Why It’s Important To View College As An Investment

I see many people falling into a trap, including many of my friends who have now graduated and are having problems looking for jobs. In fact a few of them are even working 2-3 minimum wage jobs just to pay off their student loan debts or if they were lucky, were able to defer the loan paying to their parents and pursue graduate school in order to get a job. The biggest mistake I see is that people don’t treat your collegiate career like an investment. I am never one to say that if you desire to pursue higher education in a specific topic you love then don’t. However, you need to be aware that the money you spend on your degree isn’t guaranteed to return you a positive return in the long run, and that the affordability of the college you choose depending on your major plays a large role in how much you can save and potentially how wealthy you can be in the future.

In economics there is something called human capital, which is more or less an investment in a worker that isn’t calculated in something tangible like dollars. For example, education, extra training ect. are all forms of human capital. Human capital is very important for a worker in the long term because it increases their efficiency over the long run work period. College is an example of a human capital investment in yourself. The idea is those who go to college are more efficient useful workers that can be utilized in the workforce. Much of what you learn in college wont actually prepare you for everyday work , but your major signals that you have the potential to do a good job in a certain field and can learn what you need to do on the job.

If you treat a college investment like anything other than a human capital investment, you could potentially be shooting yourself in the foot. If you look at the graph below you can see some of the expected returns on degrees in the long run of your career based on the average price of college in the United States. This isn’t set in stone because many times a person’s personality and work ethic is another major factor in whether or not they will be successful, but if you use this as a baseline it can be very helpful. If you are going to school to major in history, but you are paying $50,000 a year for tuition, you probably would have made more by working a minimum wage job over a lifetime.

However, if you go to a low cost school and major in a degree that has a very good return on investment such as engineering, you are going to be able to save a large amount of your income to do the things you like to do in your free time. Many people make the mistake of choosing a hobby for a living, which some people admittedly can do, but a large majority end up not being able to turn it into a feasible job. There are hundreds of job types that no one wants to do, but have a low barrier to entry and are in high demand. If you can find something you love doing and can make a living out of it, then you are one of the lucky ones, but many of us should choose something that is a job so we can use our free time when we are not at home to pursue our passions and maybe one day our passions will actually let us transition into a job. The safe bet is to have something to fall back on that will let you always have employment if you seek it.

My goal isn’t to turn anyone away from their passions or hobbies, quite the opposite really. If you want to pursue those passions you can by saving money retiring early and having all the free time in the world to pursue that, but that wont be possible with 100k of debt over your head when you are making minimum wage. In investing , time is the most valuable factor and removing all that time it would take to pay off that 100k, you could have saved that money and it would have grown substantially. Financial freedom is the way to pursue your passions in life and choosing a major or job that you might have never considered, might be the way to do that.

I myself have two majors, Asian Studies with Japanese, which is my passion and interest and economics, which has admittedly grown on me, even though investing is what I am really interested in. I know that I will have many more opportunities with an economics degree than if I had just gone with Asian Studies, which is why I added it. I still am going to pursue my passion in learning Japanese and hope to one day live in Japan, but my major that I don’t always enjoy is my ticket to do that. So if you are looking into college, do yourself a favor and don’t buy into all the hype that expensive private schools have. Go for the cheaper school with a marketable major so in the long run you can afford to do the things you live for.

-Calaber24p