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Is Education Worth It? Personal Finance Thoughts

Not everyone can afford higher level education, yet a lot of people go to these education institutions for lots of reasons. Let's cut directly to the chase: This blog post will talk about whether education (not including trade schools) is worth it based on value, opportunity cost, and supply of jobs.


Most kids who go to college do so because they want a high paying job down the road. Let's face the music; If we use Pareto law, 80% of kids go to school to achieve a high paying job, and 20% of kids go to school for various other reasons. These various other reasons could be for knowledge, improving social class, or to "be the first person in their family to go to college." Any other bullshit subjective worldview can be categorized as a reason for going to college. Most of us can't afford to go to these institutions, but yet attend college and take out lots of loans to be able to.

The Value: According to the Chamber of Commerce, 60% of students owe some form of debt post graduation. 44.5 Million Americans owe a total of $1.5 Trillion in student debts. The average student debt was $37,000 in 2016 which was a 78% increase in average student debts per capita from just 10 years prior. At the tail end of the curve, roughly 2 million students owe more than $100,000 each, and 0.5 million students owe more than $200,000 each. This means tuition costs are rising every year. $37,000 average debt should be relatively easy to pay off on paper, but let's look at the costs more in depth: The average monthly payment is $393 in 2016, up from $227 in 2005. Let's say you had an average starting salary of $50,000, based on TheBalance.com: With a rent of $800, $300 per month in food costs, $100 per month in gasoline, $200 per month on healthcare, $200 in entertainment, $200 on auto insurance, and $200 in investments. You now have $2,133 left over to save or pay down debts. If you were to save 20% of that into a rainy day fund, and the rest of $1,703 goes towards paying down debt, for the average of $37,000 in debt at 6%, it would take roughly 3 to 4 years to pay it all off assuming the interest decreases as you consistently pay it off per month. If you were to start on the low end of starting pay at $30,000 then you would be deep in shit. That might take you about 10 years to pay it all off. DYOR! At the end of the day, it is a competition for resources, and it is a gamble. You have to either know somebody who knows somebody to network for those resources or have a really high GPA and good resume.

The value and brand name of schools matter as well. That is an entirely different animal in itself. But let's say that 100% of Harvard or any other Ivy League grad gets preferential treatment and hiring on the spot. The hierarchy then goes down to State institutions with great sports programs, value schools that have a mix of cheap tuition and local brand name, and then Devry. Each tier of schools will have varying and often lesser treatment based on the recognition as well as the individual performances of the student. Based on the rules of competition, some of these students will stay unemployed based on their schooling and performance.

Opportunity Cost: Every year that one delays gratification in some form, there is an opportunity cost for that deferred gratification. For example, if you have a passion for music but you have decided to enroll in school or get a full time job, you are deferring education and furtherance in the music field to take advantage of the upfront financial benefits for that job or school. For school, more often than not, you are trading off time and money. The time aspect of school is beyond the minimal 4 years of studying and deferred gratification of working full-time. It is also the time value of paying off the student loans and deferring even more gratification post college. In total, the time cost of school and starting a career is 4 yrs + (Time it takes to pay off all debts). More often than not, if it takes you 4 years to start a career and then an additional 10 years to pay off all debts, you would have to forgo 14 years to finally be able to start doing music again seriously. There is an economic valuation for starting a career, but there is also an intangible valuation of time and fulfillment that is forgot when deferring your youth in passions. What could have been your life if you had traded off your economic gains for a career in music? That is something for you to figure out. Chances are, you will achieve some semblance of notoriety in music, whether local; regional; or national, had you taken it seriously despite the competition.


Supply & Demand of Jobs: In 2017, there was an increase of 2 Million fixed jobs from 163.521 Million workers in 2016 to 165.438 workers. Let's say that there is an average increase of 2 Million jobs yoy, 2019's average number of workers would be at 169.438 Million workers. The current population in the US is 328,903,090. Roughly 5% of the total population are retirees (70yrs to 100+). According to Statista or CNN, 61.24% of Americans in 2018 were married couples. A fraction of these married couples would be solo breadwinner families. Based on data from the Bureau Labor Statistics, totaling people without a job as of April, 2019 with the number of working age Americans without work, there are 102.047 Americans that are unemployed.

According to Statista, 35.3% of Females, and 34.6% of Males have completed 4 year college degrees or higher. That means, based on 50% of the population being male or female, about 58.052M females and 56.9M Males, for a sum of about 115M people have a higher education background. After subtracting the boomers who don't work from 115M, we get 98.55M people with higher education that are either working or able to work. Now the question is how many people are underemployed? The definition of underemployment is anyone who works a job that is beneath one's qualifications. This could also mean people who don't work a job that meets his or her skill sets. Out of the 169.438M workers estimated for 2019, how many of them are working minimum wage jobs at McDonalds versus a corporate job that meets their credentials?

By looking at the 2018 Labor Force Statistics and carefully adding up all of the jobs that don't require higher education, I got a figure of 38.336M jobs that could be deducted from the 169.438M estimated workers for 2019. I totaled jobs such as construction, food service, correctional facility work and the like; You can choose to tally up your own numbers by going to the aforementioned web page. This means roughly 131.102M workers are working jobs that require some form of higher education and 22% of the total workers in 2017 were lower education jobs. Assuming that these workers have tenure, there will still be competition for new jobs or openings among a fraction of 102.047M unemployed Americans. 35% of Americans are educated within higher education institutions, so there will be bias for newer graduates every year.

Every month there is roughly 7M job openings seasonally adjusted, or 49M new jobs per year and roughly 1 Million new jobs per state. If 50% of those jobs were entry level, there would be 6 Million jobs available per year for new graduates or underemployed folks. Based on a 60% graduation rate and 19.91M enrolled students in 2019 (which always increases every year), there will be nearly 12 Million new job seekers entering in the workforce each year. This means there would be a surplus of jobs, or 24.5 Million new jobs for entry level folks, available on an aggregate level; but because of supply and demand, these students might have to choose a job that they don't want, in a different field, or in a different state. Also, most of these jobs could have high turnover rates as shown from the Social Security Administration website, where there was generally a flat 2 million increase in fixed workers per year. The competition is high folks.

It's all part of strategy folks. What do you guys really want to do? Do you want to defer gratification of your passions long term for a mid term gain? Or do you want to take advantage of your prime youth in passions first, while working, with the option of going to school while you are older? Take a look at the costs of education, and where the economy is headed. Or make an intangible decision based on your gut, core strengths, and passions. The decision is up to you. I'm curious as well.

Which would you pick? Education and long-term deferred gratification vs Working straight out of high school and being able to pursue your passions? Vote here: https://twitter.com/DividendRaptor/status/1134664739676676096
 
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