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Because English does not have a gender-neutral third person singular pronoun that can be used to refer to people, they, together with the associated words their and them, is often used in this role and is a revival of an older use that was once well established in English. In more formal contexts, and when the individuality of the subject is significant, it is necessary to use he or she, his or her, or him or her, but these phrases are too cumbersome to provide a solution in informal conversational usage, e.g., Everyone taking the test should do the best they can. If anyone asks who I am, tell them that I'm his sister. A way of avoiding the need to use he or she in writing can be to use a plural: Students taking the test should do the best they can.
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