Tuesday, July 5, 2016

Survivalship: is still the college worth it?




I do not know if you have ever paid attention to this, but how often are you told that you need to improve your skills to emerge in today world?

Quite often, I guess.

The problem, here, is that very often it is completely up to you to get the necessary skills to cope with today's world challenges. School/university does not help you.
Let's make an example.

Thirty years ago, if you were a simple undergraduate, you could find a decent paid job easily.
Today, even if you have a degree, it may become impossible. Or, even if you find it, the wage is so low that you struggle to get to the end of the month with your payments.

I have discussed the reasons behind the raising of inequality in Western Countries in this post.

Newspapers and magazines and TV news continuously hammer the average citizen with headlines like "unemployment is raising (in Europe)" or "unemployment is decreasing (in USA"), but there is a common line: wages are decreasing, or are stagnating, and in order to keep up with the payments, household debt is raising. This is due to decreasing productivity, we are said, in that we cannot compete with chineses and indians (it seems our fault, indeed) so in order to increase productivity, we can choose between two paths :
1. Decrease salaries, so that the final product of our factories is more attractive to foreigners
2. Increase technological innovation, including skills of the workers

The first solution, that is to stop increasing salaries, is the preferred one by mainstream economists and politicians: it is immediate. It also perfectly matches another policy: currency devaluation.
NOTE: currency devaluation is that process that makes your currency less expensive to  foreigners. This is vey on hype nowadays, and it is only possible in today's world ruled by central banks. In a Gold Standard, that was not possible. I will cover this topic in one of my next posts.

The second solution can be achieved only on a long term basis: it requires investments, it requires cooperation between universities and industry to educate and train young generations, and, above all, it requires political stability, in that if each newly settled government changes their idea every three to five years, the long term investment policy is not achievable. And, since governments are always broke, they typically do not invest as much as it is necessary. They need to raise cash here and now.

NOTE: you could object that productive investments only come from the private sector. It is not true.
Real huge technological breakthroughs have been achieved only thanks to government fundings: internet, GPS, nuclear energy, radar, touch screens, electric cars, telecommunications advancements etc. are products of large scale government investments. The reason is simple: only a government can take upon itself the risk of developing complex and challenging new technologies. I will cover this topic in one of my next posts.

In order to escape from this debt spyral (low wage --> high debt --> less resources to keep up with technological innovation --> lower wages --> higher debt --> etc) they are suggesting you to increase your skills.

At first glance, it makes perfect sense: to get a better job, you need to be better than the competitors.
But, as usual, the devil lies in the details.

Just ask yourself these two questions:

1. what will be the wage increase for this extra studying? In other terms, let's suppose you spend three to five years to study and get extra skills, and it costs you 50 thousand euros, how long do you need to repay your debts?(and just imagine that before even asking for a 300 thousand euros, you have already 50 thousand euros of student's debt on your shoulders...)

2. WHAT am I going to study to increase my skills?

What follows is based on what happens in the USA, that may become also a reference in the future in Europe (hopefully not, but I guess we will follow USA's policy, as usual)

Let's get to the first point, that is the "return on investment (ROI)" of your studies. In other terms, for each dollar invested in education, how many dollars shall I get? Well, the situation may become frustrating. "What is not in doubt is that the cost of university per student has risen by almost five times the rate of inflation since 1983, and graduate salaries have been flat for much of the past decade. Student debt has grown so large that it stops many young people from buying houses, starting businesses or having children. Those who borrowed for a bachelor’s degree granted in 2012 owe an average of $29,400". (see here)

In other terms, if we look at things from a different perspective, we understand that creating a private collage for an entepreneur in US can turn out to be very very profitable, especially thanks to government tax breaks and the fact that students get overburdened with debt to pay the education fees . For a student, it may not. A student can become a sitting duck. 

Education is expensive, there is no getting around it. In US, a four-year degree at a public university costs, on average, 37343 dollars, while an education at a private school will cost 121930 dollars, on average!

This brings us to the next point: What to study?

For sure, some degrees pay for themselves, others do not. And, according to this table, we discover that you may need up to 20 years to repay your student's debt if you choose a degree that leaves you with with a low salary but high student's debt, like a degree in veterinary medicine.

So, to get the RIGHT skills, at a decent prize, is mandatory.
Just think about your education as your most important asset. I mean professional education, your culture is another thing. Culture helps you live your life better, professional education gives you the means to sustain yourself and grants the free time to get yourself a culture.

Which are the college degrees with the worst ROI, ie the worst salary with respect to the bent-over- books years?


WORST (from the worst of the worst to the least worst):

  1. Sociology
  2. Fine Arts
  3. Education (teachers  - very sad, since they are the pillars for future generations)
  4. Theology
  5. Tourism
  6. Nutrition
  7. Psychology
  8. Communications (for ex. news reporter, marketing coordinator)
BEST (from the least of the best to the very best):
  1. Math
  2. Information Technology
  3. Human Resources
  4. Economics (be aware that there is the desk clerk and the banker..)
  5. Biology
  6. Engineering
  7. Marketing
  8. English (for ex. mean speech writers, communication managers and web content managers)
It is interesting to remark that attending private colleges is so expensive that, on average, it is better to go to public colleges. 
Now, let me give you an advice: average salary will grow less and less, and I explained the reasons  here. Due to deindustrialization and globalization, many jobs are moving from the Western Countries to the Asian countries, so there is less need for engineers, doctors, etc with respect to the growing population of graduates. There is going to be an oversupply of professional figures almost everywhere.

Therefore, be aware that to get better salaries, you will likely end up in moving to another country or state. Just try avoiding manufacturing divisions of big companies(which are delocalizing, will be massively affected by 3D printing and by the forecoming robot revolution); focus as far as possible on disciplines with high human added value or with an expanding market.

And, increase your financial IQ to understand where the world is going.

So, to answer the question in this post's headline: is the college still worth it? the answer is YES, but 
1, you have to pick up the right degree
2. knowledge is becoming "distributed", thanks to online training and teaching. And the quality is improving. So, if you are not rich, do not get too desperate, public colleges are better than private colleges in terms on return on investment and very cheap on line universities may be a very good choice in the future. 

Finally, I leave you with this graph: unemployment is less severe for college graduates, even if the salary is not as good as it once used to be.




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