Treece Blog: Trading degrees for dollars?Written by Dock David Treece | | firstname.lastname@example.org
Though it hardly feels like another year has passed and summer is coming to a close, it’s already time for back-to-school specials and gearing up for fall. Before we know it, leaves will be falling and Thanksgiving turkeys will be pardoned.
Before this season gets away from us, it seems a good time to sit back, kick our feet up and lend a little consideration to the purpose of education. All too often we find ourselves bogged down in homework, projects, papers, tests, football games, marching bands, school budgets and levies. In all the hustle of short-term issues, it’s easy to lose sight of the farther-reaching implications of a public education system.
After all, the real purpose of education is not to consume time with menial tasks nor is it all about “the three R’s” — and even less so about the popularity contest that is senior prom. The real goal of education is to help mold young Americans into productive, civically minded citizens.
Admittedly, the question of whether our current educational system is successful with either of those goals will almost certainly remain a source of major debate, but that’s another issue. For now, it’s worth focusing on the productivity of young Americans, including how it is defined and how it can be fostered.
Over the past half-century an assumption has developed among American academics and parents that every child should go to college. There is a tightly held belief that higher education is necessary for Americans to lead full, prosperous lives. Unfortunately, while college is certainly a great step for some, it almost certainly isn’t for many others — in fact, in the long run it can prove extremely detrimental to their long-term security.
Consider, for example, two young Americans: one who attends a four-year university and graduates with a bachelor’s degree before seeking employment and one who graduates from high school and shifts immediately into the job force by working in a skilled trade, say, a tool and die maker.
According to a recent study from CNN, the average American graduating from a four-year university has accumulated $35,200 in student debt by the time he or she graduates. Obviously those who opt to skip post-secondary academia and begin working immediately do so without that debt, so they’re already $35,000 wealthier than their college-trained counterparts.
Now, the average starting salary of a college graduate in the United States is roughly $45,000, according to the National Association of Colleges and Employers (NACA). Assuming he or she is hired right away (which isn’t guaranteed in this job market) and dedicates 10 percent of his or her steadily rising salary to pay off college debt, our newly minted college grad can be debt free in about 10 years (per simple calculations at Bankrate.com).
In those 10 years, our tool and die maker (starting as a level one, progressing to level two) has made, according to Salary.com, roughly $43,000 per year. If the grad is able to save just 10 percent of that salary each year for investing — the same portion our college grad is using to pay off their debt — and earn an average 8 percent annual return on those investments (which certainly isn’t out of the question) around the same time our college-graduated friend is becoming debt free, our tool and die maker has grown his or her investment account to just over $100,000.
Around this time our college grad (now 32 years old), after annual 5 percent pay raises (which is aggressive), is probably making about $73,000. It only seems natural that our hard-working level one tool and die maker will have been promoted to a level two maker, increasing his pay to $51,000 annually. Now that our collegiate is debt free, we can hope that he continues deferring 10 percent of his annual income, this time for investing. To keep things fair we’ll assume he earns the same 8 percent return as our skilled tradesman.
With steadily increasing pay and compounding savings, our white- collar college grad has accumulated a $100,000 investment account within eight years, just shy of his 39th birthday. By then, our tool and die maker, who is probably ready to step up from level two to three (and the corresponding $58,000 pay grade), has built a retirement fund worth just less than $300,000.
For another 10 years they toil. Now each is 52 years old and the high school prom is a distant memory. Having continued to see incremental annual raises, our college grad has watched his investment grow to a tidy quarter-million dollar account — certainly nothing to shake a stick at. Our tool and die maker, though, has during the same time watched his savings grow to a staggering $750,000 — and is likely ready to step into management as a level one tool and die supervisor, making $65,000 per year.
For those keeping track, with annual 5 percent raises our college grad is now making nearly $200,000 per year, despite retirement savings totaling just a third of his or her high school classmates.
Ten long years later (now 62), our college graduate has finally started watching dollars roll in, with his or her investment account finally topping the half-million mark.
Of course, this pales in comparison to our tool and die supervisor, now ready to step up to a level two supervisor for the last several years of his of her career, which pays all of $73,000 annually. Of course, by this time his or her investment account totals more than $1.6 million.
Take these projections out another three years to 65 — a typical retirement age. At this point our anonymous college grad is earning a startling $366,000 per year, with more than $600,000 in savings.
Certainly this is enough to live on through retirement — although it will likely require substantial lifestyle changes. Our skilled tradesman, though? That person will be living the good life in St. Bart’s. Having ended her or his 48-year career making a maximum $73,000, he’s now living off a staggering $2.3 million retirement account.
Who was it that wrote that book “All I Really Need to Know I Learned in Kindergarten?” Maybe he was on to something there …
Dock David Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and is licensed with FINRA through Treece Financial Services Corp. He provides expert content to numerous media outlets. The above information is the express opinion of Dock David Treece and should not be construed as investment advice or used without outside verification.