The Cost Of Education

Education – something important to all children and something taken to the extremes in Asian families. Not only do many parents expect their children to score with flying colours, they expect their children to enter a good university, graduate with a good degree and move on to some respectable, glamorous high-flying job such as being a doctor or lawyer. The famous Hindi film ‘3 Idiots’ portrays this in a comedic yet somewhat realistic way.

Money Or Good Job

The other day I was surfing the forums when I came across a thread. The thread starter asked everyone if they would prefer to have $1.3 million without a good university degree (more difficult to get a ‘good’ job), or having a good university degree and a better paying job. The thread starter mentioned that his friend was complaining to him that, his parents had put in good money into his education since he was young, about $1000 to $2000 monthly right from the very start and sent him to a reputable university, where he graduated with a degree. But now he has to slog his way out in corporate life and sees no meaning in it. The thread starter went on to mention that if the parents put in that amount of money into S&P 500 consistently over the years and gave it to him when he became an adult, he would have $1.3m on hand. With $1.3m, it does not really matter if one gets a well-paying job. Screenshot below shows a monthly contribution of $1500 over 21 years, which is slightly different from the $1.3m mentioned earlier because we could only approximate from what the thread starter revealed.

cost of education

Almost everyone in the forum thread chooses the $1.3m over a good university degree. The underlying logic is very simple – we study hard, to get a good job, to earn good money. If I already have good money, then it really does not matter whether I have a good job or not. I could invest the money wisely, do some simple and stress-free job at the side and maintain my lifestyle. Of course, we are making a few assumptions here. The first is that the money used for education is really put into an investment consistently which yields a return matching the S&P 500, the second is that the child will grow up to be financially-educated, and the third being that the child will not be lazy and still do what he should to get an education and a job.

Supply And Demand

Not too long ago, just 2 generations ago, getting a work means you got to have a skill. Be it carpentry, plumbing, being an electrician, a car mechanic or whatever, one needs to learn some hard skills before being recognised as a capable worker. Back then when economies were not that developed yet, most of the skilled labour were of the lower tiers. Higher tier skills such as medicine or even programming could land you a pretty good job. University degrees were rare and those who graduated with one were seen as high skilled labour, fought over by the rich companies. University graduates were in low supply and relatively high demand.

As the economy progresses, families with the financial capabilities began to send their children into the universities in the hopes that their children would climb up the social ladder. Over the years, the supply of university graduates increased due to the increasing affluence of families and the setting up of more universities to cater to the demand for higher learning. Today you throw a stone at a random person and chances are you will hit a university graduate. Lower skilled labour are getting lesser and lesser, and new graduates only know how to do paperwork. Many of them do not even know how to change a simple light bulb or to clear the choking of their own toilet bowl.

2 things happpened as a result – education inflation and the competition to get to the top.

When most of the people do not have a university degree, a university graduate will be a rare commodity. Companies will pay good money to get him or her. However, when everyone is a university graduate, then the piece of paper degree will now become the new minimum standard. Have you seen how recruitment notices now requires even a university graduate for even a simple job? Because if everyone is a university graduate now, why should I settle for something lower? This is what we can consider an education inflation.

It used to be as long as one graduated from a university, he or she will automatically be considered a human talent. However, with more and more universities being set up, and quite a number of them producing mediocre graduates, one now can only consider graduates from a reputable university to be of a cut above the rest. The Ivy League for example, is the best demonstration of this. It is now no longer sufficient to get into a university. One has to graduate from the top universities, or at least a reputable one.

The Race To The Top Universities

Current generation of parents grow up in a transition phase where they see their own parents having a low education and being stuck in a hard labour job. They see themselves getting a university degree and get a somewhat more comfortable job in an office. Now that they have children, while they somewhat get a vague concept of an education inflation, they are still stuck in the track of ‘university degrees for good jobs’. Hence from a very young age, the current generation of parents send their children to various enrichment classes and private tuition after schools etc. In their minds, academic success translates directly to future career and even life success.

When everybody starts doing that, it becomes a neccessity to hire a private tutor for your child should you want to aim for the top, unless your child is of outstanding calibre either in terms of academic talent or in terms of hard work. All these classes and private tuition, when added up over the years, would cost a significant sum as mentioned at the start of this post. Should one invest this money consistently in a safe instrument, one could expect to yield a tidy sum of profits.

This, is the real cost of education – the actual cost and the opportunity cost. And such a phenomenon is allowed to play out because firstly the high cost of education to get a simple job makes people incur great cost and fall into great debt, thereby making a whole family and 2 generations of people an obedient corporate slave. Secondly, such a big and lucrative industry provides many jobs and lines up the pockets of a few big corporations.

Conclusion

Education is important. It allows one to get an understanding of this world and to make informed decisions, and so that we do not behave like an uncultured swine. However, for very practical reasons, education is also meant for us to get a good job in the future. Yet the current university track is saturated and inflated. I am not saying that one should give up a university education totally. But considering the current state of things, it may just be ok to settle with a mediocre degree in a mediocre university, while spending the money on more useful things. This useful thing may not necessarily be restricted to a financial investment for your child, but one can also consider taking a more unconventional route. Afterall, there is more than one way to get to the top. Why squeeze in a path everyone is walking?

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