Free Money Finance

Is Going Back to College Worth It? (Are MBAs Worth It?)

In Experience versus Education: Which Counts More in Career Success?, I talked about which of the two made the most difference in a person's career. As we all have discussed this issue through several posts, I think the general consensus is the following:

An education (degree) is often needed to open the door and get a good first job. The degree might also be important for later job opportunities, but generally the importance of the degree becomes less and less as a person's career advances -- and work experience becomes more and more important. In many cases, work experience eventually dwarfs education in importance later on in a person's career.

I realize that the above statement is very general and while it applies to most circumstances (at least in my opinion), there are tons of exceptions.

And here's a piece from Kiplinger that details the case against going back to school -- in this case, he highlights the MBA and how there's little need for it. His rationale:

• Rather than learning what you need, you're buried under mountains of information, most of which you'll never use, and the rest of which you'll probably long have forgotten -- or it will have become obsolete by the time you need it.

• You're often taught in a lecture class (the least effective way to learn,) or in a discussion section, in which you endure more professorial prattle punctuated by student comments often ignorant and/or designed more to impress than to edify.

• Worst of all, most professors are far less qualified than are master practitioners to help you prepare to be competent in your career. After all, they are people who deliberately opted out of the real world so they could study esoteric academic research questions. The more prestigious the institution, the more likely professors are to be hired, promoted, and tenured based on their research productivity, with little regard to whether they confuse or bore the pants off students.

Ha! This guy's singing my song!

I have to agree with him 100% on these. Grad school contained a ton of stuff I haven't used since, was full of meaningless discussions from people who didn't know how the real world worked (including me), and was taught by people who didn't understand the practicalities of American business. It was fairly worthless in preparing me for a career in business except for one thing -- it opened the door for me to get a job I could never have gotten otherwise (and certainly couldn't have gotten at age 24.) After that, my experience took over and my career took off. But I needed the MBA to get it started.

So what does he suggest you do instead of going back to school? He says you should enroll in "You U" -- a self-developed program where you:

• Have a mentor
• Read key articles and books
• Attend conferences
• Do apprenticeships alongside a master practitioner

By the way, I agree that each of these should be part of making the most of your career -- but you should be doing this whether or not you get another degree.

Anyway, the author suggests that you can open the doors that an MBA usually opens for you by writing a specific letter (included in the link above) that convinces employers that you've gone to You U and are a great hire. He claims the letter should be really effective:

I give talks to executives and often ask them, "Imagine you're an employer and you post a want ad that says 'MBA required.' and one applicant wrote this letter." I read the letter above to them. I then say, "Raise your hand if you'd interview him." Invariably, 80% to 90% do.

Ok, now who doesn't understand the real world?

First of all, would the executives even see the letter or would some HR intern weed it out since the guy didn't have an MBA? Second, would 80% to 90% REALLY interview him or are they just saying that in a bogus survey in an artificial environment? Third, an interview is not a job offer. It's far from it.

What do you think? Agree with the author? Agree with me? Something in between?

M.B.A.s Don't Prepare Managers for Real-Life Challenges

Yeah, that headline is a real shocker, isn't it? Not if you have your MBA. If you do have the degree, you know that the education itself is much less valuable in the "real-world" than the experience you get when working.

I'll give more of my thoughts on this issue in a bit, but for now let's check out what CareerJournal says about the MBA and how it prepares people for real-life challenges:

An M.B.A. provides the strong general education that an executive needs but it doesn't teach the skills needed in the day-to-day operation of a business, according to a survey of international executives.

Only 20% of the executives surveyed said that an M.B.A. prepares people to deal with the real-life challenges that a manager must face, according to the survey of 133 top executives at firms in the U.S., U.K., France and Germany by Egon Zehnder International, an executive search firm. Among the executives surveyed, 40% hold an M.B.A. themselves.

If I had taken this survey, I would have been with the 80% who said an MBA doesn't prepare people very well for real-world challenges. In fact, here are my overall feelings about an MBA:

1. I have an MBA and am glad I do. It has made a tremendous difference in my net worth through the years. I always say that your career is your most valuable financial asset, offering you many financial benefits. You can make the most of it by getting a college degree and managing your career to its full potential. Doing this well can earn you millions of dollars in extra income throughout your lifetime. An MBA has been a key part of success for me in this area.

2. I learned a lot while getting my education, but not much of it has been used in my almost 20 years of work experience since then. Yes, I learned statistics, corporate finance, operations and the like, but those where just "book learning" principles.

3. When I got into the working world, I learned MUCH more about business and the various disciplines than I did in school. Most importantly, I learned the difference between the way business was supposed to work (which is what they teach when you get your MBA) and the way it really works. And it's a huge difference.

4. The most valuable part of my MBA education was learning extra skills outside the classroom -- working with other highly-motivated people to accomplish a common task (without killing each other), managing my time to complete what seemed like an overwhelming list of tasks, and so on. These skills have served me well throughout my career.

