Education Pays Off…Even 40 Years Down the Road

Note:  Guest blogger Lewis Warne, an NCPA research associate, talks about the importance of education to a comfortable and healthy retirement.

I hope it comes as no surprise that education has long-term impacts through retirement. In my recent study More Education, Better Retirement, I found that more education increases retirement savings, reduces dependence on government, improves health and increases employment at both a state and individual level. Of course, individual circumstances can outweigh or change any effect from education, but, on the whole, some education after high school is a good thing

In fact, each additional year of lifetime education increases expected income for retirees and improves their expected health more than the previous year. This means that marginal benefit (benefit of one more year) is positive and increasing.

However, this doesn’t mean that a Ph.D. or professional degree is the right choice for everyone. For most, the cost of each additional year of generic cialis fast shipping education increases more than the benefit. So, at some point, the benefits of an additional year of schooling are not worth the cost.  This common-sense concept can be depicted in graph form.

education and retirementOn the left side of the dotted line, the benefit of each additional year of education is greater than the cost of that additional year. In this case, a student’s investment in education in terms of tuition, supplies, and the value of other forgone opportunities will be smaller compared to the increase in lifetime income that the student will receive.  In other words, the benefit will outweigh the cost. When the benefit and cost curves intersect as depicted in the graph, they have reached the optimum level of education.  On the right side of the dotted line, any additional years of education beyond this point will cost more than the value of lifetime income and other benefits the student will receive.

Each individual’s benefit and cost curves will be somewhat different, but the basic premise is still the same. More education is worth it up to a point, but being a “professional student” is probably not.

Comments (12)

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  1. August says:

    I’d like to see the total benefit, total cost, and the utility curves for this analysis

  2. Wallace says:

    I guess the explanation for professional students is that the benefit of staying away from the real world is pretty high. Or their opportunity cost is very low. Who knows?

  3. Cabaret says:

    Great use of marginal analysis Lewis! Perhaps you should extend it a bit further.

  4. JD says:

    So what are the public policy implications of this? What should we do?

    • Dewaine says:

      “Each individual’s benefit and cost curves will be somewhat different, but the basic premise is still the same.”

      We don’t want to push education on people beyond their optimal point, but we don’t want them to be discouraged so that they never reach that point. It seems to me that any government action would have to be personalized, which would be very difficult and expensive (destroying efficiency in other areas). The best solution is to let people choose for themselves without interference.

      • JD says:

        But, the cost is too high for many people who should be getting more education, they can’t optimize. How do we fix that?

        • Pam says:

          But what do you think is driving the cost? Why do two areas with the greatest federal involvement (health care and higher education) have price increases that outpace inflation? Because of the generous subsidies. If federal aid was reduced, would colleges shutter their doors and give up? Probably not, they would probably lower their tuition costs to appeal to more students. It’s called competition.

          • JD says:

            That makes sense, but by pushing education can’t we create faster and better growth than with a less educated populace? Like, we can either have a well-educated or less well-educated populace, it costs resources to create the former, but that also creates the opportunity for growth that we couldn’t realize before. It seems to me that the more educated the better, cost shouldn’t matter.

            • Dewaine says:

              That is a difficult question to answer succinctly. The answer is: maybe, but at what cost? Is someone’s education more important than someone else’s food or life? The money comes from somewhere. When you take the action that you are suggesting, someone will get hurt. We might be able to create a more highly-educated society, but that doesn’t make it a better society.

    • Pam says:

      There has been a lot of discussion of the federal government’s role in college education in terms of funding. On the surface, this report would seem to indicate a “college at all costs” solution, i.e. pouring money into federal aid. The caveat, however, is that federal money is likely increasing the cost of college, burdening students with debt, and thus decreasing the returns to college. Not to mention, not everybody should go to college. I think the key is to take a hard look at federal aid, reduce a good part of it, and allow colleges to have to compete for students through price differentials. This would make college more affordable for everybody and also increase the lifetime returns to college.

      • Dewaine says:

        Exactly. This is the answer to your question, JD. Because we are pushing too many people into education, a lot of people are being educated beyond their optimal point. The increased industry costs push out people who need more education to optimize. Make no mistake, college would be affordable and more accurately meet the needs of people if it weren’t for our irrational governmental and societal push for people to pursue formalized education.

  5. Andrew says:

    Great post, Lewis. It all ends up depending on what field an individual wants to get in. I personally am interesting in a career in different fields, so I could benefit from a mixture of higher ed degrees. However, I don’t want to fall in the trap of becoming a professional student.

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