Comments on: is college worth it? (part 2)

By: Saturday Roundup | Credit Withdrawal

Saturday Roundup | Credit Withdrawal — Sat, 22 Dec 2007 19:10:54 +0000

[...] BripBlap – Is College Worth It #2 [...]

By: Steve (Brip Blap)

Steve (Brip Blap) — Sat, 15 Dec 2007 03:18:15 +0000

I’m certainly in agreement with any statements about my overgeneralizing and making broad assumptions. It’s certainly nowhere near to a perfect model. Like Deepali said, a lot of studies (via Penelope, one of my favorite writers!) indicate that $40K is the breaking point for being able to save, be happy, etc. So if you assumed someone making less than $40K was unable to save effectively, that would change the model.

I’m not sure it comes across clearly, but my takeaway was the same as plonkees and JimB’s and everyone else’s: get an education early, do it without incurring debt, start saving early. If you do that, you’re better off…period. “Paul” does better only because he starts earlier. If Fred doesn’t have loans, the model lurches massively back over in his favor. The trick is to start saving very early – and that’s really the moral of the story.

By: wealthy_1

wealthy_1 — Sat, 15 Dec 2007 00:42:18 +0000

I am an advocate of getting at least a bachelor’s degree. Unfortunately, most people go into debt for it. Even so, I think of it as an investment. I got a bachelor’s degree in English back in the dark ages, then chose to be a stay at home parent for 16 years. That degree was my ticket back into the work force. Granted I didn’t have nearly the amount of debt coming out of school as today’s graduates do, but without that degree I not have been able to apply for the job I have today.

By: JimB

JimB — Fri, 14 Dec 2007 22:49:50 +0000

This is a really useful baseline model, but as you point out there are some many simplifying assumptions. Two key factors that will influence outcomes but are difficult to plug in to the model are what opportunities present themselves to Paul and Fred, and how they really go after those opportunities.

One take away for me from this model is that if you are going to go to college do it sooner rather than later in life to minimize your oportunity cost.

I went to business school in my early 30’s, so I had the opportunity cost of real lost income and lost savings ability at school before getting back into the workforce. I’m not likely to make a substantial financial return on my education investment for a long time. I basically made a huge bet on future earnings potential which becomes very risky.

However, given the volatility in the world of work today, education may at least buy an individual some level of improved choice in response to changes in the job market.

By: deepali

deepali — Fri, 14 Dec 2007 22:29:26 +0000

Oh and regarding:
“I could go on and on but I think there’s a thought process that says people with low incomes can’t save – there’s some magic number over which saving gets “easier.” There isn’t – 99.9999% of the people in North America try to live up to the level of their income.”

Actually, there is – it’s 40K. I know you read Penelope Trunk too.
But sadly you’re right, most people aren’t really saving that extra income, but trying to spend it as fast as they can.

By: deepali

deepali — Fri, 14 Dec 2007 22:23:54 +0000

Great little exercise, but I have to admit, I found it useful for only one thing – the comment someone made earlier about what you keep. If Fred put away more of his income and didn’t live like he earned $180K, he’d likely be better off than Paul in retirement. And the chances that Paul is saving 10% are pretty close to nil, even in a small town. His chances of not having debt are smaller. Statistically, those without a college education are more likely to file bankruptcy (as well as those who make less than 30K)
While your Fred is unfortunately realistic, your Paul is unfortunately not.

And something got missed. It’s not always about where you end up, but also about how you got there and what you did along the way. College is expensive, but there are intangibles that are priceless, like experience and opportunity.

All that being said, I agree with your conclusions, and would add another – if you do choose the more expensive school, be both frugal and creative. There’s nothing wrong with working through college to help minimize the loan too.

By: plonkee

plonkee — Fri, 14 Dec 2007 17:16:58 +0000

Actually, I think that Paul (the non-college guy) is probably spending about the *right* amount for his income. I mean the standard rule of thumb is that you need two-thirds of your salary in retirement.

If you spent 4 years at college and accumulated debt, then you need to save a lot more than 10% of your salary to maintain the constant (but slightly lower) level of expenditure throughout your life and into retirement.

By: Steve (Brip Blap)

Steve (Brip Blap) — Thu, 13 Dec 2007 18:37:49 +0000

To Mike (Four Pillars) comment to SavingDiva: ditto! 24 is still a looong way ahead of most of the population.

Mrs. Micah: you’re right, and the argument can be made that a lot of people “waste” their college years pursuing, say, an art history degree only to get a job in banking. I say “waste” because, of course, that’s all part of the journey that got you from point A to B and therefore it’s never really a waste

By: Mrs. Micah

Mrs. Micah — Thu, 13 Dec 2007 18:31:01 +0000

I like plonkee’s comment that it’s what you keep that matters. Another important question is whether they were able to do what they wanted with or without college. I.e. Micah’s telos is to teach people–specifically to teach them how to think (not what, but how). And he can’t really do that without a PhD in philosophy. Me? I think my debt-free education enriched me, though I could have probably done without it.

By: FourPillars

FourPillars — Thu, 13 Dec 2007 17:52:33 +0000

SD – saving for retirement at 24 and more importantly, thinking about retirement at age 24 is awesome – way ahead of 99% of the population.

Mike