Should U Send Your Kids to College?
Real Estate Investor · Portland, OR · Member since 2009 · 660 posts · 244 votes
What if your son or daughter isn't sure what they want to do? Can you afford to spend $100k+ to educate them .... is it worth saddling them (or you) with so much debt that it will take years to pay back? Has college outpriced itself for those who aren't sure what they want to do for a living? Are some better off averting college and using the $$$ to invest in real estate? Maybe get a degree at Bigger Pockets?! :mrgreen:
Growing up, college wasn't an option. Education just wasn't complete until you graduated from college, period. Even then, that was a minimum. With 4 kids, the bank of mom and dad wasn't really open, except in rare emergencies. Parents and Grandparents did what they could to help with the tuition, but we were on our own as far as books and supplies, and supporting ourselves. Junior or Community Colleges for the first two years, living at home, summers working at a local mill, school terms working for minimum wage in bars, restaurants and gas stations to get by.
Parents putting their kids through college isn't a gift. Making them truely work and struggle for the first time in their lives is the real life challenge. Top Ramen instead of Mom's home cooking. No more of Dad ranting to turn off the lights, they stay off when you get the bill. A time to prove yourself and test your mettle for the first time. It also humbles the know it all kid.
I used to think that "having it made" meant I could afford a full tank of gas.
Perhaps a little more of a "tough love" approach, but a lesson I learned, and think I'm better for it.
IMHO, college teaches you a the language of your chosen profession, that's all. It opens doors that would not otherwise be open to you, but success depends more upon you than your formal education. Character, drive, dependability and a host of other personal characteristics have a lot more to do with success in life.
Tiger- I'm pretty good at this real estate stuff. I want you to feel free to e-mail or PM me with any questions you ever have on RE. I like your drive. As others have stated, that is what it is all about. Rich in FL.
Tiger - one viable option is to join the military and secure a government-subsidized education.
Also, I've heard of military personnel purchasing a home where they're based, then renting it out when they're transferred, and then repeating the process.
Good luck and keep us posted.
NC- I have a daughter and son in law that did that. He just retired after 20 years. They bought and built some homes. For the last few years, they've been in Killeen. My daughter has her own RE company now, that caters mostly to Military. Rich
Here's the deal: If someone is going to college to just party, hang out with friends and get some degree only to work for someone else then no! However if there is a plan in place to go the institution, network, take advantage of all the free money and clout that comes with being in college and realize that college students are on of the biggest target markets to market any product to just like Mark Zuckerberg,and Bill Gates did then yes. There is a lot of clout and connections that can be made with going to college especially when the university is more prestigious and more difficult to get into. However, the typical college student never has this on his mind. I did not know what I wanted specifically when I graduated from HS. However now at 24 I have a specific goal for going to college and it involves a hell of a lot more than a degree. Can you say cha ching!
"The Economist" has a chart showing the increased lifetime earnings as a result of a degree. According to their data (from OECD), a male in the US earns an additional $370K over the course of a lifetime with a degree. For a female in the US the increase is more like $225K. Now, if you consider working from graduation, about age 22, to retirement at 65, that increase amounts to $8,600 a year. So, in terms of an average value over a lifetime, there's a number. Of course, for any one of us the actual value will almost certainly be radically different. Sort of like expenses on one SFR for one year :-).
Jon
I'm a big fan of yours, but you missed on this one. The extremes of possible results and sheer size of the population defy relevant meaning in statistical averages. Kiinda like saying the average human being has one testicle. The average just doesn't exist.
I agree with you, Ralph. Clearly, though, my real take on this data didn't come through.
I was pointing out some statistical data that shows, on average, there is a difference between having a college degree and not having a degree. I was also pointing out the difference, when considered on an annual income basis rather than lifetime, is pretty small. Variations in income for any group of half a dozen randomly selected people are almost certainly larger than the $8,600 difference implied by this data.
Further, the income impact from college for US males is the greatest of any of the other data points in this survey. For everyone else, the difference is even less.
Average income in the US is about $50K. So, this difference is about 15%, again, on average. So, ON AVERAGE, getting a degree is equal to a 15% raise.
But I really think that other factors are almost certainly a bigger factor in determining the income of any particular person. Just plain luck has a HUGE impact. Being in the right place at the right time (see "Outliers" by Malcom Gladwell) and unpredictable happenings (see "The Black Swan" by Nassim Nicholas Taleb) will have far more effect on any particular person than college.
