We’re all used to hearing that if we want to get ahead in life, you need to get a college education. Today I want to talk about an idea that is rarely discussed. The idea that education can negatively affect your bottom line!
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Education And Wealth: Millionaires Are Well Educated
Now before we get too far into this, let me say up front that I think education is important. For many careers you can’t get very far if you don’t have a degree. Some require that you have an advanced degree like a masters, or a doctorate. In fact, as a group millionaires (the wealthy) are pretty well educated. From the Millionaire Next Door:
As a group, we (millionaires) are fairly well educated. Only about one in five are not college graduates. Many of us hold advanced degrees. Eighteen percent have master’s degrees, 8 percent law degrees, 6 percent medical degrees, and 6 percent Ph.D.s.
So millionaires see the value of education, as do I, and they spend a lot of money on their children’s education – more than was spent on their own.
As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.
Only 17 percent of us or our spouses ever attended a private elementary or private high school. But 55 percent of our children are currently attending or have attended private schools.
With so many millionaires and high net worth individuals seeing the value of a good education, and so many of them taking advantage themselves, it would probably be a good idea for us to sit up and take notice.
On the other hand, in his book the Millionaire Next Door Thomas J. Stanley also examines how there can be a dark side to having too much education.
Too Much Education Encourages High Consumption Behavior
Thomas J. Stanley found that wealthy entrepreneurial millionaires often wanted to help their children to do even better than they had. They encouraged their children to get a college education, and advanced degrees. The problem was that far too often that along with education – their children also developed a taste for finer things that are so often associated with their advanced degrees – and they spent far longer getting their education than their parents had, missing out on some prime earning years.
In the book, Stanley gives the story of one entrepreneur
Take the case of Victor, a successful entrepreneur who is first-generation American. Entrepreneurs like him have typically been characterized by their thrift, low status, discipline, low consumption, risk, and very hard work. But after these genetic wonders become financial successes, then what? What do they teach their children? Do they encourage them to follow Dad’s lead? Do their children also become roofing contractors, excavation contractors, scrap metal dealers, and so on? The chances are they don’t. Fewer than one in five do.
No, Victor wants his children to have a better life. He encourages them to spend many years in college. Victor wants his children to become physicians, lawyers, accountants, executives, and so on. But in so encouraging them, Victor essentially discourages his children from becoming entrepreneurs. He unknowingly encourages them to postpone their entry into the labor market. And, of course, he encourages them to reject his lifestyle of thrift and a self-imposed environment of scarcity.
Victor wants his children to have a better life. But what exactly does Victor mean when he says that? He means that his children should be well educated and have a much higher occupational status than he did. Also, “better” means better artifacts: fine homes, new luxury automobiles, quality clothing, club membership. But Victor has neglected to include in this definition of better many of the elements that were the foundation stones of his success. He does not realize that being well educated has certain economic drawbacks.
Victor’s well-educated adult children have learned that a high level of consumption is expected of people who spend many years in college and professional schools. Today his children are under accumulators of wealth. They are the opposite of their father, the blue-collar, successful business owner. His children have become Americanized. They are part of the high-consuming, employment-postponing generation.
So for many people who have become wealthy by working hard, living below their means, having discipline and working hard – now their children have become under accumulators of wealth. Why? Because they have spent so long in school, learning more about how those with advanced degrees are expected to earn and spend, than they do about the important points of how their parents became wealthy.
Education Can Be Expensive For Those Paying Their Own Way
The cost of education in this country only continues to go up every year, in fact the cost of education has risen much faster than the inflation rate. For someone wanting to go to college, they can expect to pay anywhere from $40,000-$110,000+ for their 4 year college degree. If you aren’t paying with cash or working your way through school, you will most likely be taking out student loans as well, which will add interest into the equation.
What I’m trying to say is that if you’re financing your education, you’re already putting yourself at a disadvantage, and you’ll have a lot further to go than some others might – because your net worth is in the negative when you graduate. Depending upon your chosen career, you may or may not be able to pay that loan back quickly, but it’s something to take into account when deciding on which school to attend.
Education Can Help You To Find Wealth, But It Can Also Give You A Handicap
The point of my article is to point out that while education is an important piece of the puzzle that most of us should probably consider, it isn’t without it’s down sides. Excessive and aimless education can expose you to harmful spending and consuming patterns, and hamper you with thousands of dollars in debt (that isn’t bankruptable).
For me the key is to make sure you’re aware of the positive and negative aspects of getting a higher education, and make sure you’re not overspending, or letting yourself get too far into debt for your chosen career. Figure out what you want to do, get the best education you can at a value price, and work hard towards your goals.
What do you think? Is it necessary to get a good education in order to succeed? Do far too many people hamper their success by over spending on their education, and on the trappings of an advanced degree? Tell us your thoughts on education and wealth in the comments.
Bachelors degree at most. No need for the extra degrees.
“Peter Anderson is a Christian, husband to his beautiful wife Maria, and soon to be father to his baby boy, Carter”
You may want to change soon to be
you’re right! I changed it to take out the “soon to be”.. :)
I agree with your post. My friend, who was working full time at a defense company, decided to go back to school fulltime for an MBA. He lost out two years of income and got himself 80K more in debt due to being a private school. He graduated during the recession and is now making less than his old job.
You’re on to something with this post, even if it does run counter to the usual personal finance blog mantra of if-you-get-a-good-education-then-you-will-be-successful.
College isn’t just about education, it’s also about indoctrinating you to a certain line of reasoning. It’s largely the product of academia, not of the productive market. For the most part, college trains you to be an employee, not an entrepreneur.
