A College Education is a Risky Investment
College is a risky investment, but you may be able to get a lot more out of living as a college graduate than if you didn’t have a college degree.
Zvi Bodie is the Norman and Adele Barron Professor of Management at Boston University. He holds a PhD from the Massachusetts Institute of Technology and has served on the finance faculty at the Harvard Business School and MIT's Sloan School of Management.
Professor Bodie has published widely on pension finance and investment strategy in leading professional journals. He is the co-author, with Rachelle Taqqu of the newly released Risk Less and Prosper: Your Guide to Safer Investing.
Bodie's other books include The Future of Life Cycle Saving and Investing andFoundations of Pension Finance. His textbook, Investments, coauthored by Alex Kane and Alan Marcus is the market leader and is used in the certification programs of the CFA Institute and the Society of Actuaries. His textbook Financial Economics is coauthored by Nobel Prize winning economist, Robert C. Merton. His latest book is Worry Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals. In 2007 the Retirement Income Industry Association gave him their Lifetime Achievement in Applied Retirement Research Award.
The return on an investment in education for an individual is highly variable. If you look at high school graduates, college graduates, is there a significant difference in income, on average? The answer is yes. Significant. The problem, however, is that the variability around that is huge.
So you’ll find lots and lots of college graduates for whom the college education did not lead to higher income later on. I’ll be willing to bet you can find a lot of high school graduates who became carpenters, electricians, plumbers, and over their working lives, earn much more than someone who went to college, majored in liberal arts, and was a clerk or something, had some career that maybe did require a college education, but didn’t really produce much in the way of higher income.
So it’s a risky investment. But that doesn’t mean you shouldn’t make that investment because the returns from a college education, the rewards from it, take many forms. It does not necessarily mean a higher income producing ability, but you may be able to get a lot more out of living as a college graduate than if you didn’t have a college degree.
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