Financially, one of the most important investments you’ll make is in your education and your skills. The immediate financial considerations, tuition, time, and opportunity cost are all well-known and often overwhelming. But the financial advantages you’ll receive as a result of investing in your education, over time, determine the overall value of that education investment strategy.
I’ve been studying careers and compensation data for at least 15 years, and I’m confident in saying that education is an effective tool for building wealth over a lifetime. Yet, it’s not that simple; the relationship between more education and more money is not always linear.
What you need to do is invest strategically in education, choosing the right kind of education based upon the current demands of the labor market and your individual strengths.
The Data: Lifetime Income Premium
Higher levels of education correlate very well with higher lifetime incomes. The United States Bureau of Labor Statistics has some reliable data regarding the median lifetime income premium associated with a bachelor’s degree compared to a high school diploma.
These big figures tell part of the story, but they don’t tell the entire story. The real story lies in the details:
Education Discipline Determines Financial Return More Than Degree Level: What matters more when it comes to determining how much you will earn after graduation than the level of degree you hold is what you studied.
For example, someone who has a bachelor’s degree in computer science or engineering will generally earn more than someone with a master’s degree in a discipline that is less in demand.
Student Loans Can Eliminate Education Returns: If your post-graduation salary is reduced enough due to crushing student loans, then the financial return on your education may be wiped out.
Therefore, the difference between earning $30,000 per year and owing $150,000, versus earning $50,000 per year with no student loans, represents a huge difference in terms of your net return on your education investment.
Compounding Advantage of Starting Earlier: In addition to earning a higher salary, the financial advantage of education is also related to when you begin earning that higher salary.
Since you have more time to compound those dollars, you’ll be able to contribute to your retirement accounts sooner, buy a house sooner, and invest in other assets that compound over time. That financial head start is extremely powerful.
Strategic Paths: University or Skilled Trades
There was once a commonly held misconception that a four-year university degree was the only way to achieve success. That is a financially foolish view of the modern economy, which places a high premium on demonstrated skills and competencies.
University Path (When It Makes Sense):
A university degree is still a good choice for fields where deep theoretical knowledge is required and where the degree is a requirement for entry (medicine, law, engineering, etc.).
The strategy behind the university path is to:
- Identify a field that has a high rate of employability. Research the starting salary, job placement statistics, and overall employment prospects for students graduating from your desired program.
- Minimize your student loan debt. Search for ways to minimize your debt, consider attending a public school or community college, and/or apply for scholarships and take advantage of federal work-study programs.
Gain practical experience. Co-op programs and internships are a necessity, not an option. They help you convert your degree into a job offer.
Skilled Trade & Vocational Path (Hidden Financial Powerhouse):
For many people, this is the better financial choice. Skilled trades offer:
- Earn While You Learn: Apprenticeship training allows you to earn a wage and gain experience while you learn, leaving you with little to no student loan debt.
- Demand for Services and Resilience: Service-based skilled trades such as electrician, plumber, welder, and medical technician are in constant demand and are generally immune to economic downturns and globalization.
- Path to Entrepreneurship: Skilled trade skills are easily transferred to entrepreneurship. Skilled trade entrepreneurs typically have a much higher ceiling on their earning potential than salaried employees.
The Hybrid Path (Best Strategy):
Many of today’s most successful professionals combine formal education with ongoing, targeted skill development. Here’s an example:
- A business major with a Data Analytics Certification.
- A nursing associate’s degree with additional certifications can increase pay.
- Self-taught coding skills validated with a boot camp to demonstrate to employers.
Beyond the Paycheck: Hidden Benefits
In addition to the salary on your paycheck, there are several other financial benefits to having an education:
Job Security: Individuals with high levels of education tend to experience fewer periods of unemployment. The continued ability to earn a steady income and protect yourself from the impact of an economic recession are two of the primary reasons for this increased security.
Benefits Packages: Jobs requiring higher levels of education and skills are much more likely to include comprehensive benefits packages, including health insurance, retirement plan matching, and paid leave. These benefits represent a large portion of your overall financial picture.
Increased Career Options: A solid education and skill base make it easier to move from industry to role to company. This flexibility enables you to work on new opportunities and transition out of dead-end or toxic jobs without losing momentum.
A Strategic Plan for Your Education Investment
Before you enroll in any program, ask yourself the following strategic questions:
- What is the True Cost of Education? Calculate the total cost of attendance for the entire period of the program, including tuition, fees, supplies, and the opportunity cost of not earning a living.
- What is My Projected Earning Potential? Conduct research to identify the median salary for graduates of that specific program in your area.
- Will Employers Value This Skill? Will the number of job openings for that specific skill be increasing? Is that skill likely to be automated?
- What is my net return on investment? Estimate your future income for ten years, subtract the cost of education, and compare the two. Does the math add up?
While a narrow focus on the financial aspects of education is overly simplistic, ignoring them altogether would be equally shortsighted.
Your objective should be to make strategic investments in your human capital that will generate the best possible return in terms of financial stability, job satisfaction, and future opportunities. There are few things more valuable than an education that develops the skills that are in high demand, limits your financial obligations, and provides the freedom to adapt and grow in a long and fulfilling career.
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