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.

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.

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.

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.

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.

Mike

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

Someone who lives alone in a bigger city and makes $18,000 / yr does not have the same opportunity to save as the comparable person who makes $45k/yr. I also don’t agree that most people will live up to their salary. Most people I know do raise their standard of living as they make more money but they also raise their savings rate as well.

Mike

One point you didn’t mention is that during their working years, Fred (college dude) would have a much higher standard of living than Paul which has to be worth something.

One other key point (and I know there are 14 million possible scenarios) is that you assume both men save the same amount of after-tax income which is a valid assumption but the fact is that Fred (college dude) has the opportunity to save a much higher percentage of his after-tax income than Paul does which if taken advantage of, might tip things toward Fred.

Mike

I have to disagree completely about who can save a higher percentage of their income! Anyone can save higher or lower percentages of their income – your income level has very little to do with it after you’re making enough for rent, etc. Fred might have a lot more income, but if he’s got a higher standard of living – like you mentioned – then he probably spends 90% or more of his after-tax income, just like Paul. I know people who make much less than I do who still save as much or more than I do, and I know people who make a LOT more who save almost nothing. Fred has an opportunity, sure, but so does Paul – it’s all just relative to the level of comfort you require. I also know people who make as much as I do but live a substantially simpler lifestyle in cheaper locations, and therefore save a lot more.

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. If I could travel back in time to tell 1994 Steve how much he would make now, he would be blown away and figure he could save 50% of his income – but instead, even living a very frugal lifestyle (we save about 25% of our net income) there are a million ways I could cut back further, and don’t, because I don’t want to face life without Netflix … for example.

That’s a mini-post in the comments. Whew.