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SHOULD YOU SKIP SCHOOL AND INVEST THE TUITION?

BY JASON HEATH

Financial Post

Feb. 21, 2015

As university tuition fees continue to head up and graduates have trouble landing good-paying jobs, parents and students alike  might wonder if university is worth it. Could kids be better off financially by not going to university, in the long run? Let’s crunch some num­bers.

Tuition fees have been rising by much more than the annual rate of inflation in this country. According to the Canadian Federation of Stu­dents, tuition fees rose by 3% in ex­cess of inflation last year. If tuition fees had risen with the rate of infla­tion over the past 20 years, tuition fees should be about $3,665, not the nearly twice as much Canadian stu­dents pay – a whopping $7,549 per year, according to a recent Canadian Centre for Policy Alternatives study.

Based on the CCPA data, the aver­age cost of a four-year university program beginning in  2014/2015 is $68,933  for students living away from home, including tuition and accommodation.

The prospects of making that hard-earned money and study pay off aren’t great. Youth unemploy­ment in December 2014 was 13.5%. More criticially, the underemploy­ment rate – those working in jobs unrelated to their field after gradu­ating – is about twice the unemploy­ment rate, a recent report from the Canadian Labour Congress points out: Less than three-quarters of Can­adian graduates are able to land an entry-level job in their area of study.

Here’s different scenario: What if kids took the $68,933 for their degree and invested it, instead of spending four more years at school? Assuming a 5% return annually over 45 years,  it would be worth about $619,364. Plus they’d be able to start early and spend four extra years working as baristas, dog-walkers or rock stars.

In the extreme situation that they lived at home with Mom and Dad, and banked 100% of their after-tax earnings from the $30,817 average high school grad employment in­ come for four years – then invested it at 5% through retirement, they’d have about another $800,000. So call it $1.4 million extra going into retirement from bringing in money during four earning years after high school instead of shelling out.

Not bad. Not that $1.4 million would buy them  nearly  as much in 45 years’ time, but still, it’s not chump change.

The Council of Ontario Univer­sities, in a recent report, counters with a $1.4 million estimate of its own. That’s the estimated excess earnings over a 40-year period that university grads would make  rela­tive to their high school educated peers. This doesn’t take into ac­count any increase in earnings due to inflation. Assuming 2% inflation, the excess might be a little closer to $2.1 million – nearly 50% more than our notional savings from skipping university in favour of working. If they invest those excess earnings at 5%, that $2.1million excess may be closer to $3.8 million.

On that basis, a university degree pays off -literally.

A  $3.8  million  projection may seem like a bonanza but that’s only about $1.6 million in 2015 dollars. Does that mean university gradu­ates will retire $1.6 million richer than their high school educated counterparts? Unlikely. They’ll probably live in bigger houses and drive more expensive cars and take more vacations. But consider this: They are more likely to be more fi­nancially independent during their working and retirement years.

Financially, university makes sense in the long run, if you can foot the bill in the short run. It may also open a lot of doors compared to not having a degree.

One of the keys to making a uni­versity education worthwhile is con­sidering fields that  are in demand – the so-called STEM fields, such as scientists, technologists, engin­eers and mathematicians. Keep in mind that many employers com­plain university grads lack soft skills like communication that  should be honed, in addition to the book smarts that a degree delivers.

In retrospect, this university edu­cated financial planner is glad he did his stint and is actively saving for his children’s university degrees. I always kind of figured it was worth it – now I have some figures to back that assumption up.

Financial Post

Jason Heath is a fee-only Certified Financial Planner (CFP) and income tax professional for Objective Financial Partners Inc. in Toronto, Ontario.

A PERSONAL NOTE:

THANK YOU JASON FOR A CONCISE UPDATE.

IF I COMPARE UNIVERSITY FEES WHEN I WAS AT UNIVERSITY I WAS ABLE TO PAY FOR MY TUITION, BOOKS AND RESIDENCE AWAY FROM HOME WITH MY SUMMERTIME EARNINGS DURING JUNE, JULY AND AUGUST. MY FEES WERE A FRACTION OF THE $7,549 REPORTED BY THE CANADIAN FEDERATION OF STUDENTS.

IT BEGS THE QUESTION – WHO IS RESPONSIBLE FOR ASSURRING THAT QUALIFIED, WILLING AND ABLE STUDENTS CAN AFFORD TO GO TO UNIVERSITY AND TO GRADUATE.

IT IS A TAVESTY TO THINK THAT OUR LEADERS HAVE FAILED TO ASSURE TODAY’S AND FUTURE STUDENT CANDIDATES THE OPPORTUNITY TO GROW THROUGH THE DISCIPLINE IMPOSED BY UNIVERSITY PERFORMANCE STANDARDS.

DAN ZWICKER

TORONTO

 

 

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