Federal Reserve’s Conference Highlights How Investments in Children Translate to Economic Growth

Linking inner city businesses to strong regional clusters. Engaging anchor institutions to create shared value. Connecting inner city companies to appropriate growth capital and contracting opportunities. Supporting management education and strengthening business networks.

At ICIC, we talk at length about these drivers of inner city economic development as strategies crucial for lifting inner city residents out of poverty. But others are focused on increasing economic opportunity for children as a way to prevent the entrenched, intergenerational poverty associated with inner cities. Evidence shows that kids with strong cognitive and social foundations are better equipped to succeed in life and contribute to society and the economy at large. Yet not all children have the same opportunities to grow and develop.

At the Tenth Biennial Federal Reserve System Community Development Research Conference held last month in Washington, D.C., experts explored how promoting child development and education can strengthen communities and drive economic growth. The conference, “Strong Foundations: The Economic Futures of Kids and Communities,” attracted 500+ economists, policymakers and practitioners from across disciplines, sectors and geographies.

Panelists explored a number of topics, such as the return on investment for early childhood development efforts, closing the academic achievement gap, pathways to wealth building, and policy interventions to improve child outcomes.

But one theme in particular stood out throughout the conference: the importance of place. Where a child grows up has a direct impact on his or her economic opportunity.

Erin Hardy of Brandeis University dove into this topic in greater detail. Her presentation, “Shaping Economic Futures: The Role of Communities” looked at why and how racial and ethnic equity matters in this conversation. While poor white children have a 35 percent chance of growing up in a poor neighborhood, poor Hispanic children and poor African-American children are at least twice as likely to grow up in poor neighborhoods (70 percent and 75 percent, respectively). This is important because research shows that where a child grows up has a direct effect on future earnings and economic mobility. As Hardy explains, children of color represent a large and growing share of our future workforce, but they are the least likely to live in communities that allow them to thrive.

Hardy’s team created the Child Opportunity Index, which examines the correlation of race in children with the “geography of opportunity.” To define the “opportunity” of neighborhoods, they measured neighborhoods holistically, based on 19 individual indicators that take into account not only income, but a neighborhood’s physical condition and number of institutions, for example. Poor white children had a 22 percent chance of growing up in a low opportunity neighborhood, while poor black children had a 57 percent chance of growing up in a low opportunity neighborhood.

One way to promote economic mobility, then, is to help low-income children move to higher-opportunity areas. However, Hardy’s team found that most poor families cannot afford to live in these better neighborhoods, meaning affordability issues are exacerbating equity issues.

To bridge the “opportunity divide,” Hardy suggests a multi-pronged approach that includes improving opportunities for all low-income children. Specifically, she suggests cities: (1) reduce family-level barriers to access through mobility programs and zoning; (2) incentivize affordable housing in opportunity areas; (3) use locational strategies to better distribute community resources towards things like early childhood education; (4) enforce fair housing laws; and (5) evaluate the success of place-based approaches.

Sandra Newman of Johns Hopkins echoed the importance of place, focusing her presentation on how housing conditions affect childhood poverty. Newman pointed to the dramatic increases in housing unaffordability. Today, poor children are twice as likely to live in unaffordable housing as they were in the 1970s. Parents who are forced to spend more on housing do not have the resources to invest in educational enrichment, and are more likely to live in areas with high crime and underperforming schools – which stifle a child’s educational development. Again, place matters. Newman suggests cities develop multi-pronged strategies that include investment in affordable housing and neighborhood quality.

We must work to create conditions, particularly in distressed neighborhoods, that create opportunities for economic mobility for children. The Federal Reserve’s conference reaffirms our belief that place-based strategies are necessary to reduce poverty and create economic opportunity in inner cities. As the conference highlights, investments in our children represent investments in our nation’s future economic growth. To this end, investments in inner city economic development are critical not only in the near-term (to create jobs and wealth for current residents), but also critical in the long-term, to ensure that generations of children have the opportunity to contribute fully to society and the economy.