5. The most valuable part (employment-wise) of an MBA to me has been that it opened doors for me that would have never been opened otherwise. It gave my career a big kick-start from the beginning and I think that's what it does for most people. Then, after time, the MBA becomes less and less valuable as a person's experience becomes more and more valuable. The MBA was necessary to get the person where she wanted to be initially, and after that, it's her ability that allows her to succeed or fail.

Value of an Advanced Degree Later on in Life

As I've stated before, I'm a big believer in education -- and how it can dramatically improve your lifetime earnings potential (and thus your net worth.) I've also noted that an MBA has had a substantial impact on my personal earning ability. But those facts aside, what is the value of an MBA -- or any higher degree -- later in life?

I'll start with my opinion: The later in life you get an advanced degree, the less it's worth. And it's not worth less simply because there are less years for you to use it (in other words, if you get an MBA at 25 you have 40 years to capitalize on it versus only 20 years if you get it at 45), but the rate of decline in value of an advanced degree accelerates as you get older. And past a certain age, maybe 40 or 45, it's fairly worthless if you're simply looking at the economic benefit involved. The one exception to this is if you're totally shifting careers/fields. In that case, it's as if you're fresh out of college and need an extra boost. In this circumstance, an advanced degree is valuable at a much later age.

So why do I say the value of a degree decreases more rapidly as time goes on? Because with each year, your education becomes less important and your experience becomes more important. The gap widens every year until eventually your work experience totally overshadows your education.

Consider the following:

• An executive who has a 20-year track record of being a bumbling manager, never delivers good business results, and is hated by his employees and co-workers. Now he gets an MBA. Is he worth more to the company? Is he worth more to any company? Probably not much if any. No one wants to hire a "loser" no matter what his degree.

• An executive who has a 20-year track record of being an excellent manager, always overdelivers on his assigned business targets, and is loved and admired by his employees and co-workers (who he can motivate to do anything.) Now he gets an MBA. Is he worth any more to any company? Probably not. He was (or should have been) well-paid before the degree and after getting the degree he's really not any better at what a company would hire someone like him to do.

In almost every case I've seen an older worker (40+ -- BTW, I'm in this category myself, so I'm NOT calling people over 40 "old," I said they were "older") go back to get a degree, especially an MBA, and stay in the same company, his/her pay and job title has remained virtually identical to the pre-degree pay. There has been absolutely no benefit economically to the degree. In fact, there could be a loss economically if the person forfeited two years of work (and pay) to get the degree.

Now I understand that to some people there is simply a "value in learning" that is in and of itself worth getting an advanced degree. I'm not talking about that here -- I'm talking from a strictly economic/pay standpoint. It's not a good deal later in life.

Furthermore, I'm looking at this as it pertains to the business world primarily -- maybe it's different in other disciplines. For instance, getting a doctorate later in life may still be worth it if you're a college professor. Or perhaps if you're a scientist. Maybe you can think of a few more instances where this is the case.

So what do you think, am I on target or just full of it? Let me know in the comments below -- I'm interested in hearing your opinion.

The Value of Financial Intelligence

Here are some thoughts from the book The Net Worth Workout: A Powerful Program for a Lifetime of Financial Fitness (see my rating for details) on the value of financial intelligence:

One of the most important steps in becoming financially fit [is] increasing your level of awareness of how you think about finances. According to Annamaria Lusardi, an economics professor at Dartmouth College, that step alone can add significantly to your bottom line.

Lusardi has shown that offering workers seminars on financial planning and retirement topics significantly increases their wealth. Such programs, according to the study, can increase employees' wealth by 15 percent to 20 percent -- regardless of their respective income levels.

I TOTALLY believe these numbers. In fact, they seem low if anything. I would think that if people learn just the basics of financial planning and apply them to their lives, they would be much, much, much better off -- much more than 20%. Then again, maybe it's the "and apply them to their lives" part that hampers the results. Maybe all of them get the education, but those who don't apply the learning -- probably a majority of people -- depress the results to "only" 15 to 20 percent.

So my suggestion is: Keep reading and applying the principles we talk about at Free Money Finance, and you'll be at least 15 to 20% better off financially. ;-)

More Education Equals More Pay

The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details) includes a chart that lists expected lifetime earnings per education level. The chart lists various education level and what people at those education levels can expect to earn throughout their lives (according to the U.S. Census Bureau.) The results:

• Some high school, no diploma - $1,000,000
• High school diploma or equivalent - $1,200,000
• Some college, no degree - $1,500,000
• Associate degree - $1,600,000
• Bachelor's degree - $2,100,000
• Master's degree - $2,500,000
• Doctoral degree - $3,400,000
• Professional degree - $4,400,000

Just to be clear, here's how Wikipedia defines professional degrees:

In the United States and Canada, professional degrees refer to academic degrees that are specific to a particular vocation or profession. Law school (JD or LLB), medical school (MD and DO), engineering school (BSc. or BASc. in Engineering, BEng., MEng., and DEng.), dental school (DDS and DMD), veterinary school (DVM), business school (MBA), physical therapy school (DPT), pharmacy school (BSc. in Pharmacy and Pharm.D.), schools of social work (MSW), art school (MFA), seminary (M.Div.), and architecture school (MArch) are examples of institutions where professional degrees can be earned.