So, partying and hanging out aside (which I did in moderation), the fact that I went to school to get my degree only to "work for someone else" makes my education a poor investment? I couldn't disagree more. You're projecting your values of what's important in your life to other people. I've never wanted to own my own business or be an entrepreneur and getting my education led me to exactly what I want in life, including a very nice income. You also plan on using college to lead you to what you want in life - doesn't make college more or less valid an option for you vs. me. We just have different goals.
Everybody has grand plans to make a lot of money - relatively few people ever get there. I would suggest that college-educated or not, the majority of people in this world are just not equipped to be successful entrepreneurs. They can network all they want but they just don't have the mindet, intelligence, understanding, motivation, know-how, discipline, etc to be as successful as they planned. I probably fall into that bucket and I'm ok with that. More people fail than succeed at real estate, opening restaurants, or virtually any other entrepreneurial venture and I think that is lost in this whole discussion. For the select "capable" few, a formal education doesn't hurt but I agree is not necessary - these people will find their way regardless. For the masses, a college education is a huge leg up since the bulk of society ends up working for "the man".
Jon H- So the difference was 225-370K. Did that take into account any cost of the degree or cost of student loans? If not the difference would be even less. Does it also take into account the 8 years that student is in college spending money compared to the non-student earning income for the same 8 yr period?
There is an interesting comparison in my favorite book The Truth About Money by Ric Edelman.
Person invests 2K per yr for 8 yrs (total of 16K) into an acct that makes 10% per year, and then invests no more $ until age 65. 2nd person goes to school for 8 yrs and invests 2K per year starting in the 9th year and continues contributing 2K every yr until age 65 (80K or 5 times as much) and earns the same 10%.
The 2nd person has LESS money at age 65 even though he deposited 5 times as much.
I have to wonder if the student in the example Jon gave might not have the same troble of ever catching person # 1. I'm still a non-believer in the education system of being such a fantastic deal. It isn't too hard to imagine the $8600 difference per year shrinking when you include the items I mentioned above. Rich in Spokane.
I think the true value of a college education is all in how the student applies the education and experience they received.
In addition, Tiger pretty much hit the nail on the head. In this world, especially in our RE biz, it is who you know. That said, generating friendships and contact while at college can be worth the entire expense alone.
There's no more information in the magazine than in the online graph about this data. I went to the OECD web site and found the summary of the report. The actual report is a book that must be purchased. The numbers in the Economist's graph are the gross earnings. There is a publicaly available table with details. The graph appears to come from tab T_A8_2, columns H and I. The table includes a new present value calculation, assuming a 5% discount rate. The table does include costs for education and the foregone earnings, taxes, and some other factors, and comes up with a PV for US males of $169K and for females of $75K. So, I think you would conclude a person who goes to college does "catch up" with a person who doesn't, but the race isn't exactly won by a huge margin.
Again, all just averages, and I continue to think individual variation will be a larger effect.
The linked page and the table does point out another effect of a degree on unemployment. The web page states "Young people who leave school at the minimum leaving age without a job are likely to spend a long time out of work. In most countries over half of low-qualified unemployed 25-34 year-olds are long-term unemployed.", so it appears there is a positive correlation between a degree and avoiding long term unemployment. I guess you could concluded if people are duking it out for crummy jobs, the folks with the degrees get the crummy jobs over those that don't.
The page also says there is a positive correlation between education and health.
And, that the disparity in income between folks with degrees and without degrees is growing.
To support the "those who work hard succeed" theory, I'll offer the book "Talent is Overrated" by Geoff Colvin. He argues, supported by quite a bit of detailed research, that there is no such thing as "talent". Even in areas like pro sports and music where there are measurable differences between individuals, his research finds no innate talent that accounts for the differences. Rather, its hard work at practicing the skill that makes the difference. Practicing doesn't mean playing football, for example, but rather drilling and training. He claims to find this pattern across many fields, and extends his findings to claim it applies broadly. If you work hard at any field for 10,000 hours, you will become a top level player at that field.
Perhaps there is a correlation of that effect with a university education. Perhaps there are a larger percentage of people in the university educated population who are willing to put in the required effort to achieve a high level of success, and presumably the associated earnings, than among the non-university educated population. There are still individuals in the non-university educated population that work hard (and have a little or a lot of luck) and do fabulously well, just as there are slackers among the university educated population that struggle.
