We have long considered return-on-investment when making decisions about what assets we buy.? Scott Wolla, Senior Economic Education Specialist, argues that we need to do a better job of thinking about ROI when making investments in ourselves.? Writing for the Federal Reserve Bank of St. Louis's Page One Economics, Wolla confirms that education is a good investment (maybe the most important one):
But, Wolla argues we need to be more strategic in how we spend on our own education.? And he gives three things to consider:
First, an investment in human capital might not pay off. Just as a firm?s investment in physical capital involves risk, there is also a risk that the expected outcome from investing in human capital will not be realized. Research consistently shows a correlation between more education and higher income (see the second graph), but there is no guarantee. One way to think about the ROI in human capital is the college wage premium, which is the percent increase in earnings of those with a bachelor?s degree compared with those with only a high school diploma. Recent research suggests that the college wage premium has been growing?from 40 percent in the late 1970s to 84 percent in 2012. 2
Second, people should consider what kind of an investment to make. Getting an education will most likely lead to higher income, but there are vast differences in the projected income and job opportunities of the various courses of study available. For example, according to the Bureau of Labor Statistics (BLS), an elementary schoolteacher with a four-year degree earned $51,380 (median) in 2010, 3 while a computer programmer with a four-year degree earned $71,380 (median) in 2010. 4 Both earned a higher income than they would have if they had not acquired a college degree, but the difference between the median earnings is significant.
The job opportunities available in different professions also vary. The BLS forecasts job outlooks for various occupations. For mechanical engineers (2010-20), the BLS forecasts job growth of 9 percent, 5 while for registered nurses job growth of 26 percent is expected. 6 Again, there is a significant difference. Given these facts, does that mean that you should not become an elementary schoolteacher? Does it mean that you should consider only computer programming or nursing? No, but the median income and the expected job growth rate are two factors to consider when making decisions about future education and training. In fact, there are many opportunities to gain training and valuable job skills besides the usual college route. Vocational, technical, and trade schools teach specific, practical jobs skills that can lead to a good job within 2 to 4 years. For example, many such schools offer programs in computer-aided design and drafting (CADD); law enforcement; heating, ventilation, and air conditioning (HVAC); and information technology (IT).
Third, people should consider the cost of various kinds of educational institutions when they think about investment in education. For example, the average cost of attending a four-year public university (tuition, room, and board) from 2007 to 2011 was $58,623, while the average cost at a four-year private university for that same period was $125,604. 7 Does that mean you should consider only public universities? No, but cost should be considered in making your decision. The ROI for a would-be elementary schoolteacher would be higher if he or she chose to attend a four-year public university.
Read Invest in Yourself: An Economic Approach to Education Decisions here.
Posted 02-20-2013 9:41 AM by Graham Griffith Filed under: tuition, St. Louis Fed, human capital, roi, college debt, college, return on investment, Scott Wolla, human investment, investing in education, economic approach to education decisions, university
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