I've noted several times that your career is your most valuable financial asset, offering you many financial benefits and that you can make the most of it by getting a college degree and managing your career to its full potential. I've also said that doing this well can earn you millions of dollars in extra income throughout your lifetime. It seems like this chart backs up these thoughts.

Want more information? I've got tons of it on how an education and good career management can significantly increase your income. Here are just a few of my posts on the subject:

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• Make the Most of a College Education -- It's Well Worth the Investment

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• Which is More Important -- A High Starting Salary or Higher Average Salary Increases?

Best of Free Money Finance: College and Education Posts

Here's a list of what I consider to be some of the best college and education related posts here at Free Money Finance:

Saving on College Costs

• Save 50% on Education Expenses

• More Great College Savings Tips -- Save up to 50% Off College Costs

• Save Big on College: College for Half-Price

• Money Saving Tip: Save on College Courses

• Money Saving Tip: Save on College by Studying Abroad

• 4 Ways to Save Big on College Costs

• Save Big Money by Getting Good Grades in College

• A Great College Money Saving Tip

Why College is Such a Great Investment

• Make the Most of a College Education -- It's Well Worth the Investment

• Why Education is So Important to Your Financial Future -- And How You Can Pay for College

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• College is Worth the Expense

• Earn More by Going to College

• The Value of Education

• The Value of an Education

• The Value of an MBA

How to Save for College

• College Saving Reality Check: What You Can Do to Save Enough for Your Kid's College Expenses and How to Pick the Best 529 Plan

• Four Basic Ways to Save for College

• How to Evaluate 529 College Savings Plans

• Saving for College: The Benefits of 529 Plans

General College Posts

• Free Money Finance Guide to College Success

• Does an Elite College Really Pay?

• How Much College Debt is too Much?

• Most Lucrative College Degrees

• College Majors that Boost Your Paycheck

• The 10 Best Values in Public Colleges

Great Financial Advice for Graduates (And the Rest of Us Too)

Here's a piece from Marketwatch where the author gives money advice to recent high school graduates. There is lots of good stuff in this piece and I want to highlight (in green) a few of the parts I like best. I've added in my commentary where appropriate as well. Here goes:

Financial success starts with spending less than you earn, and using the surplus dollars to reduce debt or save for the future.

Bulls-eye!!!!!! It all does start with spending less than you earn -- it's the one way people of almost any income can become wealthy. But if you over-spend, it doesn't matter how much you make, you'll still be going backwards.

If you couple spending less than you earn with a great saving and investment plan, it's easy to get rich and earn a million (or two!).

If friends, neighbors and acquaintances are fortunate enough to do a little better financially, feel free to applaud their efforts, but don't try to keep pace. Most people feel like they are entitled to nice things; the truth is that they are entitled to what they can afford to pay for while still protecting their future. Allowing someone else's priorities and earning power to set your own financial life off-kilter is dumb.

Yep. In my opinion, this is one of the reasons so many Americans carry so much debt -- they see a friend get something and they want it (or something better). They don't worry about the financial consequences -- they just borrow to pay for it. Bad move.

Today's graduates will know they have reached a new level of money maturity when they are able to give some of their cash away. "Giving til it hurts" actually can feel pretty good, even if the money involved is a small amount. The sooner someone learns that, the better they will feel about how they handle money.

It's nice to see a financial advice piece talk about the advantages of giving. Not only does giving help others and make the givers feel good, but some think that giving is one of the keys to getting rich. Some call this the power of giving.

The graduates I was talking to may have gotten a good education, but it didn't include 10 cents worth of information on managing money. They don't know how to balance a checkbook, make and keep a budget, or invest in a stock that Grandpa didn't pick for them. That has to change, and the sooner the better. They won't actually learn those lessons while taking college classes, but if they are lucky they will learn them during their time in college, so that they can be prepared to move on when next they graduate. But regardless of when someone learns money management skills, the important thing is that they figure it out, and the sooner the better.

I've discussed this a few times and several people have commented on it. Our education system does a poor job of teaching kids about how to handle money. That's why we, as parents, need to be sure we do it. The only problem with this is that many parents don't know what they're doing when it comes to handling money. Yikes!!!

Money provides opportunity, but it doesn't guarantee happiness. And until someone can put a price tag on what it takes to be truly content and happy, it will pay to remember that adult life is not all about the pursuit of greenbacks. 

True. That's why I have a whole category here at Free Money Finance devoted to things that are more important than money. A few things on my list: time, health, kids, mind, and happiness.

Simple and Life-Changing Advice for Graduates

Here's a simple, but profound piece from Yahoo featuring some money advice to graduates. The entire piece boils down to this thought from the author:

Try to live within your means, and save money.

