Investing in Tomorrow: How Education Spending Translates into Lifetime Returns

Each year of education a person receives increases their annual income by about 10%, exceeding stock market returns. This consistent 

growth of 10% per year has continued even amid the challenges posed by the COVID-19 pandemic. Furthermore, in addition to the 

earnings of individual graduates, society as a whole benefits from increased national educational attainment. Countries can do a lot to 

help, starting with ensuring that all children have access to quality education starting in preschool.

Investment or expenditure?

Education is considered a fundamental human right and a basic human service according to various international declarations. Across 

the globe, countries ensure minimum educational standards, a tradition that has been upheld for centuries. Individuals and families, 

employers and governments all invest in education. In fact, most countries spend 3-5% of GDP and 10-20% of government spending 

on education, according to the Education Finance Watch 2023.

In addition to its inherent value, education also brings economic benefits. David Deming emphasized the positive returns on investment 

in education, noting that one-third of changes in income are due to education. He went on to emphasize the importance of investing in 

young children (as did many others, including Heckman) and in young adults.

The huge financial returns to education appear to be causal. Carolina Arteaga shows that human capital plays an important role in wage 

determination and rejects pure signaling models. In other words, it is the quality of education that determines wages, not the lack of quality 

diplomas. She demonstrates this by citing a reform at one of Colombia's top universities that reduced the number of courses required to 

earn a degree, leading to a subsequent sharp drop in wages.

social benefits

The meaning of education goes beyond the financial rewards it provides students; it goes far beyond monetary gain. Education broadens 

personal choices and serves as a conduit for the transmission of social values from generation to generation. Additionally, it enhances 

current and future consumption.

The transformative power of education is clear as it empowers young people to make informed and improved choices, cultivating their 

values for their own future and the future of global society. In essence, education instills in people a future-oriented perspective.

Education promotes social inclusion, and research shows that investing in girls’ education yields particularly significant returns. Malala, 

a well-known advocate for girls' education, aptly expressed the transformative potential when she said: "If one educated girl can change

 the world, imagine what 130 million girls can do." Therefore, investments will be made Turning towards girls and women is a smart 

strategy that can help increase social inclusion and equity.

Public funds, which distribute trillions of dollars to institutions and individuals, operate on the premise that a well-educated population 

contributes significantly to society's well-being. To assess the effectiveness of this investment, it becomes critical to assess the social return 

on education and measure its impact on the overall economy. Although the economic concept of human capital spillovers has a long 

history, quantifying these social returns remains a complex task, raising the question of whether the social benefits of education are 

likely to exceed the private benefits speculated for more than a century.

As the number of educated people increases, the collective benefits of education also expand. When residents of a community 

or metropolitan area gain advantages from having educated peers, they essentially receive social rewards from the education of others.

Furthermore, education plays a key role in increasing productivity. As countries grapple with the region's productivity slowdown, 

improving access to and quality of education is imperative.

The broader social benefits of education include both monetary and non-monetary rewards. These include reducing crime rates, 

controlling population growth, reducing poverty, regional economic growth, increasing tax revenues, cleaner environments, enhancing 

the health of individuals and their families, slowing the spread of disease, stabilizing two-parent families, educating children, reducing 

mortality, reducing prejudice and intolerance, increasing support for civil liberties, active participation in civil society and politics, and 

advocating for climate action, among others.

Move forward

Going forward, it is imperative to gain a deeper understanding of the returns to education and identify the reasons why certain groups 

do not benefit from education. In view of the huge social returns brought by education, the obvious lack of investment in school 

education has become increasingly prominent.

worry. Identifying groups that are underinvested or not working after graduation and developing effective interventions becomes 

a key focus of research and policy initiatives. Prioritizing approaches aimed at strengthening school education, improving its quality 

and maximizing social benefits became another area of focus.