President's Letter - College Education: Snobbery or Necessity?
Each month, Spectrem asks the wealthy households that are included in our research if they have a college education. Almost every month, the results indicate that more than 95% of Mass Affluent, Millionaire and super-wealthy households have a college education. Generally, we find that approximately two-thirds of wealthy investors have a graduate degree ranging from MD to JD to MBA to PHD. Clearly, it seems that a college degree or higher is a predictor of financial success.
In our recent report Parenting and Financial Issues, investors echoed the belief that getting a college education is very important, with 87% of those with grown children supporting this belief and 85% of those currently with dependent children agreeing. Younger wealthy households, however, were not quite as supportive of the idea, with only 68% of those currently without children but planning to have them in the future supporting the belief that a college education is very important. Perhaps the tales of Steve Jobs and other entrepreneurs making it big without finishing college are tarnishing their view of a college education? Or maybe it’s the cost and the resulting student loans which they may currently be paying that are influencing their views of the necessity of college?
For many Baby Boomers and Gen Xers not only was a college education critical but the name or type of college attended was critical. The standard belief was that you needed to go to an Ivy League or similar college if you wanted one of the best jobs after college. While that belief may still be true – for example, the Lorrie Loughlin college admissions scandal – the overall cost of obtaining that education and the difficulty of gaining admission to these “top tier” colleges may be changing the reality for many young people and their families. Is it better to choose a less costly solution and graduate with little-to-no student loan debt or should you go for the pricey education believing you will achieve a better long-term outcome?
When parents were asked what type of college education or other post-high school training they would choose for their child, assuming they would be responsible for the cost, more than half (54%) chose a four-year public university or college compared to a third (33%) who preferred a four-year private university. In fact, almost a quarter (22%) would not consider a private university, presumedly due to cost. It’s interesting to note that almost three-quarters would consider a technical or trade school for their child.
When the data is segmented by those with grown children versus those with dependent children currently, those with dependent children are much more supportive of public universities over private. Perhaps this reflects the current cost of the college education compared to just a decade ago.
Financial advisors would be wise to be familiar with various ways for parents to finance college education. While it would be fortunate if parents could easily pay for a child’s education, balancing the need for retirement savings against not loading up their child with debt is an important issue for most households. As you can see below, about half of households have financed their child’s college education with the help of scholarships. But for those whose child is not an athlete or super-scholar or endowed with some other gifted trait, other means of financing include student loans taken out by the parents or the child, grants, 529 plans, tuition assistance, or even equity from their homes. Clearly some solutions are better long-term solutions than others.
The ultimate goal for most parents is to have self-sufficient, financially stable, happy children. To achieve that financial stability, most investors still agree that a college education or some other type of post-high school training is a requirement. But while some still believe that the only route to financial success is an Ivy-League-like education, many investors realize that a public education can provide an equally successful route to success.
In our research with High Income Millennials, Spectrem found that almost three-quarters of Millennials with incomes over $150,000 currently have some student loan debt. Overall, these successful young people did not feel their student loan debt controlled their financial success. Student loan debt can, however, impose a greater challenge for those with smaller incomes. Parents and children need to have realistic expectations about the future opportunity based upon one’s major, the cost of the education and how that education is being financed.
Overall, most investors continue to believe that a college education of some type is a necessity in 2020. Their own success provides proof of that belief. But investors need to be smart about the cost and how they will finance it.
One more thing…why doesn’t anyone ever suggest that maybe colleges should lower their prices?