College Earnings

Georgetown University’s Center on Education and the Workforce has a bunch of reports “to better articulate links between education, career preparation, and workplace demands.” That means they attempt to determine the value of various college degrees and majors based on employment opportunities and wages.

My last post talked about AA degrees that earn more than BA degrees (based on a Chicago Tribune column that referenced a Georgetown study). The also used Georgetown data to rank 173 majors based on median income and unemployment rates.

The top 5:
1. Petroleum Engineering
2. Pharmacy Pharmaceutical Sciences/Administration
3. Geological/Geophysical Engineering
4. Mining/Mineral Engineering
5. Naval Architecture/Marine Engineering

The bottom 5:
169. Studio Arts
170. Human Services/Community Organization
171. Composition/Rhetoric
172. Miscellaneous Fine Arts
173. Clinical Psychology

For perspective, number 1 earns more than three times more than last place: $135K vs. $43K. (Remember those are median incomes.)

Think about the future earnings and jobs potential of your academic major, not just how entertaining (or easy) it might be just to get a diploma. The more you earn, the more you can save.

4-Year Degree Isn’t Only Path to a Good Job

I tweeted this, but I wanted to add a link to the blog so it would be searchable on the site. Gail MarksJarvis had a great column in the Chicago Tribune talking about all the good jobs available without a 4-year college degree. It’s based on a Georgetown University study that found 30 million jobs that don’t require a bachelor’s degree and pay an average of $55K a year.

A great line from the column: “28 percent of people who get associate degrees from community colleges end up with better jobs than those with bachelor’s degrees.” I suspect a lot of that has to do with what these people studied in the bachelor’s programs.

Things not to study (BA with poor pay) : communications, art, psychology

Things to study (AA with good pay): nursing, computer specialist, mechanical technician

Other good fields (didn’t mention pay): welder, plumber, HVAC maintenance, electrician, carpenter, bookkeeper, food service manager, security guard, industrial production manager

Classes just started again across the country. Make sure you’re studying something that’s good for your financial future.

How’s Your Financial Wisdom?

After my last post on baby boomers failing their retirement planning, you might have some smug thoughts that you’re doing much better than them. Here’s a little test, thanks to The Atlantic:

  1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow? A) more than $102; B) exactly $102; C) less than $102; D) do not know; refuse to answer.
  2. Imagine that the interest rate on your savings account is 1 percent per year and inflation is 2 percent per year. After one year, would you be able to buy A) more than, B) exactly the same as, or C) less than today with the money in this account?; D) do not know; refuse to answer.
  3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.” A) true; B) false; C) do not know; refuse to answer.

The correct answers are 1-A; 2-C; and 3-B.

Based on a survey by economists Annamaria Lusardi and Olivia Mitchell, only 30 percent of Americans answered all three questions correctly. Their findings are published by American Economic Association (subscription required).

The Atlantic author warns that financial ignorance becomes more devastating in a modern economy. Fortunately, the study authors found that basic financial education can boost someone’s economic situation (by 82% of initial wealth for people with low levels of formal education and 56% for college graduates).

If you’re reading a personal finance blog (or read my book), you probably did pretty well on the test. Try to share your financial knowledge with someone you know who needs the help. They might not even know it. Start with the quiz.

Get Your Kids Ready For College

A new study in England shows incoming college students are woefully unprepared, both for the “reality of life” and for school. Two news articles (Daily Mail and BBC) are based on a Higher Education Policy Institute (HEPI) study of 2,000 incoming university students (incorrectly labeled as millennials by Daily Mail). The study found 61% of respondents are anxious about heading to college, and 27% have panic attacks.

Parents really need to prepare their kids for the realities of college academics. The study says almost half (46%) expect more one-on-one support in college than in high school. A large majority (78%) expect career-planning support. These kids are in for a rude awakening. While students are the stated reason for a university’s existence, many schools receive far more money from research grants, athletic events, and alumni donations than they do from tuition. That means students and their education are rarely the primary focus of a university. The study also says 60% of students expect to spend more time in class in college than in high school. They do not grasp how little time they’ll actually be in class and that they are responsible for their own learning. Professors will not handhold them and “teach the tests” (unlike high schools that have standardized tests linked to teacher pay, for better or worse). The standard rule of thumb is that students should expect to spend at least three hours studying for each one hour in class. I can tell you, from experience, that most students do not follow that advice. Maybe if they’re told to expect to do that work beforehand, they will… call me an optimist.

Since this is a finance blog, I’d like to focus on the fact that more than half the respondents admitted they don’t know how to pay a bill. Over half said they don’t understand student finances, and many underestimate essential expenses. Less than half recognize that rent is likely to be their biggest expense after tuition. Some thought “nights out” or “student societies” would be their biggest expense. Ironically, 78% expect to get more financial advice from their university than they did in high school.

What can you do? If you have or know someone about to start college, take the time to give them some advice on what to expect, both in terms of academics and student life. On the financial side, make sure they know what things cost and how much they have available to them (i.e., make a budget). I’m biased, but I think they should read Basic Personal Finance and realize that a student loan should be treated as an investment (i.e., don’t get one if your degree won’t increase your lifetime earnings).