A true economic education comes from learning how to leverage scarce resources. In the example above, Victors life of limits prepared him to live and thrive in such an environment, aka the real world. His kids were educated to a a world of limitless resources, so there was no need (or training) on the importance of allocating or leveraging them.
A college degree essentially infers that resouces (income) won’t be scarce precisely because of the “unlimited” opportunity afforded by your education.
I’ve known too many millionaires who weren’t college educated to know that the connection between real wealth and education is largely incidental, ie, children of wealthy parents usually have college educations, but probably would have made above average incomes because of their lineage more than anything else.
(Disclosure: I have a bachelors degree in finance)
Rather than jump into the easy argument of whether one should go to college/masters/more I think it is more interesting that the quoted passage had something in it I have been wrestling with in my mind for a while,
“No, Victor wants his children to have a better life. He encourages them to spend many years in college. Victor wants his children to become physicians, lawyers, accountants, executives, and so on. But in so encouraging them, Victor essentially discourages his children from becoming entrepreneurs.”
Every successful blue collar turned wealthy entrepeneur I know/work for has the same goal for their children yet they forget what made them wealthy. I was just working on a client who is worth $30,000,000 in some wire business, yet he doesn’t want his child to get into the business! HE IS WORTH $30 MILLION DOLLARS and thinks his son could have a better path?!
Evan – That is a peculiar contradiction! It’s interesting that at a time when education is at an all time high, we’re more swayed by “experts” of all stripes than by real world experience.
Maybe it’s that we’re all afraid to drop the ball with our kids so we defer to popular notions? I’m just guessing…
I really like this post. I actually just posted about this same topic yesterday, sorta. My point was that before you go ahead and jump $80,000 into debt for your college degree, consider the job you are going to get when you get out. Is it wise to go to a $30,000/yr school to become an art teacher making $35,000 a year?
I also liked the point about too much education encourages high consumption. That’s a really excellent point that I honestly never thought of. But again, it makes perfect sense.
I too have a bachelors degree in Business Administration. If I could do it over, I’d go to a community college for the first two years, I’d be debt free right now.
This is a great point and great post Peter! I was just talking with a friend about how people jump into college paying a huge amount of money to make pennies back. Its a sad story, but it happens all of the time.
For instance I have a friend who went to a ‘cheaper’ college and spent $36k on a degree in drafting. Well after college he got a job, but it only paid him $17/hour. How does this make sense? At that rate it would take him a minimum of 14 years to pay off that loan and that is only if he put every single penny that he made into his school loan.
I guess its something that people really need to think over before jumping into. My girlfriend on the other hand went to school for Nursing and makes over $35/hour.. school loans equal around $100k for 4 years. It took her just over 4 years to pay off.
Excellent article Peter! There is a lot to be said about having too much education without having a plan of how to utilize it. The cost of tuition in many colleges and universities is outrageous. Those wanting a college education should have a clear occupational goal in mind while considering the cost.
A college degree can help you get a good job, with a good salary. Common sense will allow you to keep that money and use it in the best ways for you and your family.
The US Census found that a person can expect to earn approximately $25,000 more per year with a Bachelors Degree than just a high school diploma and earning a graduate degree will net you another $20,000 per year on average on top of that.
There is a cost benefit analysis that must take place before you continue paying for more degrees. Does it make sense for a painter to earn a Master’s? Maybe not. He or she might not recoup that money spent, but we do not think twice about proclaiming a lawyer should shell out the extra bucks. Some of the examples that you pick are anomalies or the best possible cases. I find myself thinking of the diet commercials on TV that claim that the stated results are not typical.
I don’t correlate wealth with education. It has to do with work ethics and street smarts. It is also a combination of how parents educate their kids.
Success is based on what you make of your opportunities. There are many successful people because of their college education. I know two senior VPs who got their jobs simply because of the frat that they belonged to at USC. Certain schools have very strong alumnae support. Rick is not smart but he is likable and he’s been taken care of along the way. Keep in mind he is ambitious and he does take charge of getting out there. He doesn’t sit and wait.
My dad used to tell me. College is not about teaching you. It is about you taking chances, trying things and making mistakes before the real world. My college experience fundamentally changed me. I would not be as happy or aware today without it. I also would not be as successful. Mind you, I wished I had a mentor though.
This is why I encourage many people who get their MBA to look into doing it PART TIME. I’ve literally saved hundreds of thousands of dollars and a couple promotions doing it part time rather than full time. You can also write-off your tuition.
I definitely agree – having a certain degree and certain career inspires people to spend their high earnings on a certain lifestyle so they have something to show for all their hard work. It’s all about “Keeping up with the Jones” and we all know that’s no way to build wealth. It’s sad because it’s such a waste of money! But it just proves having an education doesn’t mean you have a degree in common sense. Money can’t buy that…
At the risk of sounding like a broken record, I absolutely agree that higher education tends to result in higher expectations of lifestyle. It is pretty easy to fritter away the extra income that *might* come with that college degree when you buy the bigger house, the snazzier car, and the shinier shoes :)
Great post.
I definitely agree that “college” can have a negative effect on your finances. It seems so many people just blindly sign up and go to college without considering cost v. value of their particular situation or working hard to control, reduce or eliminate college costs.
And don’t get me started about people thinking a $5,000 watch is an “investment” or “necessary” for their career!
Great post.
Nick you said it best! I think young kids need to think of the cost v. value of what they are getting back from the school. Its pointless to go to school, pay $30k and make only $17/hour, which I see a lot these days.
This is especially true in the teaching field. If you have a masters degree or higher, some schools will not even interview you because you are too expensive. You would think that school districts would want the best of the best, but that is certainly not always the case.