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Viewing Education as An Investment

Education is generally one of the biggest investments most of us will make in our lives. The funny thing is that most people don’t take the time to do any analysis to determine if the program of study they are going into is actually a good or a poor investment. Obviously when it comes time for your children to head off to university you are going to want to allow them to follow their passion (as their odds of being successful in life are much greater if you do), but if you are footing the bill you probably also want to make sure that the investment you are making on their behalf is worth it.

I recently read an article ranking the degrees with the worst returns on investment. Art, sociology, education, religious studies, hospitality, and psychology were all on the list. Not surprisingly you will notice these are often altruistic types of careers, reinforcing the old saying that no good deed goes unpunished. Interesting also was a recent Forbes article that listed the top 25 universities with the worst ROI (return on investment). They all were actually negative, implying that you would be financially better off over the course of your life by having not gotten educated at one of these institutions.

It is easy to think from the above paragraph that I implying either avoiding altruistic professions or even university all together. That is not the case at all, but if you are considering sending your children to a school with a negative ROI then I would seriously reconsider, and attempt to find a program that is a better investment when looking at cost versus average salaries, etc. If your children want to go into an altruistic field I would look for ways to bring down the overall cost, as this increases the expected ROI. The situation is similar to that of a stock, where the company itself often isn’t a good or a bad investment on its own. The price at which you obtain it can make the difference between it being a poor or good investment.

An easy way to do this could be to do medical school in a low cost jurisdiction such as the Caribbean for example, as a good friend of mine did. I got a two year degree at a community college and transferred the cheap credits into a much more expensive private university before later attending a top level business school. This greatly increases the ROI of the overall education since the cost base is so much lower.

 Another route is to take a more general course of studies such as business that allows you more options. There is a good chance that your children do not know what their true calling in life is at 17 years old. Regardless of where their career takes them, a solid background and understanding of the business world makes them valuable to employers in just about every sector out there. Math, IT, economics, biology, engineering, and marketing all rank among the top degrees when measured by expected ROI for the same reasons. Not surprisingly these are quite boring and pragmatic subjects on their own, but they have a lot of applications which are and will likely remain in demand. The world is going to continue to get more and more competitive, so I would try to help your children understand some of these elements of what will be one of the biggest and most critical investment decisions they make in their life.

David Mayes MBA provides wealth management services to expatriates throughout Southeast Asia, focusing on UK Pension Transfers. He can be reached at david.m@faramond.com. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.

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