She then gives some thoughts on how to do this:

I shared a tiny apartment with a roommate and cut my housing costs in half. I brown-bagged my lunch; walked or took the subway or the bus; ran outside instead of joining a gym; shopped sample sales in the Garment Center; and never took up smoking. I hung out with other people who were both fun and as poor as I was. By my late 20s, my salary had risen, and then I joined a gym, traveled without having to stay in hostels, ate out more often, and continued to save.

She also notes a money saving tip for today's graduates -- but one that has a fast-approaching deadline:

For anyone with student loans, here's a guaranteed way to save: Consolidate your debt immediately to lock in today's lower interest rates. Last week, the Department of Education announced that the rate on existing Stafford Loans will jump to 7.14 percent on July 1 -- a rise of 1.84 percent. The rate on PLUS Loans for parents will also climb 1.84 percent, to 7.94 percent. Someone with $20,500 in student loans would save $3,245 over the course of a 10-year repayment period by consolidating now, according to College Loan Corp., a San Diego lender.

This is simply excellent advice. Of any one principle, spending less than you earn is the key to wealth -- not only for graduates, but for everyone. If you master this concept, you can accumulate a large net worth. If you can't, it doesn't matter how much you make -- $165,000 a year, millions or even billions of dollars -- if you spend more than you make, you're going backwards financially.

To read more about graduate finances, see these posts from Free Money Finance:

• Graduate’s Guide to Finances

• Money-Related Gifts for Graduates

• Five Frugality Tips for College Grads

Should You Go Back to School and Get an MBA?

I've written before about the value of an MBA and even detailed how it's made a tremendous, positive impact in my life. On that post, I received the following comment recently:

Here's my question to anyone listening: Right now I am 24 years old, making $65,000 a year, (as a pharmaceutical rep.) I am contemplating pursuing a full-time MBA at a non-Ivy League university. The total cost of the MBA would be approximately $5,000, (don't ask how I'm doing it so cheap...). I do not have a business background, and would like such an education to help advance my career. But at the salary bracket that I am already in, do you think it is worth it, even in the long run, to pursue an MBA with a non-Ivy league school?

Here was the answer I posted in response:

First, what do you want to do with your life? If you're doing it and getting an MBA won't help you advance, then there's no need.

However, if you do want to do something else (in another field, another specialty, etc.) then it's likely that an MBA will still work out for you. The keys are:

1. Be sure the school you go to has lots of companies in your chosen field recruiting at it. If not, you may end up with a degree and no job at the end of it.

2. Check the starting salaries for these sorts of positions. Many schools (or magazines) publish average starting salaries both before and after grad school -- and most are higher than $65k upon graduation.

3. Once you check these two out and feel comfortable with them, run the math. If you have to quit work to get the degree, you're passing up $130,000 (at least) for the two years you won't have your current job. Plus there's the $5k for schooling as well as other expenses. Calculate how long it will take you to make this amount up (probably 5-10 years). Is it worth it?

4. The intangible question is: what makes you happy? If an MBA gets you a job you love versus the one you may or may not like now, then factor that in as well. Having a job you like is worth a whole lot of money.

Finally, check out Maximize Your Career Earnings: Get a Degree and Manage Your Career. It shows how much more an MBA graduate makes even over a bachelor's degree grad. It's a good amount.

Good luck!

So what do you think of my advice? Good? Bad? Anything to add?

Maximize Your Career Earnings: Get a Degree and Manage Your Career

I've posted several times on the value of education, how it can earn you more and save you money and how education is the key to getting a good job. I've also noted that your career is your most valuable financial asset and managing it correctly can earn you millions of dollars in extra income throughout your lifetime. But I've done this all on separate posts. Today, I'd like to tie them all together and show you the value of an education as well as managing your career -- the impact these have on your career earnings over a lifetime.

There are really two major issues to consider when you try to compare the financial impact of education and career (the lifetime earnings you could make under various options). These are:

1. Your starting salary as you enter the workforce.

2. The rate at which your salary grows through the years.

The first one is impacted primarily by whether or not the person graduated high school and/or college. The second is impacted by the effectiveness of the person in managing his/her career.

I'm going to look at several groups of education levels and several earning scenarios under each group. They are:

Group 1: Those not graduating high school

• A starts work at age 16, works until 65, and averages an "inflation-level" 3% average annual increase in income.

• B starts work at age 16, works until 65, and averages a "decent" 5% average annual increase in income.

• C starts work at age 16, works until 65, and averages a "good" 7.5% average annual increase in income.

• D starts work at age 16, works until 65, and averages an "excellent" 10% average annual increase in income.

Group 2: Those graduating high school but not going to college at all

• E starts work at age 18, works until 65, and averages an inflation-level 3% average annual increase in income.

• F starts work at age 18, works until 65, and averages a decent 5% average annual increase in income.

• G starts work at age 18, works until 65, and averages a good 7.5% average annual increase in income.

• H starts work at age 18, works until 65, and averages an excellent 10% average annual increase in income.

Group 3: Those graduating high school, having some college, but not graduating college

• I starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an inflation-level 3% average annual increase in income.

• J starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a decent 5% average annual increase in income.

