, including highly leveraged derivatives). This may have prevented a timely exit from the declining market in 2008, and may have exacerbated the decline. The average endowment suffered a market decline of nearly 20 percent as a result of the financial crisis (Harvard led this group with a drop of nearly 30 percent).

Early intervention as proposed by Dr. Heckman and a revised resource allocation for tertiary education may provide a more effective and efficient education model.

This methodology would promote curiosity, love of learning, and productivity, which will significantly enhance the quality of life for our society.

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