The best path to financial security may not be through the stock market. Putting money into a four-year college education turns out to be a better financial investment — to the tune of $1 million more over one’s lifetime than people who just have a high school education.
The rate of return on the money spent to earn a bachelor’s degree is 12 percent per year, compared with the long run average annual return on stocks of 7 percent. The net return is over all costs, including individual contribution and state appropriations, as well as income sacrificed while earning that degree.
Despite the high return on investment, just 25 percent of the U.S. adult population has at least a bachelor’s degree. In comparison, more than 50 percent of Americans invest in the stock market, according to the American Shareholders Association.
These findings are reported in a new Arizona State University study, “The Value of Higher Education: Individual and Societal Benefits” by Dr. Dennis Hoffman, professor of economics in the L. William Seidman Research Institute, Kent Hill, research professor in the department of economics and Center of Business Research, and Tom Rex, associate director of the Center for Business Research.
The researchers also used a statewide simulation based on Arizona data to measure the impact of permanently raising the share of college graduates in the labor force by .2 percent on the local economy. Findings reveal that state investment is well worth the payoff. The total costs in state support are offset by higher incomes across the entire labor force after about 13 years. After 20 years, the net social returns are estimated to be $364 million in today’s dollars.
“Higher education represents an economic investment with a very high return — private returns almost twice the size of long-run returns on stocks and the social returns serve as an added bonus,” Hoffman says. “Undoubtedly, many people under invest in education and as a result fail to reach their economic potential. Breaking down all barriers will reap considerable returns to individuals and society.”
A complete copy of the report is available at http://www.asu.edu/president/p3 under the “new releases” section.
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