The True Cost of Education.
You’ll often hear “we need to spend more on education”. Reality is that education spending is at an all-time high.
While there is a growing movement arguing that K-12 education has negative economic and social value, and a growing movement for home schooling and alternative schooling it’s not the scope of this article.
For now let’s just look at the opportunity cost of the money and time spent on education.
These are the numbers for the USA, which is one of the highest spenders, but most other OECD countries are comparable.
If you’re floored by this, it might be because you don’t know the investment returns of index investing or you don’t really think in terms of compound interest or opportunity costs. That’s your first clue as to the value of your education.
But this system doesn’t just cost money, the kids have to spend time in school and doing homework.
What if they spent that time doing something that generates income? I don’t think I’m unique in having hated school much more than any job I’ve ever done. If you hate a job at least you can quit within a week and find a different one. There used to be ( and could be again ) tons of things children can do to generate some income. So where would that leave someone in life?
So which would you rather be:
-The 18-year-old who never worked, never went to school but starts life with $278k? More money than most US retirees?
-The 18-year-old with 12 years of job experience starting life with $286k?
-Or the current average high school graduate with likely little to no job experience and $8200?
What’s valued more in the job market: A high school diploma or 12 years of experience? Who’s actually likely to increase their income faster?
Ah but my degree gives me a much higher wage! While the high school dropout will be earning a meager $30 784 at their peak, a PhD will reward me with $97 916! I will eclipse this uneducated rube in no time!
Turns out: No. Compound interest plus time is an almost unbeatable financial force. AND THAT’S WITHOUT FACTORING INCOME TAXES, which would further cripple all these higher earner’s chances to ever catch up.
It gets worse…
When can someone retire? When their passive income generates enough growth every year to sustain living expenses. This turns out to be around 4% of your hoard. So if everyone is spending 26 000$, who reaches $650 000 first?
Ok ok but you can’t possibly live on just $26 000 right? I need to spend 45 000$ every year from when I’m 18!!!
If you ramp it to $65 000, ONLY the kid who’s money wasn’t blown on K-12 could EVER retire. Everyone else will spend a lifetime playing catchup. Once again that last guy is doing nothing but working minimum wage type jobs that require no higher education of any kind, and he’s crushing everyone else. At what point can you get people to admit education spending could be better spent? ( In my experience: Never )
What kind of life could you lead if you were retired at 30? Or 25?
You’d have decades to pursue whatever you think is worthwhile.
How much does a K-12 education really cost anyway?
First of all, what is it? Well in the USA, if you get your GED, that’s all you need to be the functional equivalent of a K-12 graduate. The online courses and tests required will cost you under 300$.
So in terms of money, hundreds of dollars. In terms of time? That’s up to the student. Some kids go to College at 12. It also turns out btw that those kids generally don’t accomplish a whole lot and are likely not that remarkable, leading me to believe a hell of a lot more kids could graduate high school much before 19, especially if their education was self-directed and now dumbed down to what the bottom 10% of his class could manage.
If you’re a smart kid, why can’t you just get the money back? Why is it forcefully wasted on you and your parent’s behalf? The dumb students who don’t graduate don’t give the money back. The teachers who fail to teach these students don’t give the money back. They failed to deliver the promised product, where’s the money?
Or is it that when the student doesn’t graduate, it’s the child’s fault, but when he does graduate, it’s thanks to the teachers?
You can also look at what other countries spend on functionally equivalent educations.
How can these countries produce GEDs for such a low cost? The answer is of course: Labor. When costs of living are cheap, labor is cheaper to hire and 85% of school budgets in the USA are labor costs.
Some thought experiments…
During the pandemic, schools have been doing online classes. Why do these teachers have to live in expensive countries? You could pay someone in India fractions of this money to do the exact same job. ( companies already do this for telemarketing / customer support ).
And if you can do remote teaching, what’s the difference between that and recorded videos? Why do some college classes have hundreds of students attending lectures? Why does k-12 need small classroom sizes? What’s the difference between a lecture in an auditorium and recorded videos? If you have questions, teachers have office hours or emails. At worst you could hire private tutors, which for K-12 cost as little as 25$ per hour. You can get over 500 hours of 1-on-1 private tutoring for that money spent on your year of K-12.
CONCLUSION
Whatever is it you think about public education or these numbers, remember that THIS $13,187 IS YOUR MONEY. Wouldn’t you rather have the choice of how it’s spent?
Teacher’s unions routinely attempt to stop all alternative forms of education, be it home schooling, private schools, voucher programs or school choice. All these systems have one thing in common: The money follows the children and force education providers to compete so that your child gets the best product possible.
Thank you for coming to my TED talk.
Sources:
Education spending for USA: https://www.census.gov/newsroom/press-releases/2021/public-school-spending-per-pupil.html
Spending per pupil by country 2017: https://nces.ed.gov/programs/coe/indicator/cmd
Education spending for poor countries: https://www.oecd-ilibrary.org/sites/5e4ecc25-en/index.html?itemId=/content/component/5e4ecc25-en
Literacy rate by country: https://worldpopulationreview.com/country-rankings/literacy-rate-by-country
Wage for vocational school = https://financesonline.com/trade-school-college-statistics/
Cost of vocational school: https://www.vocationaltraininghq.com/average-cost-vocational-school-usa-2017/
Min wage avg / median: https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
Vocational starting wage: https://www.bls.gov/careeroutlook/2019/article/high-wage-occupations.htm
Bachelor starting wage: https://www.bls.gov/careeroutlook/2019/article/high-wage-occupations.htm
Student loan interest rate: bankrate.com/loans/student-loans/current-interest-rates/
Average commute time: https://www.census.gov/newsroom/press-releases/2021/one-way-travel-time-to-work-rises.html
Average homework per week: https://nces.ed.gov/pubs2012/2012026/tables/table_35.asp
Average hours of school: https://nces.ed.gov/surveys/sass/tables/sass0708_035_s1s.asp
Paper route wage: https://work.chron.com/paper-route-pay-scale-20145.html
net worth of Americans: https://cdn.dqydj.com/wp-content/uploads/2020/09/net-worth-by-age-percentile-2020.png
cost of GED: https://www.ugoprep.com/checkout/
high school equivalencies: https://www.mesacc.edu/international-education/future-f-1-students/us-high-school-diploma-equivalents
education ranking by country: https://worldpopulationreview.com/country-rankings/education-rankings-by-country
cost of education in Inda: https://www.financialexpress.com/economy/how-much-it-takes-to-educate-people-in-india-cost-of-education-revealed-in-four-charts/1778220/
stats on Malaysia: https://www.nationmaster.com/country-info/profiles/Malaysia/Education/Expenditure-per-student
