Is education a good investment?  Let’s take a look at some of the numbers and see if we can draw our own conclusions on whether education can help increase your chances of earning more in your career.

According to the U.S. Census Bureau, 90% of young adults graduate high school.  Of these 60% continue on to college. The chart below helps illustrate the economic value of education.  It appears to show that an increase in education results in an increase in annual earnings. 

 

Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000
Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999 and 2000

 

  By finishing your bachelor’s degree on average you would make about $21,800 more than a high school graduate annually.  If you extend this over a projected work period of 40 years as the U.S. Census Bureau does, you would earn about $872,000 more than someone with a high school degree.

The reason in class that you can guarantee us a million dollars is because by finishing our education we will have a higher probability of earning a significantly larger amount of money over our lifetime.  Not only can education lead to directly increasing your earning power, education also can have other financial benefits.  Along with higher educations often times you are taught how to make sound financial decisions.  These financial decisions alone can affect your lifetime earnings significantly with the power of compounding interest.

 

 

Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000.
Source: U.S. Census Bureau, Current Population Surveys, March 1998, 1999, and 2000.

 

 

 

Now that we have seen how much earning potential is possible with a higher education we must not overlook the cost. As you learn in economics, everything comes with a cost.  In this particular case you have both a monetary cost and a time cost.  College requires an enormous amount of time and dedication.

 

Let’s do a few calculations in order to find how much of an investment you are making in your education.  Here at Central Michigan University a minimum of 124 semester hours are required to graduate.  The current undergraduate tuition cost of an in state student in 2008 was $304 per credit hour.

 
Calculation of Education Cost

124 credit hours x $304 = $37,696

This amount is not our actual cost, because over the period you are earning your degree you could have been earning interest on that money invested elsewhere.  So we will use $37,696 as our principle.  Let’s say it takes 5 years to complete your degree and during this time, you could have had this money invested earning a healthy yield of let’s say 6%.  Compound this quarterly and the result is about $50,771.  So in our case a bachelor’s degree would cost us about $50,000 dollars. 

Education Pays

If you remember back to our very first calculation of how much more per year on average a person with a bachelor’s degree makes compared to that of a high school graduate you will remember it was $21,800.  So if our degree costs us $50,771 you will earn that initial investment back within about 2.3 years.  This seems like a very good investment when you consider you still have a projected 37.7 years left to earn over $20,000 more per year.

So go hit the books and study for that next exam because school pays dividends.