• K starts work at age 20, pays for $5,000 in college costs, works until 65, and averages a good 7.5% average annual increase in income.

• L starts work at age 20, pays for $5,000 in college costs, works until 65, and averages an excellent 10% average annual increase in income.

Group 4: Those graduating with a college Bachelor's degree

• M starts work at age 22, pays for $20,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• N starts work at age 22, pays for $20,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• O starts work at age 22, pays for $20,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• P starts work at age 22, pays for $20,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 5: Those graduating with a college Master's degree

• Q starts work at age 24, pays for $40,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• R starts work at age 24, pays for $40,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• S starts work at age 24, pays for $40,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• T starts work at age 24, pays for $40,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 6: Those graduating with a college Doctorate degree

• U starts work at age 26, pays for $60,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• V starts work at age 26, pays for $60,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• W starts work at age 26, pays for $60,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• X starts work at age 26, pays for $60,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Group 7: Those graduating with a college Professional degree

• Y starts work at age 26, pays for $75,000 in college costs, and doesn't manage his career very well. He only has a 3% average annual increase in income.

• Z starts work at age 26, pays for $75,000 in college costs, and does an adequate job of managing his career. Through pay increases, promotions, and job changes, he is able to increase his salary by 5% annually on average.

• AA starts work at age 26, pays for $75,000 in college costs, and does a pretty good job of managing his career. He is able to increase his salary by 7.5% annually on average.

• BB starts work at age 26, pays for $75,000 in college costs, and does an excellent job of managing his career. He is able to increase his salary by 10% annually on average.

Based on my post titled Sell College to Your Kids, here are the average starting salaries for each of the groups highlighted above:

• Group 1: Not a high school graduate annual salary: $22,074 
• Group 2: High school graduate annual salary: $27,975
• Group 3: Some college but no degree annual salary: $33,948
• Group 4: Bachelor's degree annual salary:  $51,644 
• Group 5: Master's degree annual salary: $61,296
• Group 6: Ph.D. annual salary:  $80,225
• Group 7: Professional degree (M.D., J.D.) annual salary: $95,175

The rest is just math. Here's what each of them will have earned at age 65, after paying for college costs (if applicable), throughout their careers:

Group 1

• A earns $2.5 million in his career.
• B earns $4.6 million in his career.
• C earns $10.7 million in his career.
• D earns $25.7 million in his career.

Group 2

• E earns $2.9 million in his career.
• F earns $5.3 million in his career.
• G earns $11.6 million in his career.
• H earns $26.9 million in his career.

Group 3

• I earns $3.3 million in his career.
• J earns $5.7 million in his career.
• K earns $12.1 million in his career.
• L earns $26.9 million in his career.

Group 4

• M earns $4.6 million in his career.
• N earns $7.8 million in his career.
• O earns $15.9 million in his career.
• P earns $33.7 million in his career.

Group 5

• Q earns $5.0 million in his career.
• R earns $8.2 million in his career.
• S earns $16.2 million in his career.
• T earns $32.9 million in his career.

Group 6

• U earns $6.0 million in his career.
• V earns $9.6 million in his career.
• W earns $18.2 million in his career.
• X earns $35.4 million in his career.

Group 7

• Y earns $7.1 million in his career.
• Z earns $11.4 million in his career.
• AA earns $21.6 million in his career.
• BB earns $42.0 million in his career.

Very, very, very interesting, I'd say. Here are some of my thoughts:

1. The cost of college is a non-issue in the long run. You earn much, much more through a working career by going to college than the cost of the degree itself. The conclusion is quite simple: for people managing their careers to the same level of effectiveness, the more you go to college, the better off you'll be financially. Consider "A" versus "Y". "A" had 10 more working years and didn't have $75,000 in college debt to be paid off -- and they both managed their careers with the same level of effectiveness. Yet "Y" earned $4.6 million more -- a pretty good return on the college investment. 

2. Managing your career effectively is much more important financially than getting a college degree. Someone without even a high school degree but who does an excellent job managing his career ends up earning $25.7 million while someone who gets a Professional degree and does "only" a good job managing his career (the second-best option) earns $21.6 million. That extra 2.5% every year means a lot due to the power of compounding and the power of time.

3. Numbers (percentage increases) higher than those noted above can be achieved. I'm 18 years into my career, I'm right at a 10% average annual gain, and I'd only consider myself as having done a good (not excellent) job of managing my career.

4. No matter how you look at it, most of these people end up earning a very large sum throughout their careers. If people could just learn to spend less than they earn, more people would become wealthy and would be happier with their finances. 

Another Advantage of Education: It Saves You Money on Your Car Insurance

We've established that having an education is the key to getting a good job and that having a degree can mean $1 million (or more) to you in extra income during your lifetime. In other words, an education can help you earn a boatload more money!!

But it gets even better. Now advanced education can also help you SAVE money as well -- at least on your car insurance. Here are the details from Money Central:

In states where rating factors can legally include education and occupation, insurers such as Allstate and Geico are now charging drivers with the right kind of jobs much less for insurance.

