No one questions the value of education. What some investors might question is the necessity of education, at least in its formal sense.
Valuable education comes in many forms. There is the education that comes from book learning, and the types of intellectually stimulating conversations that take place on college campuses around the country.
But there is also experiential education, the type that comes from performing a task and learning how to perform that task better and eventually professionally. There is a push among some Americans to advocate trade school education over the Bachelor of Arts education that has become the traditional path to success.
From a financial standpoint, there is no question that education is a factor in becoming wealthy. But just as all investors have a different story to tell in how they acquired their wealth, most people have a unique story to tell in terms of their own education and how they used it to become successful.
Spectrem’s quarterly wealth segmentation series study Financial Behaviors and the Investor’s Mindset investigates the value of education for affluent investors. What the study revealed is that there is a tangential correlation between education and wealth level.
The study looks at three different wealth segments: Mass Affluent (investors with a net worth below $1 million), Millionaire (investors with a net worth between $1 million and $5 million) and Ultra High Net Worth investors (those with a net worth between $5 million and $25 million). Simply by looking at college graduation rates, the numbers bear out the argument that college education can lead to affluence: 75 percent of Mass Affluent investors graduated from a four-year college, 84 percent of Millionaires did so and 94 percent of UHNW investors got a bachelor’s degree.
But look at those percentages backwards. There are 6 percent of UHNW investors who did not graduate from college, 16 percent of Millionaires and 25 percent of Mass Affluent investors. This is a cautionary tale for advisors: do not assume wealthy people have college degrees, and as a result, may not have the same value of book-learning education other investors have. Investigate the educational background of investors, find out whether they attended college and left, or never went, and find out why and how that decision affected their financial success.
For many investors, education goes beyond the bachelor’s degree level. Twenty-eight percent of UHNW investors earned master’s degrees or PHDs, 30 percent of Millionaires did so and 22 percent of Mass Affluent investors have master’s or PhDs. Masters of Business degrees are even more indicative, with 21 percent of UHNW investors, 10 percent of Millionaires and 6 percent of Mass Affluent investors earning that level of degree.
Advanced degrees are supposed to pay off in the long run, and the Spectrem research shows that it does. But it is fair to wonder whether the advanced degree was directly responsible for the wealth creation of the investors.
While investors can certainly tell the tale of how their education benefitted them financially, the story they cannot yet tell is how the education of their children will benefit them down the line. What does matter to most investors is being able to finance the college education of their children and grandchildren.
It is revealing to note that 20 percent of Millionaire investors admit to having concerns about being able to finance the education of the children and 26 percent worry about the same need for their grandchildren. Among Mass Affluent investors, the percentages climb slightly, to 35 percent for their children and 28 percent for grandchildren.
Top Takeaways for Advisors
Advisors can gain a great deal of knowledge about the investing behaviors of investors by determining their education level and what their education means to them. Do investors believe there is a direct correlation between their schooling and their financial well-being?
On the theory that you learn something every day, advisors can also take advantage of the educational attitudes of investors by doing a bit of teaching on their own. An educated investor is an informed investor and working with a wise investor only makes the job of the advisor easier. Conversations about investments can be more direct and more effective if both sides of the conversation understand what is being discussed.
©2017 Spectrem Group