How Education Affects Wealth

money-100The Federal Reserve of St. Louis commissioned a study to look at the demographics of wealth in the United States. The study is written by Ray Boshara, William R. Emmons and Bryan J. Noeth. It is titled The Demographics of Wealth. In May 2015 Part 2 was published on how education affects wealth.

They looked at households headed by 40 year olds because they assumed that 40 year olds have attained most if not all their education.

Here are their “key findings”:

“°The median income for those without a high school diploma in 2013 was $22,320, down 1 percent from 1989; for those with such a diploma, etc., $41,190, down 16 percent; for those with a two- or four-year degree, $76,293, down 5 percent; and for those with an advanced degree, $116,265, up 4 percent. (All dollar amounts are adjusted for inflation.)

  • When looking at wealth (net worth, or assets minus liabilities), the median in 2013 for those without a high school diploma was $37,766, down 44 percent; for those with such a diploma, etc., $95,072, down 36 percent; for those with a two- or four-year degree, $273,488, up 3 percent; and for those with an advanced degree, $689,100, up 45 percent.
  • Those with more education had stronger balance sheets—more liquidity, a better mix of investments and lower leverage.
  • In most categories, women are outpacing men in educational attainment.
  • When it comes to race or ethnicity, Asian-Americans have the highest graduation rates at every level of schooling, followed by whites, blacks and Hispanics.
  • As for the contributions of successive generations to rising educational attainment, members of Generation X and Generation Y have lifted college-degree levels less than did the Baby Boomers before them.”

Nothing here should surprise anyone. As higher paying manufacturing jobs have dried up in the US they have been replaced by lower paying jobs in the service sector. This explains the significant drop in income for high school graduates. Likewise the “flattening” of the world economy has reduced incomes relatively speaking for most college graduates over time.

The study is also careful to note that there is not a strict causal connection between education and wealth. There are numerous other factors that influence wealth, including but not limited to so-called native ability (savvy?); the wealth of one’s parents; the spouse one chooses; where one lives; health; race; and a number of immeasurable personal choices.

Despite the fact that education does not automatically translate into wealth there is no denying that the more education one has the more likely one will enjoy more wealth. For most people this ought to be an incentive to stay in school and continue on with the best education one can attain and afford.

Beyond Traditional Education

There is a great deal the study does no tell us. The study focuses on traditional education. It does not look at experience, on the job training, and the many forms of non-traditional education that is growing in the world today.

For an increasing number of people attaining advanced degrees in the traditional education system is too expensive and may never pay for itself. Not everyone can spend six to twelve years in universities remaining unproductive and incurring vast debt to attain these advanced degrees.

One other form of education that I write about a lot is not considered here: self-education. Many people have studied and read widely to advance their skills and knowledge base without using traditional education systems.

On average there is little doubt that the more education you get the better off you will likely be. However today’s world is rapidly changing. Knowledge is advancing at dizzying rates. In most areas of work one must continuously learn to keep up. What one learns in college quickly becomes inadequate or outright obsolete. There is a reward for the person who continues to learn on their own throughout their lives long after they leave traditional education systems.

The lesson here is to get as much formal education as you can but not to stop there. Education must become a life-long pursuit or one will be left behind. As some jobs become obsolete people have to re-train to learn new ones.

While this study is of great interest it does not tell the whole story. Perhaps someone will create a more comprehensive study on education to look at this broader picture. Until then experience teaches us to continue learning to remain relevant.

You can see a short video and the entire study here.

Wishing you well,

Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.