Why Investing in Education Can Pose a HUGE Risk!

So, let’s jump in and talk about the first one. This first one may seem counterintuitive, but in fact, it is risky. Investing in your education, adding to your knowledge base in order to improve a skill set or learn a new skill set. People often say, “I don’t understand. I’ve gone to school. How could this be risky? Why on Earth could this be considered a risk?” I mean, I’m a huge advocate for education. I still think that this is the ladder that gave me the leg up. But it is risky these days because, guess what, number one, it’s gotten expensive. That’s right. It can be incredibly costly. When you think about what an average four-year cost, if you look at the average cost of an in-state degree right now, it’s $26,000 per year. So, just doing some simple math, that’s like over a hundred grand over the course of four years. Well, it goes even further than that. If we’re going to spend $100,000 on something, specifically that actually is an opportunity cost. That’s an incremental decision that you have chosen to put that money towards your education, whereas it could have been invested.

So, we’re like, “Hey, let’s flip the script on this and say, what would that money be actually potentially turned into?” And guess what, guys, a $100,000 education is potentially forgoing $10 million at retirement. Yeah. So, whether you paid for that or whether your parents paid for that, that was money that could have been working. That could have been doing something pretty stinking important. That actually leads to the second idea around education is that most people can’t pay for this upfront. They have to actually borrow money to do so. Yeah. This is not shocking because a lot of you resemble this, as we have found from our research. The typical undergraduate graduates with a student loan balance right around $3,500. And I think this is an even more frightening statistic that 39% of undergraduate student loan borrowers don’t actually graduate with any degree at all. That means four out of 10 folks go and accumulate and rack up student loan debt and don’t actually walk away with the degree.

So, I would argue in terms of ROI investment, they’re not getting a solid ROI on that investment. And then if you think about the fact that there’s actually a significant cost in your time. I mean, there is definitely a value in what your time is worth because not only did you go to school, that’s time you could have been working. Why do we pick on doctors? I mean, everybody is always jealous of how much money doctors make. But I look at it with a little bit of a contrarian standpoint as I’m like, you realize most doctors don’t even get to kind of start their career until they’re like 30. All their peers started investing at 22, so it’s eight years that’s been foregone. So, time is money. Don’t overlook that risk.

And so the question becomes, okay, well then why do people do it if it’s so risky? Why do you do it? Well, it’s pretty straightforward. You either go to college or advance your education to learn a new skill set or maybe to improve a current skill set you have. But in the day, ultimately, the reason that most of us go to university, the reason most of us advance our educations is so that we can make more money, is so that we can actually increase our income through time. So, the question becomes, is it worth it? Is the ROI there? Well, we started off this section. We said, look, we did an incremental decision matrix decision where the opportunity cost of the $100,000 it cost to go to college could potentially be costing yourself $10 million of retirement. Now, a lot of people will be like, “Why would you all do that?” Because that kind of takes the heart of education out. No, no. All it does, if we want to bow it down to a math equation, is what do you have to make per year to offset that additional earning potential?

And we did the math for you. Don’t worry. We did the math. And here’s what we figured out. You need to invest approximately $1,220 a month, making around 10% at age 22 to offset, if you brought that expanded that out, multiply it by 12, that essentially means you need to make $155,000 more than if you didn’t go to college. That seems reasonable. So, if you can get a job that pays you enough extra that you could invest about $115,000 more per year starting from the time you graduate until retirement, then the ROI is pretty much there. Then you can justify the cost. If you’ve worked out that math. Now, look, I know a lot of you out there, because when we do simplified big decision things like this and try to bow it down to common denominators, a lot of you go, “Man, right out of school, you don’t make $155,000 more per year.” That’s true. I’m going to concede that point.

But I will tell you, someone who came out with like an accounting degree, yes, my starting salary was very low. But if you look at the earning potential over my career, that major more than paid for itself, and education was a good value. But you just said something so great right there. You said, “BR, I went to school to get an accounting degree, and when I left school, I went into the accounting field. I actually used my degree well.” What’s really interesting is only 27% of college graduates work in a field even related to their major. So, if you’re thinking about getting an ROI on the degree that you pursue, if you actually want that to pay for itself to justify the cost, you probably need to be going into a vocation that is aligned with the degree that you got. But unfortunately, a lot of folks are not doing that.

