Is Education Losing Importance?

7/1/2021

There has long been a push for individuals to attend college after high school, with school counselors and parents telling students that there is a financial benefit to continuing their education.  The tide seems to be turning however, as more and more skilled labor jobs are becoming available and apprenticeship programs are offering attractive financial incentives for entering their field.  Just how much does education contribute to wealth creation?  Has the importance of education in wealth creation declined?

When investors are asked about the factors that contributed to wealth creation, hard work is always the factor selected by investors the most.  After hard work, the top factors have been changing over the years.  Smart investing, frugality, and education are all factors that over half of investors identify as factors contributing to their wealth creation.  While smart investing and frugality have gone up and down over the past several years, education has had a steady decline in the percentage of investors that identify it as a factor contributing to wealth creation.

In 2014, 86 percent of investors indicated that education was a factor in their wealth creation.  That percentage dropped to 82 percent in 2016 and 2017.  By 2020 the percentage of wealthy investors that felt education contributed to their wealth had dropped to only 74 percent.  Spectrem’s most recent research in 2021 indicates that the percentage of investors who identify education as a factor in their wealth creation has dropped to only 68 percent.

This drop indicates that when investors think about the various factors that helped them accumulate their wealth, education is becoming less and less of a factor.  What seems to be the reason for this shift?  The importance of education in wealth creation has declined most significantly among younger investors, Millennials and Gen X investors.  Only 57 percent of Millennials and 56 percent of Gen X investors indicate that education was a factor in wealth creation in 2021.  In fact, Gen X investors were more likely to indicate frugality and smart investing as factors that contributed to their wealth creation.

This sentiment is also evident regarding the importance of a college education.  When wealthy investors were asked to rate the importance of a college education on a 0-100 scale, with 0 being not important, and 100 being very important, WWII investors gave a rating of 87.32.  Baby Boomers were slightly below that at 84.84.  A college education is still important to Gen X and Millennials, just slightly less important, with Millennials giving a rating of 82.23.

The value of a college education also goes beyond just the importance of getting a degree, or how much it contributed to wealth creation.  Investors now must weigh the cost of the education with the potential benefits.  Student loans have become a $1.7 trillion dollar industry, according to the Federal Reserve Bank of St. Louis Economic Research.  Just ten years ago the total amount of outstanding student loans were nearly half of what it is today.  One of the causes of this increase is the increase in the cost to go to college.  According to The College Board, the annual tuition of four-year public colleges has increased by more than 25 percent in the last 10 years, with 12 states seeing an increase above 50 percent.

Wealthy investors who have children or grandchildren considering a college education should weigh the earning potential with the cost of the degree.  Financial professionals can work with investors to evaluate the potential return on investment.  Understanding the benefit of a specific degree relative to the cost of attendance will make a significant difference in how positive investors will view college education.