Lifetime earnings is another way to investigate the commercial advantage that tertiary education can bring.
I prefer this measure to wage gaps because career-income paths are not smooth for everyone.
From the Social Security Administration in 2015:
By 'lifetime', they mean age 20 to 69.
What's the alternative? Is there anything else that can deliver those lifetime earnings?
The 1950-2009 growth rate of the S&P 500 was 7.2% p.a.. With that rate of return, a $655K portfolio over 49 years would cost $22K. How does this compare to the cost of education? Note that average graduate debt for 2015 bachelor's degree holders was around $30K.
Three things to note:
It might seem like I have a grudge against higher-ed. I've written my thoughts on re-education, and the conventional wisdom to invest in oneself. I probably wouldn't be posting this if it didn't on some level confirm my life choices.
However, a more balanced conclusion is that rising education costs make alternative means of similarly achieving lifetime earnings more attractive.
If you were 20 (again) and you had $30,000 spare, what would you choose?
I prefer this measure to wage gaps because career-income paths are not smooth for everyone.
From the Social Security Administration in 2015:
After controlling for key socio-demographic variables that influence earnings and the probability of college completion, the differences in lifetime earnings by educational attainment are reduced, but still substantial. Regression estimates show that men with bachelor's degrees would earn $655,000 more in median lifetime earnings than high school graduates. Women with a bachelor's degrees would earn $450,000 more in median lifetime earnings than high school graduates.
By 'lifetime', they mean age 20 to 69.
What's the alternative? Is there anything else that can deliver those lifetime earnings?
The 1950-2009 growth rate of the S&P 500 was 7.2% p.a.. With that rate of return, a $655K portfolio over 49 years would cost $22K. How does this compare to the cost of education? Note that average graduate debt for 2015 bachelor's degree holders was around $30K.
Three things to note:
- This is without re-investing dividends. Spend those dollars. If dividends are re-invested, the total return is 10% p.a. and the initial investment needs only be $7K.
- Inflation has not been taken into account in this comparison.
- Neither has additional investment. (This is a big deal, as you would presume those with higher starting salaries can put aside more money earlier and benefit from compounding, but it's an intentional omission to simplify comparison.)
It might seem like I have a grudge against higher-ed. I've written my thoughts on re-education, and the conventional wisdom to invest in oneself. I probably wouldn't be posting this if it didn't on some level confirm my life choices.
However, a more balanced conclusion is that rising education costs make alternative means of similarly achieving lifetime earnings more attractive.
If you were 20 (again) and you had $30,000 spare, what would you choose?
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