So, this is going to be valuable then. So, if that’s the risk, if we know that they lie, and share, I mean, that’s really that’s three to four of the people out there are doing this wrong, how do we do education the right way? So, the first thing that you need to do is make sure that your college degree is worth it. When you go to college, make sure that the degree you are pursuing can actually pay off in the way that we’re describing. If you’re just going to try to find something that you enjoy and you think will be interesting, you think will be fun, that may not have the economic impact on your financial life that it should have in order to justify the cost that college has. Now, I thought this was interesting. The content team actually put together a list of the best college majors and the worst college majors. And of course, in line, it looks like the first two are both engineering positions. The second two are both in computers and design. And like, and then what’s that number five?

I can barely read that. Oh my eyes are kind of good. Does that say public accounting? Oh my goodness. Public accountants made the list as the best college major. So, engineering, accounting, these are obviously skill sets that have a lot of market value. So, I would tell you college is a good investment. Now, let’s go flip the script and look at the other column, worst college majors. But what do we have here? Now, this isn’t bad college majors in terms of like don’t do this. It’s just in terms of ROI. So, if you’re going to pursue one of these majors, you really want to focus on cost. What are you spending to get that so that you can make sure you overcome that? But the worst college major is number one, family consumer sciences. Number two, general social sciences. Number three, performing arts. Number four, social services. And number five, anthropology. Again, we’re not saying that these are bad majors or bad vocations or things that you should not pursue. But if you do pursue them, you need to go into it with eyes wide open, and probably this is not something you should spend a fortune on to attain that degree if it’s not going to be paid off in the years working in that field.

Well, I think a good segue is to think about if you are looking at these majors that unfortunately made the column of worst majors, it’s not that, because a lot of these things, if you know that you’re the top 5% of a skill set and you want to pursue, there’s no doubt performing artist. I mean, I don’t know if Ron Reynolds got a degree in performing arts, but he definitely is a top performer and makes a great wage. I mean, he makes a lot of money doing that. So, you can, all these different majors, you can make a great living, but you probably should put some guard rails for yourself. I don’t want your college loans to exceed what the first-year expected salary is. If you can follow that guardrail, more than likely, you won’t get yourself in a bad situation. And what’s great is it’s not difficult research to do. It’s very easy to go search, “Hey, what does this vocation pay? Or what’s the average salary for someone in the social services in this geography?” It’s not incredibly difficult to figure that out. So, once you have that number, try to keep your student loans below that.

And know what options exist beyond or instead of college. Just because someone told you, “Hey, you have to go to college. You have to get a four-year degree in order to move up in this world.” That may not be the case, and maybe now more than ever, that may not be the case. Well, even I think, if we fine-tune this about colleges and how do you do college right? A lot of people overlook the community college for your first two years. I mean, there is a great education hack right there. But then let’s just move away from college altogether. There are actually a number of high-paying jobs that don’t even require a college degree. Look at this. This is data from the US Bureau of Labor Statistics. Number one on the list of vocations that do not require a college degree is air traffic controller, median salary about $123,000. Then, obviously, we have nuclear power operator, transportation manager, police supervisor, commercial pilot, power plant dispatcher, and so on and so on down the list. And these salary ranges from these median salaries range from $80,000 to $123,000 a year. That is a lot of money.

So, if you don’t think that you want to be an accountant, you don’t want to go into public accounting, but perhaps you want to be a commercial pilot, perhaps you want to be an air traffic controller, it may make more sense for you to not go to college and begin working towards this median salary in these vocations. By, I can’t unsee it now that you guys in show prep, they let me know that this is what they, the slide that affectionately became known as The Homer Simpson. There are a lot of new nuclear power reactor, power plant dispatcher, radiation therapist, power plant operator. Lots of radiation sims overlap, so there’s a Simpson Easter egg in there also. But moving on and pulling it back on point is that there are definitely some certifications and other things you can do that don’t require full college degrees. They can obviously have a lot of value out there. And then I want to kind of close it out with the last point here. Be curious, be a lifetime and a lifelong learner. If you can have that mindset and have that curiosity for life, I think there’s a lot that you can continue to learn and add value that has a lot of marketplace reward as well. For more information, check out our free resources.