Allstate discounts premiums by up to 10% for those in its favored jobs. Geico simply charges the less educated more.

As you might imagine, there are a lot of people that are upset with these practices, claiming that they are unfair to the uneducated (who are also usually poor). But it gets down to a business decision for the car insurance companies -- if more educated people have fewer accidents, then they should pay less.

But some companies don't see a correlation between education and accident rates. Or maybe it's just too hot of an issue for them. Anyway, here's what other car insurance companies do:

State Farm, the largest car insurer in the country, doesn't use education or occupation to set rates, said spokesman Dick Luedke. The No. 3 insurer, Progressive, also refrains, said spokesman William Perry.

I'm not going to comment on the right-ness or wrong-ness of setting car insurance rates by education. We'll leave that to one of the political blogs. However, I can say that from a financial standpoint, it appears that education can not only help you earn more, but now can also save you money to boot!

Free Money Finance Guide to College Success

Every once in awhile, I write a short post that summarizes my best thoughts (based on my experience) on a specific personal finance topic. I do this to place all my key thoughts on a subject in one place so I can then refer back to it in later posts. This way, I can link to one post that says it all rather than have to link to four or five every time I address an issue.

If you want examples of this sort of post, see these that I've already completed:

• Why I Like Index Funds

• My Formula for Buying a House

• Maximizing Your Greatest Asset: Why Your Career is So Important

Today I want to add another to the list -- this time dealing with what I consider to be a proper guide to college success. These steps have served me well, and I hope they will benefit some of you out there too.

That said, here are my thoughts on how to get the most out of college:

1. Preparation for a successful college career begins in high school -- really, the start of high school. The key factors for admission to a good college are: 1. Good grades in high school (including strong standardized test scores) and 2. Participation and hopefully leadership in extracurricular activities. I was never that great in sports, but I was a disciplined student and determined to do well. I also was involved and had leadership positions in the speech and drama clubs, debate team, and other activities (by the way, the skills I learned in these extracurricular activities helped me greatly once I got into the working world). These not only helped me get into a good school, but also helped me secure thousands of dollars in financial aid.

2. Apply to a few, good colleges. Don't put all your eggs in one basket, since you may not get into that school. I applied to four, visited three, and selected one. When I went to grad school, I applied to five, but was only selected by three. And what makes a school "good"? There are many thoughts on this, but I'd say the main factor is that the college has a proven track history of moving people to the next level in their career development -- either strong success in placing graduates in companies within their selected field (at good pay) or getting graduates into their choice of graduate schools, law schools, medical schools, and the like.

3. To be successful at college, do the same things that made you successful at high school -- get good grades and be involved in outside activities. Supplement these with meaningful internships in the summer. The combination of these efforts makes both employers and graduate schools salivate, giving you the option of doing whatever you want to do after you graduate.

4. Remember, learning doesn't end. If you want to be successful, you need to continually learn (read, take classes, get advice from a mentor, etc.) and apply what you've learned to get the most out of your career (which is your most valuable financial asset). Doing this can earn you millions of dollars in extra income throughout your lifetime.

Make the Most of a College Education -- It's Well Worth the Investment

I've posted a lot on the benefits of a college degree and how it helps you financially, and here's another piece that reinforces why I do so. This one is from Yahoo and starts with the following information:

According to the numbers, at least, it's still the college degree that's the great dividing line in lifelong economic success. Roughly one-quarter of Americans age 25 and older have attained a bachelor's degree, according to the Census Bureau. Their average earnings were $45,400, compared with $25,900 for a high school graduate. Over an adult's working life, someone with a B.A. earns an average of $2.1 million -- compared with $1.2 million for high school graduates. Those with a master's degree earned about $55,641, or $2.5 million over a lifetime, according to a Census analysis.

Somehow, this topic keeps coming up: going to college helps you earn much, much more during your lifetime. Here are some of the other posts where I've noted this:

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• Education is the Key to Getting a Good Job

• The Value of an Education

• The Value of an MBA

In addition, I find it interesting that only 25% of Americans age 25 and older have a college degree. I get a lot of "everyone has a college degree so they aren't worth that much" sort of comments -- yet the facts say that 75% don't have degrees. So while college degrees aren't as rare as they used to be, but graduates are still in the minority.

The piece then goes on to detail something I highlighted in Does an Elite College Really Pay? -- the fact that graduates of elite colleges don't earn any more than graduates of "good" schools. Some highlights:

High school graduates who failed to make the cut can console themselves with the knowledge that, at least economically, they will likely do just as well as their Ivy League peers over time. That's according to a 1999 study conducted by Alan Krueger, a Princeton University economist, and Stacy Dale of the Andrew Mellon Foundation.

While previous research had demonstrated an Ivy League salary advantage, the data were problematic because students who attend more selective colleges are likely to have higher earnings regardless of where they go to school.

Krueger and Dale restricted their study to equally talented students who applied to the nation's most elite institutions and started college in 1976. Some were rejected and attended less selective colleges. Two decades later, the graduates were earning roughly the same income.