So, maybe that ties back to averages vs. indivdual results. The variations in individual results is, as a whole, enough to create a difference in the averages. But for any particular person, its not the degree vs. no degree that makes the difference, but their own success difference in their own life.
Great follow up Jon. Thank you.
I think it absolutely depends on the individual person. If a person doesn't know what they want to do yet, then there's no sense in going (right away, anyway). Even if they DO know what they want to do, it's important to ask yourself if going to college is the best way to get to that point - and that's not always the case.
I took a year off between high school and college to work as an auto mechanic. It worked for me, since I realized that I did NOT want to do that stuff for a living. My brother did the same thing, and worked for an industrial equipment refurbishing company for a short while. He used to come home looking like a coal miner! Man, he'd get so filthy! It didn't take much of that to get him to find his way to school.
It also depends on the field you go into, since some things DO require more know-how (doctors are probably the best example I can think of).
I've been out of school for about 6 years now, working as a low-voltage tech and project manager for an electrical contractor. From what I've seen, most small businesses don't really seem to care if you have a diploma - they just want effective people working for them. When I did my internship, the guy who was my 'mentor' was the same age as me. When I was entering college, he was starting in the field. By the time we met up, he was a project mananger with several years of experience. All I had was a stupid diploma. LOL...
Right now, I'm planning on going back to school in the spring.
I have two children 19 and 25, I told them both to go to college and I would even pay for it but what I did to make them accountable, was set up a few ground rules. I told both of them, you pay with your own money upfront and if you pass the class C or above and I will pay full tuition and books if you fail you pay. My oldest went to a local community college for a few years and ended up getting married and dropped out, my youngest decided to take a year off and work to save money. I always told them to basically be your own boss and start your own company whatever that may be and work around your schedule. One reason I am doing REI is so I can build a small fortune and take care of my family generations down the road.
I believe college is worth it right now. The experience, the people you meet, what you learn(even if not all of it is useful, but interesting), is great.
I don't believe colleges emphasize the importance of investing enough. In my opinion, I really think the Formal education system is meant for people to get "jobs" or become professionals for a particular service or specialty, which is not a bad thing. After graduating, It doesn't mean you'll be financially successful or even secure. Like any education, the only thing that matters is how you apply it. Which is something I just realized myself a few months ago. I like most of my friends, were stuck in the mindset told by our parents, teachers, adults, government, etc... that you need to study hard in school, get good grads, get a degree, get a safe and secure job, then have a good retirement. That was literally just programmed into us. It took me a while to get out of that and look towards other opportunities to become successful.
I am currently attending and I do plan on attaining my bachelor's at least in accounting. I am really focused on becoming a CPA just to help other Real Estate investors reach their goals. I want to become part of other investors teams and see them grow and become rich. After Real Estate, I do want to run my own businesses as well. However, I am doing this more as a passion rather than depending on it for my income.
I just think attending a university maybe overpriced for the amount of possible return you may get after you graduate. Luckily for me, I've been educated in Real Estate Investing, and I plan on having my assets pay for my education later on.
I have nothing against formal education, and I believe it's important to a certain extent obviously. But I see so many students around my age who don't see other ways to become financially successful, and think the way I used to think from my parents.
I see people from other countries or far away who come here putting away a lot of money and time, to attain a degree. It really inspires me to see their motivation and drive, and meeting those people have given me a positive influence personally. I try to encourage them to invest in addition to attaining their degree, but they think investing is risky or even stupid. I really want them see that there is a lot of money to be made through investing that you won't need a job to cover your expenses, but you still have one just as a passion. I love their devotion and motivation to educate themselves, but I try to encourage them see other options to expand their opportunities.
Well that is just my 2 cents.
When I was growing up going to college wasn't a choice. It was expected. My parents had the mindset that their children will be far more successful than they ever were. We weren't poor, but just very average. In their minds, going to college was the way to make their kids more successful. I obliged (being the oldest) and paid for 50% of the expenses.
I received my undergrad for a regular, state-named college and have done rather well. I even went on and attained an MBA. The real kicker is that I don't feel any the wiser for getting the undergrad, nor the MBA. I aboslutely use NONE of what was taught to me in college for my 9-5. My undergrad was in IT, and I work in IT, but I still use none of what I was taught in my day to day job.
My wife and I often talk about the benefits of getting a degree. To her she can't relate because she's practicing her passion and you MUST have a degree to do her job (elementary special education teacher). We tend to disagree that our nine month old son will need a college degree. I'm on the far left saying it's not necessary, and she's somewhere in between the right and left view points.
