OUR GREAT MINDS

    by Tom Smith

    Think Before You Learn – The Cost-benefit Analysis of University Degrees

    If you’re a savvy 18 year-old or the parent of a high school student, the contents of this article could literally be worth several million dollars to you. A seemingly preposterous claim, granted, but as it turns out, a simple shift in perception of the conventional wisdom about university could radically alter your life. But first, let’s back up for a moment.

    A Degree Is An Investment Product

    Consider this: would the housing market and national economy be better off if the average first-time home buyer was an 18-year-old with no income and a borrowed down payment?

    Outrageous. Yet–though the comparison is imperfect–this is essentially the scenario in the post-secondary education market. And yes, it is a market. More specifically, it is an investment market. People go to university for all manner of reasons, but chief amongst them is career aspiration. We drop a great deal of time and money studying something that will ostensibly put us in better stead for our future. So a degree can be viewed as an investment product of sorts. Financially speaking, it’s a lot more like a mortgage than a high school diploma. And viewed from this angle, the data about earning potential is no less than shocking.

    The Most Important Financial Decision Of Your Life

    It is beyond doubt that, in the aggregate, university degrees have been a boon to the social mobility of graduates. In September of 2013, Statistics Canada announced that, as of 2010, a university degree nets a full-time employee an average salary of $80,500 per annum, compared to $54,000 for college and $46,000 for high school.

    However, a recent Georgetown University study by Anthony Carnevale shows that university degrees come with just about the biggest caveat emptor imaginable. The data, which studied American students from 171 majors, demonstrates that, depending on which degree you choose to pursue, the median income ranges from $29,000 USD per annum (Counseling Psychology) to $120,000 (Petroleum Engineering). That’s a whopping $91,000 USD difference per annum. Add that yearly difference up over a 35-year career, and it’s a total of $3 million more income that could have been earned in a lifetime if the student had chosen the more profitable degree.
    This makes the university degree very likely the most important financial decision of a person’s life. And it’s a decision typically made by a high school kid more concerned with Facebook selfies than financial stability.

    The Cost-Benefit Analysis Angle

    It’s relatively safe to claim that important financial decisions are better made with proper cost-benefit analysis. Yet we rarely, if ever, hear guidance counselors, parents and teachers warning students about the downside of a snap decision to go to university after high school. In fact, the conventional wisdom is that immediate enrollment in university is actually a good thing. That wisdom is wrong, and dangerous.

    Unless you’re amongst the minority of teenagers with a passion for mining technology, petroleum engineering, or the like, spending a few years in the real economy before making any post-secondary education decisions could literally net you millions of dollars. That money obviously far outweighs the possible lost earning potential of entering a professional field a few years later. And take it from the hip guy with the beard and the psychology degree barista-ing at Starbucks: you’ll be a lot happier with a decent salary in a career you’re passionate about.

    Take A Couple Years Off, Kid

    Certainly not everyone should study the degrees with the highest earning potential, and there are a variety of other important factors than money in considering what to study. But the decision is definitely better made carefully and slowly.

    So, here’s a lucrative piece of advice for high school graduates:

    Don’t go to university.
    Yet.

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