Consider Income When Considering Career

In an earlier post, I referenced an article that discussed Bloomberg’s Shift: The Commission on Work, Workers, and Technology. That’s Bloomberg-as in Michael Bloomberg, the former mayor of New York City. I was shocked at the credit given to the capitalist economic system. From the report: “Today, the poorest Americans have higher living standards-and live healthier, longer lives-than the richest Americans in the 19th century.” It goes on to praise technological advances because increased productivity is the only real way to advance our quality of life. Unfortunately, advancement also means some workers are rendered obsolete. The point of the study was to address the state of workers in the near future (10-20 years). The commission had 100 members in 5 cities create 44 scenarios, which were whittled to 4 scenarios to analyze. More importantly, they surveyed workers about their jobs, satisfaction and expectations.

The conclusions and comments aren’t all that productive. The report seems to mostly provide the opportunity for the members to virtue signal (i.e., talk how much they care about workers). That said, some of the survey results are interesting:

1) There’s the disturbing part about unexpected expenses: 28% said they would have to worry about a $10 unexpected expense. That what my previous post was about.

2) The amazing result, to me, was the response to “What matters most to you about work?” While the report highlights the desire for stability (a top 3 response for every income bracket), a higher response was “Doing things I enjoy”… #1 for all income brackets except $50K-$75K, which had it at #2 (behind stability).

While everyone wants to do things they enjoy, they have to figure out how to get paid for it. Basic Personal Finance points out that work is called work because, for the most part, people don’t want to do it. Picking an occupation is about finding a good or service that you can provide that people are willing to pay for. It is important to consider future job prospects when you decide to invest in yourself through any kind of education or training. Studying a subject that you like but with little prospect of a job (either from no demand or abundance of supply) is not a good investment. Going into an industry on the verge of automation (e.g., truck driving) is also not a good investment.

Under 30? Time is on Your Side. Don’t Waste It.

Nicholas Hopwood has an article in Investopedia (& Business Insider) that says your best asset is your income, not your home or savings. He makes a good point for millennials. (It doesn’t apply to those of us with fewer earning years ahead.)

A home ties up a lot of income and actually increases your expenses. Plus studies show the real return to real estate is negative. For savings, Hopwood is referring to 401(k) balances. There’s not much there for younger workers, but higher income allows you to make the best use of a 401(k) (to reach the $18K maximum contribution).

For young people, time is on your side because of the power of compounding. Anything you do to increase future earnings will be amplified by that extra time. Hopwood says your early income will be tied to your degree or technical expertise, a polite way of saying you should study something that will actually get you a job. Over time, he says attitude, personality and communication skills are most important to income growth.

Just make sure you save at least 10% of that income… and increase that percentage with each pay raise.

Incentives Matter… Even in Education

A couple weeks ago, there was an article in the Gainesville Sun that said the average out-of-pocket expenses for tuition and fees for a bachelor’s degree from the University of Florida was only $10,660. That same day, I happened to be looking at the school’s website and something caught my eye: The school received $724 million in research grants last year. My inner economist quickly realized the incentive problem that leads to poor quality teaching at UF (at least from the perspective of the students I tutor). I did some quick math and confirmed that incentives do in fact matter, even at public universities. Follow the money…

Assuming a four year program, the $10,660 figure translates into $2,665 per year per student (out-of-pocket). The school has 35,043 undergrad students. That means the school collects about $93M per year directly from these students. In other words, they get over 7.5 times more money from research grants than they do from students. (At my Air Force retirement, when asked if I was planning to teach at UF, I joked: “They don’t teach at UF, they write grant proposals.” At the time I didn’t realize how true that statement was.)

Let’s be fair: the school collects more for students than just their out-of-pocket expenses. According to the school’s own numbers, tuition and fees come to $6,380 per year ($22,278 for out-of-state students, who comprise 3% of students). That means the school collects $247M for students (assuming someone else pays the difference). That still makes research grants almost 3 times more than money from students.

So what happens at a school that’s not focused on students? It doesn’t hurt their reputation. UF is ranked #14 for best public colleges by U.S. News & World Report. Part of their formula relies on the student-faculty ratio, which they say is 21:1. (Other sites say the number is 20:1.) A lower number is supposed to imply a student focus because they’re more likely to get more personalized attention from professors. But at a research school, faculty who focus on research may only step into a classroom to lecture to one very large section of students, so the figure could be misleading. A better measure would be actual class sizes. Trying to find the average class size is difficult, but we know what a good standard should be from UF: Their website says “the honors classes are limited to 25 or fewer students.”

What’s the average class size for regular classes at UF? says “full-time faculty teaching undergraduates” and “regular class size” are not reported. That doesn’t sound like a school that wants to brag about student focus. has students talking about 300+ and 500+ student classes (a number confirmed anecdotally from students I’ve tutored). Surprisingly, says “Small class sizes (mostly 10-19 students).” UF’s own website says this: “Class size averages depend, of course, on the program, the college and the level of the student. Instructional Faculty & Class Size can be found on the Office of Institutional Research site.”

Visiting the link to Office of Institutional Planning and Research shows class sizes from Fall 2012:

UF Class Size

That’s where got its number, but while 10-19 is the median size, it’s less than 30% of the total. Realize that classes with 30+ students make up 32.6%, and over a fifth of the classes (23%) have over 40 students. If you remove those honors classes and majors classes, the average class size for freshmen and sophomores will be even worse. Like I said, not student focused.

I don’t mean to imply there aren’t good teachers at UF, or that all professors do not care about their students. I’m just pointing out that it appears quality education (at least as measured by average class size) is not the focus at the institutional level. The money shows why.

You could argue another reason for the lack of student focus is that students pay less than 40% of the cost (and even that is likely paid by parents). That brings up the same third-party payer issues we have in healthcare. That’s a blog post for another time.