What I take away from all of this is, yes, they are beneficial in some instances, and not in just as many. To Rich's point - yes, you can be very successful without a degree. And, to Tom K.'s point, yes, you can be very successful with a degree. But, if you're not PASSIONATE about that chosen field before entering into it, you will not be successful. No matter what!! A person who is driven to be a teacher will not be as successful as a real estate investor, the degree aside from things. And, the same could be said for the exact opposite.
To a certain extent, college brainwashes you to working for the man and securing debt. Then you're forced to live paycheck to paycheck. When the income isn't there, that's when the foreclosures start. If college would teach a little more about living within your means, and not so much about how to make a person "well rounded", we wouldn't be in such a big economic mess, in my opinion.
Great posts, imo by both Mark and Christopher. One from the younger end of the spectrum and one from more experienced end of it. Both were well explained. Good Jobs!! Of course, both of you were pretty much agreeing with my posts..... Rich
I did just graduate so this may skew my perspective a little bit. But my answer is, absolutely! I understand that I majored in psychology and minored in social work, so what I learned applies nothing to real estate.
But what I did learn at college was that I would do it again in a heart beat. No Im not some dude who went out and drank every night and now im in the "real world" but I did meet most of my best friends at college and these are still people I talk to every day.
I think college is a HUGE growing experience for anybody. The transition from living with your parents to being on your own for the first time is a big one. I change A LOT from my freshman year to my senior year. I also credit college with learning how to live on my own, if i wouldn't have left for college I would have never left Chicago, which there in turn I would never have made it to Arizona. I think I learned I am ok with being by myself and now live in a place I love.
There is so much more that college provided me just with the people I met and the activities I got to do and the things I learned as a person and even school a little bit :D that I could go on forever. There is just no way my kids will not goto college. Even if they go and get straight C's and I'm a mega millionaire they will learn something in those 4 years and have the time of their lives.
I haven't read every post but here's my two cents.
Short answer: It depends on the person
Everyone knows someone who went to college, got out and works at the mall making $8 an hour. We all know someone who went and got the exact same degree and and got a great job that has a nice salary, benefits, etc.
Some people never went to college at all and are extremely wealthy and not having a degree didn't slow them down one bit. That said, I think for most people it's a good move. It's a great life experience, it opens to door to a lot of opportunities you might not have had without the degree. It all depends on the person and what their goals are but for most kids I think going to college is a solid choice regardless of their future. Not every kid, but most kids.
Going back to the rental property with a kid who has to work for it and a kid who's parents cover it, I think that also again depends on the person. My college was covered 100%, along with living expenses, books, food, gas, insurance, etc etc etc. I worked 30 hours a week at a job so I'd have some extra cash as fun money. I never trashed any of the places I rented or had any complaints from landlords.
Hindsight is 20/20, I look at my student loan debt and think, damn, what a waste, I could have invested that money in a business (real estate or otherwise). But without going to school for 2.5 years I wouldn't have to come to the realizations that I have come to presently. I should be glad that I got to where I am, even if I have some debt to show for it. It could be considerably worse, I could have finished my degree and compiled even more debt!
The debt has made it more difficulty for me to obtain financing in my endeavors (of course I happened to become an entrepreneur right when the credit crisis hit), but ultimately I think I will come out for the better, especially being able to survive the downturn.
I am a little bitter towards the higher education industry for taking advantage of my parent's never having had a college degree rationalizing to them that debt was an acceptable and normal way to pay for higher education for your children. And I, being ignorant as well, signed on all the dotted lines. But you live and you learn.
I think Mark Twain said it best:
"I've never let my schooling interfere with my education"
You can learn more by reading books (and learn it faster) than by taking classes at a university. I would say the same by trying things, failing and then trying again. If you become successful on your own, you don't need a degree, the paper is meaningless (except for bragging rights I guess).
And to rap it up, BP has proven far more useful than most of the RE books I have read, but I've read a considerable amount of posts on BP and have asked a considerable amount of questions.
In comparison to some of my classmates whom received full rides (from their parents), working during school and summer helped develop my responsibilities. I'd like to recommend having your child help offset some of the costs of tuition/boarding/books/etc. Doing so will make them more vested in their education rather than taking it for granted.
I'm sure you don't want to seem like the "uncool" or "frugal" parent, but it'll be more beneficial to their future.