Whenever somebody talks about the cost of going to college, the following factors get thrown around:
- A lurve shack for all the ladies out there
- Moving expenses
- A laptop
- Approximately 61,583 cans of your finest, cheapest beer
Up in Canada, all that adds up to between $15,000 and $20,000 per year, give or take a few bucks. You can save money by going to a cheaper city, because we all know it costs less to live in Halifax than it does Toronto or Vancouver. Or you could live in your parents’ basement, but good luck ever getting laid if you do that, slugger.
But there’s one other huge cost that the average college attendee will never factor in, which is a huge lapse in judgement. It might just be the most expensive part of going to school as well.
It’s opportunity cost.
Let’s say that your life mirrored mine exactly, because you are the lamest copycat ever. You decided to get a job at a local grocery store at 17 because your other job at Dairy Queen was making you fat. After graduating, they offer you a full-time job because you’ve managed to trick them into thinking you’re not useless.
I was making $10 per hour when I first started full-time, but that was back in 2001. So let’s adjust for inflation a little and say you’re now going to make $12 per hour. Each year you’ll get a $1 per hour raise, because they like you. Or you’re an attractive woman. Either/or.
Here’s a summary of the 4 years in which you’d normally be in college.
- Year 1, $12 per hour, 40 hours per week, 50 weeks per year: $24,000
- Year 2, $13 per hour, 40 hours per week, 50 weeks per year: $26,000
- Year 3, $14 per hour, 40 hours per week, 50 weeks per year: $28,000
- Year 4, $15 per hour, 40 hours per week, 50 weeks per year: $30,000
This is where it gets a little tricky. What sort of savings rate should we assume our imaginary worker can maintain? I’d argue that most people have the option of living at home for the first four years of adulthood, so let’s assume minimal costs for shelter. They’ve still gotta eat, find a way to get to work, and so on. I saved probably 75-85% of my income when I was doing this, but nobody is going to be that hardcore. Let’s assume the savings rate is 50%, which works out to $54,000.
After four years of working at a grocery store, you’re pretty experienced. Likely you’ll be at least an assistant manager in a department, well on your way to making the kind of salary that university graduates get. I know plenty of guys who are making at least $50k annually after five to ten years of experience. Frankly, if you’re not making that much after ten years, you’re bad and you should feel bad. Retail is clamoring for people who don’t suck.
While I think it’s very possible to make a decent living in retail, let’s assume that the retail job pays a little less than the average college educated job. Starting at age 22, the college graduate gets paid $5,000 per year more than our retail worker, and can therefore afford to put $2,000 per year more into their savings.
Let’s run two sets of compound interest tables, over a 45 year period from age 22 to age 67. The first, which is the retail worker, takes his $54,000 and puts it away earning 8% annually. He doesn’t add a nickel to the investment. Here’s what he ends up with.
A retirement fund worth $1.7 million ain’t bad.
Meanwhile, the college graduate starts out with nothing at age 22, but can afford to contribute $2,000 per year for 45 years. That’s an investment of $90,000, much more than our retail worker started out with. How did he do?
It’s not even close. The retail worker ended up with a huge advantage over time because he accumulated his nest egg early.
Okay, but what if the college grad took all the $5,000 extra he made annually and contributed it towards his retirement? What happens then, smart guy?
Let’s find out.
It takes a lifetime of making more money than our retail worker and reinvesting all of it to finally beat that original $54,000 investment. And that’s assuming the retail worker doesn’t ever make an above average salary. Or assuming that the retail worker didn’t go into some sort of apprenticeship program like plumbing, electrical, carpentry, or mechanics, all jobs that are in demand and pay well. Real estate agents and mortgage brokers tend to do well too, and don’t forget about all the guys-who-write-about-stocks-even-though-they-didn’t-go-to-college too. There are thousands of those guys.
Or maybe just one.
I don’t want to be anti-college. There are plenty of people who went and it worked out. If your life goal is to be a nurse, accountant, teacher, pharmacist, or engineer, a college education will probably be a wise investment. But if you’re going to take women’s studies, psychology, english, history, or some other liberal arts degree, I just about guarantee that the retail worker will surpass you in earnings working a “lowly” job at the town grocery store.
If university is the means to an end, knock yourself out. But if it’s an experience only, it’s probably better to just pull a Will Hunting and hang out at Harvard bars cruising for ladies. Not only will that degree likely only qualify you for a job at Starbucks, but the opportunity cost will be enormous.