Money Matters for Student Achievement

Increased funding for schools yields improvements in test scores, school completion, tertiary attainment, lifetime earnings, and other outcomes, concludes an in-depth review of research studies on the relationship between school expenditure and student outcomes.

Spending on both current operations AND capital investment improve student outcomes.

The benefits are particularly strong for economically disadvantaged students and districts where states have historically underinvested.

The results are from a comprehensive review published in January by the Albert Shanker Institute in Washington DC by Professor Bruce Baker at the University of Miami and Associate Professor David Knight at the University of Washington.

Money Matters in General
Putting additional money into schools leads to improved student academic achievement and outcomes later in life while funding cuts, resulting from major events like the 2007-09 recession, lead to a decline in student outcomes.

Since 2000, a steady stream of studies using more advanced statistical methods have been published. These studies settled the question of whether money matters - it does. The studies also add new information on key issues including the kinds of investments that matter, who benefits most from them, and the impressive magnitude and consistency of their impact.

On average, a policy increasing spending by $1,000 per student for four years improves test scores by a modest but significant amount and produce positive, statistically significant impacts on test scores over 90% of the time. It would also increase tertiary participation by 2.8 percentage points.

Money Matters Especially for Disadvantaged Students
The positive impact of educational spending is greater when new funds are targeted to students from low-income families. A consistent finding across multi-state studies and state-specific studies is that effects are larger for students from lower income families. It yields greater returns on expenditure than spending where prior investment has been high and student need relatively lower. The difference in return on investment may be as high as 20-fold.

Specific Investments that Matter
Much additional expenditure on schools goes to increasing teacher salaries and
employing more teachers. The study reviews the empirical literature on whether and to what extent teacher compensation matters for improving school quality and student outcomes. It also considers the impact of performance pay on student outcomes.

The level of teacher compensation relative to other labour market opportunities matters for recruitment and retention in the teaching profession. It directly improves student outcomes through a higher-quality and more stable instructional workforce.

Performance based incentive programs were extensively adopted in the United States over a long period of time. They tied teacher pay directly to productivity, including performance bonuses based on student test results. These programs have been extensively reviewed with mixed results. Recently published studies of individual and group financial incentives continue to find mixed to nil effects.

Students in smaller classes achieve better outcomes, both academic and otherwise, and class-size reduction can be an effective strategy for closing racial and socio-economic achievement gaps.

Assigning students to smaller classes increases the probability of attending college by 2.7 percentage points, with effects more than twice as large among black students. For students enrolled in the poorest third of schools, the effect was 7.3 percentage points.

Class-size reduction is often characterised as a prohibitively expensive use of additional school dollars because of the need to employ more teachers. The question of whether it is too expensive must rely on detailed comparisons of alternative uses of the same dollars, or the effects on student outcomes of those alternative uses.

In Australia, very large proportions of students from low socio-educational advantaged (SEA) families are not achieving national standards. For example, 64% of Year 9 students of parents who did not complete Year 11 and 52% of students of parents in the lowest occupational group did not achieve the national reading proficiency standard in 2024.

A new study by Save Our Schools shows that the large majority of low SEA students attend public schools. In 2023, 81% of all students low SEA students attended public schools and 91% of all schools with over 50% of their students in the lowest SEA quartile were public schools. Nearly one-third of all students in public schools are from low SEA families.

Image by Mikhail Nilov