The article then goes on to highlight several points I have found true in my life. Here's the first:

And, as Kantrowitz adds: "If you get a PhD. from Harvard, nobody cares if you got your undergrad from Podunk U."

This is the case for me. I got my undergraduate degree at a small, liberal arts school in the Midwest that no one's ever heard of. But I got into a nationally-recognized, top 25 business school and got my MBA. That's all employers needed to know, and I had an easy time getting my first job.

The second point the author makes is that by hard work and perseverance, a graduate from a lower-ranked school can have as much success as one from an elite school:

As for undergrads, Kantrowitz says, "You may have an easier time finding a job if you go to Harvard vs. Ohio State -- on the other hand, Ohio State, UCLA, the University of Illinois, UC Berkeley, and several of the other lower-cost institutions are excellent schools."

I got in the door with my state college degree -- I just had to knock a little harder. But maybe learning to knock harder early in life is good training for the hard knocks you can face later.

This was also true for me. I started out with the same job that people from Harvard, Wharton, and the like were getting -- except that I had $5,000 in debt and they had $50,000 or more! The only difference: they made a few thousand more dollars a year than I did. Five years later, we were all at similar pay levels, with better performers earning the most regardless of what school they attended.

Finally, here's the last observation that I've found to be true as well:

As Taylor told me, "it's all about your own motivation. You may get a job because you had a great resume. But if you're not producing, you can't say: 'But I went to so-and-so school.'"

Once you get that first job, your performance is what matters the most. Yes, your education carries some weight, but the farther you get down your career path, the more and more experience matters and the less and less your degree counts. For more thoughts on this topic, see this post: Experience versus Education: Which Counts More in Career Success?

For those of you focused on saving for college -- any college -- here are some posts from Free Money Finance that could help you:

• 4 Ways to Save Big on College Costs

• A Great College Money Saving Tip

• Big Money Blunders to Avoid: Saving for College

• Four Basic Ways to Save for College, Part 1

Why Education is So Important to Your Financial Future -- And How You Can Pay for College

Your career is your most valuable financial asset and managing it correctly can earn you millions of dollars in extra income throughout your lifetime.  A key part of making the most of your career is getting a good education. There's no doubt that education is the key to getting a good job and there's tremendous value in education. It simply gives you a huge advantage versus others without it. Then, when you capitalize on your education by actively managing your career, you're on your way to financial freedom.

This article from David Bach talks about why education is so important to your financial future. A few of his thoughts:

Investing wisely in higher education is one of the best financial decisions you can make. More education means higher earnings -- for life. In 2001, according to student lender Sallie Mae, the median earnings of a high school graduate were about $29,000 annually. For those with a bachelor's degree, the number was more than $46,000. Holders of professional degrees, such as law and medicine, racked up median annual earnings of more than $82,000.

Unemployment numbers also drop dramatically as education level increases: College graduates were nearly half as likely to be unemployed as high school graduates, and professional degree holders were nearly a quarter as likely.

Yet even knowing that an education will reap tremendous financial rewards, there still is a pretty big financial burden on families and students to pay for college. Bach gives the following tips to help cushion the financial requirements of funding an education:

• Control Your Expenses. Some students these days use student money to finance their lifestyle, spending the money on meals out, vacations, or other expensive luxuries. Don't do that. Use popular money management programs such as Intuit's Quicken or Microsoft Money to draw up a budget.
• Get the Best Loan Terms, Rates, and Benefits. Federal loans are generally the best deal.
• Repay on Time. The good credit you build will be invaluable to you when it comes time to apply for a mortgage or other loan.
• Pay the Loan Automatically. Being late on your student loans can ruin your credit. So set up "automatic payment" plans.
• Start Saving, Too. I'm often asked if a person should pay their student loans off first before they save for a home or use their retirement account at work. My answer is that if your interest rate is low, and most student loans are, pay the minimum due and focus the rest of your money on getting out of high-rate credit-card debt and towards saving for the future.

Good stuff, as usual, from Bach.

Below I'm listing some links that supplement what Bach is saying for those of you who want some additional information.

Budgeting Guidance

• Why We Hate Budgeting - But Shouldn't
• A Great Alternative to Quicken and Microsoft Money, Part 2
• Five Keys to Developing a Successful Budget

Paying/Saving for College

• 4 Ways to Save Big on College Costs
• A Great College Money Saving Tip
• Big Money Blunders to Avoid: Saving for College
• Four Basic Ways to Save for College, Part 1

Repaying Loans/Getting Out of Debt

• Nine Ways to Pay Off Debt
• Get Out of Debt, Part 1
• Nine Steps to a Great Credit Score -- Save Yourself Thousands of Dollars

Saving

• Where to Put $5,000?
• Have a Hard Time Saving? You Can Amass a Fortune by "Tricking" Yourself
• Get an Emergency Fund Now!

