College Matters

Assume you are an 18 year-old high school graduate with $102,000 to use for a lifelong investment.

These are your choices:

• triple-A rated bonds
• housing
• common stock
• Bachelor’s Degree (4 year college)
• Associate’s Degree
• gold
• long term treasuries

The results? The Associate’s Degree gives the largest return and housing the smallest. Specifically, Brookings hypothesizes that the average annual return for 60 years would be: Associate’s Degree: 20%; Bachelor’s Degree: 15.2%; stock market: 6.8%; AAA corporate bonds: 2.9%; gold: 2.3%; long-term treasuries: 2.2%; housing: .4%.

However, the WSJ reminds us that there might be other differences between college grads and those who did not continue with higher education. At the high school level, college grads had higher grades, were more affluent, and fared better on standardized tests. Asked for a number, though, researchers estimate the lifelong income boost from college at $300,000-$600,000.

The Economic Lesson

Defined as sacrifice, the cost of every investment is more than the dollars it directly required. Cost includes alternative uses of the money as well as less tangible benefits.

An Economic Question: We could say that the benefit of college has a “spill over effect” as a positive externality. That is, individuals benefit but society gets even more. How would you assess the broader impact?