Making the Most of Your Career

• Nine Steps to a Perfect Career Fit
• Comments: Experience versus Education
• Review: Career Intensity by David Lorenzo
• Seven Ways to Start Your New Job Right

The Richest Man in Babylon: Seven Cures for a Lean Purse Part 7, Increase Thy Ability to Earn

In the third chapter of The Richest Man in Babylon the book lists and details "seven cures for a lean purse." Today, we'll cover cure #7 which is:

Increase thy ability to earn.

Here's what the book has to say on this last cure:

As a man perfecteth himself in his calling even so doth his ability to earn increase.

Yes, it said "perfecteth" and "doth." ;-)

The book continues a bit later on:

The more wisdom we know, the more we may earn. That man who seeks to learn more of his craft shall be richly rewarded.

The cure ends with this:

Thus the seventh and last remedy for a lean purse is to cultivate thy own powers, to study and become wiser, to become more skillful, to so act as to respect thyself.

Here at Free Money Finance, we've already established that your career is your #1 financial asset -- and managing it appropriately can make you millions throughout your working years. The best way to jumpstart your career is to get a good (or additional) education. There is a big, big difference in starting salaries and earning power over a lifetime with a college degree versus not having one. And for those wanting to earn even more, getting an MBA is an option. Couple this with spending less than you earn and it's impossible not to become wealthy.

For those of you who are saving for college to give your kids a leg up in earning power, here are some posts from Free Money Finance that can help you  pay for it:

• 4 Ways to Save Big on College Costs


• A Great College Money Saving Tip


• Big Money Blunders to Avoid: Saving for College


• Four Basic Ways to Save for College, Part 1

Does an Elite College Really Pay?

I think it's clear that a college education is well worth the time and money spent on it. If you disagree, check out these posts:

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)


• Education is the Key to Getting a Good Job


• The Value of an Education


• The Value of an MBA

But here's a more difficult question: is an elite college (Harvard, Yale and the like) a better investment than any other college? Here's what MSN Money says:

The economist Alan B. Krueger teaches at Princeton University, but in his view, it's probably not worth the money it takes to send your kid there.

Not in terms of future earnings, anyway. Krueger ignited a minor furor when he and Stacy B. Dale, a researcher at the Andrew W. Mellon Foundation, concluded in 1998 that elite colleges do not pay off in higher earnings. They only appear to do so, the researchers contended. Krueger and Dale claimed that, in most cases, the higher earnings piled up by graduates of elite schools were attributable to elite individuals, not their college education. In other words, if you're smart enough to get into Princeton, you're smart enough to make a lot of money wherever you go to school.

Whether or not Krueger and Dale's research holds up--and the jury is still out--tuition-paying parents will want to follow the debate closely.

The article then goes on and on debating the subject. However, it does end with some suggestions on what we should all do as we ponder this question for ourselves and our children:

If your kid intends to become a social worker or minister, an Ivy League education will never pay off in financial terms. And if your child wants to study studio art but is admitted to Cal Tech, there's no point paying for Cal Tech. Spend the money on a school with a better art program.

If you live in a state with a premier public institution--a school such as UC Berkeley, the University of Virginia, or the University of Wisconsin--it's hard to justify going elsewhere, unless elsewhere is one of the very best private schools. Even then, in the view of Dan Black, you should pick your state school.

Under no circumstances should you pay for a mediocre private school. These make no sense at all.

If you are made of money, send your kid to the most selective school you possibly can. It can't hurt.

If you are African American and your kid gets into Yale, do whatever you can to send him or her. Krueger and Dale found that black students get a bigger financial bang from a top-tier school. There is also some evidence that the same applies to students from economically disadvantaged backgrounds generally.

This decision is still a long way off for me and my family, so it's not pressing for us. However, this information will be food for thought for several years down the road.

For those of you focused on saving for college -- any college -- here are some posts from Free Money Finance that could help you:

• 4 Ways to Save Big on College Costs


• A Great College Money Saving Tip


• Big Money Blunders to Avoid: Saving for College


• Four Basic Ways to Save for College, Part 1

College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

Here's a piece from Money Central lamenting the fact that college is so expensive. The piece notes that there are five main reasons college costs so much:

• Capital spending: Cornell economist Ronald G. Ehrenberg, in his book “Tuition Rising,” describes a kind of “arms race” among the nation’s top schools to have the best of everything: the best facilities, the best faculty and strong sports teams to engender loyalty among alumni donors.
• Faculty: Half to two-thirds of the typical college’s budget goes to paying instructional salaries. So rising paychecks are indeed a factor in higher college costs. The tenure system and the lack of mandatory retirement can make it tough to oust high-earning but less productive employees.
• Productivity: One factor that keeps inflation muted in the private sector is worker productivity. Technology, equipment and experience tend to help the average worker make widgets faster over time. That growing productivity allows a business to create more products for the same cost. But colleges aren’t in the business of making widgets. Those that try to force greater “productivity” out of their professors -- by increasing class sizes or class loads -- often find their strategies backfire. The best instructors leave for better environments, and the colleges’ reputations suffer among students and the ranking services that gauge university quality.
• Financial aid: As we’ve seen with the health-care system, if people aren’t feeling the real cost of their purchases, they have less incentive to change their behavior.