Beating Broke

Personal Finance from the Broke Perspective

How Higher Education is Ruining the Economy

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The last thing you probably expected, today, was a post about how higher education is ruining the economy. After all, aren’t personal-finance bloggers supposed to be all about advancing yourself, spending wisely, and earning all that you can? Perhaps, but I’m of the personal belief that one can still advance yourself, spend wisely, and earn all that your worth without having to go to college. Before I get off on a tangent let me explain just what it is that I mean. Higher education has its place. If you want to be an engineer, a doctor, social worker, or even a teacher, you’ll likely need to have a college degree. For those professions that require a college degree there simply isn’t any other way around it. But, that doesn’t mean you need to go to a college whose tuition costs exceed several years worth of the expected salary for the profession that you wish to have. After all, the idea is to learn a profession so that we can earn more money, not learn a profession so that we can spend more money.

Higher Student Loan Debt is Burdensome.

How does all that relate to the economy? The effects of the high cost of tuition are far-reaching. The added debt of college loans can create a cyclical debt treadmill. A recently graduated student may have a small window of time to get his or her affairs in order, but is quickly saddled with a student loan payment. Newly minted professional usually work extra hours to make extra money to pay off the large student loans they’ve accumulated. The combination of less free time with higher debt repayment figures creates a vacuum whereby the money earned never gets a chance to enter into the economy. And everyone knows that the quickest way for money to enter into the economy is through consumer spending.

Exaggerated Educational Requirements are Exaggerated.

But, the added debt isn’t the only reason that higher education is ruining the economy.  Heck, it isn’t even the student loan interest rates.  Our economy has always had an informal hierarchical system.  When I say that, I don’t mean that the people with the degrees got the better jobs, either.  Not so very long ago, the people who got the better jobs were the people who were best suited to it.  For many positions, that meant that the people getting the better jobs were the people with the most experience, and the most aptitude for the position.  Somewhere along the way, the people in charge of hiring decided that a higher education degree could replace some level of experience.  More and more companies decided that this was a good thing.  And now, many job openings require that you have a degree of some sort.  Real world experience in a position has been surpassed by classroom experience.  Entry level jobs that could just as easily be done excellently by a person with a high-school diploma are suddenly closed off to anyone without a degree.  Anyone that aspires to hold such a position is thereby required to attend college for a minimum of two years rather than spend those two years gaining experience and job skills for the position.  Worse, for the economy anyways, is that that person is then effectively taken out of the economy for at least two more years.  Instead of earning money, paying taxes, and contributing to the economy, that person is racking up the debt while taking so many credits that they can’t even afford the time to take on a part-time job.

How do we fix higher education?

College Fund © by Tax Credits

I think, first and foremost, we need to stop pretending that a degree is a “requirement”.  Stop pushing our children to attain a degree, and instead push them to get the minimal required training to attain the job/position that they desire.  Kids will be kids and they’ll do what they please, but they shouldn’t feel like their being pushed into a college education because their parents want them to get one.

We need to stop requiring degrees for positions that clearly don’t really need one.  In my particular field (IT for those curious among you), very little of what I learned in college has been applied in my work experience.  And yet, each of the positions I’ve had (with the exception of my most recent part-time job) has required a four year degree in the field.  Let me tell you, anyone with an aptitude for IT, and a willingness to learn on the job could have easily fulfilled all of the duties that I performed.  It’s a fact. How many other positions are there that are the same way?  Lots and lots, I’d wager.

From a strictly financial perspective, we have to do a better job of educating our children about how to go about getting a degree if that’s what they choose to do.  There are numerous tools that can help us out, in this internet age.  Our own government has a plethora of information to help, and there are plenty of other resources, like Big Future, that have lots of information too.

We also have to properly express what a fiscally responsible adult should do.  I can’t count the number of my fellow students (myself included) who took the maximum allowable student loans out, despite not needing that amount, so that they would have the extra funds available to do what they pleased with.  Yes, it’s some of the cheapest money you will ever borrow, but unless you’re planning on investing in a guaranteed rate account while you attend college, it’s still debt.  And every penny of it will make your financial life harder once you graduate.

Finally, we have to stop this idea that we are all entitled to a college education.  We aren’t.   It’s a privilege that we pay grandly for.  Just because you can spend $50,000 a year to get your library sciences degree, doesn’t mean you are entitled to, or should.

Do you have a degree?  Was it required for your position?  Should it have been?  How would you fix higher education?

Are You Rationalizing Your Way Into Debt?

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Staying out of debt is difficult.  Terribly difficult.  It isn’t made any easier if you rationalize yourself into debt, either.  Many of us spend a good deal of our time and energy trying to get out of debt, and stay out of debt.  We do that through so many devices, and each have our own system that helps us along the way.  Budgeting is obviously a big tool that many of us use to make sure that we have enough money to pay the bills, and ourselves at the end of the month.  We figure out how many months it will take to pay off this debt, or that debt, and then budget out that amount over that many months.

Sale © by markhillary

Many years ago, I spent a few years working as a salesperson at a retail store where bigger ticket items were popular.  Computers, televisions, and cell phones were big sellers, and good for commissions.  As part of our training for our jobs, we were trained on the many ways to sell a customer on the item they were looking at, and even how to convince the customer that they needed the upgraded item.  One of those sales tactics was to help them rationalize the purchase.  And, chief among the ways to do that was to take the price of the item, break it up over a set amount of months (24, 36, 48, 60) and tell them how much they’d be spending “a month” for the item.  Suddenly, that $2000 computer (it was that long ago) becomes a $25 a month purchase.  Psychologically, people are more likely to purchase something if it’s under $100.  Even if that “under $100” is in the form of a monthly payment for several years.

Salespeople are the only ones we have to watch out for when it comes to this tactic in particular.  Pay special attention the next time you’re looking at purchasing something.  See how many times over the next month, you attempt to rationalize a purchase based on what it will cost per month on credit over what the total price will be.  I think you’ll be surprised just how often you use that same sales tactic on yourself.

Don’t rationalize your way into debt.  Fight back, and stick to your guns.  That purchase has a total price.  And if you’re buying it on credit, that price will be far larger than if you had purchased it with cash.  More importantly, don’t saddle yourself with more debt just because the “monthly” price is more palatable.

Do You Let Television Affect Your Reality?

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Do you watch a reality show such as Storage Wars or Sell This House?

Perhaps you have watched Storage Wars and have seen some of the participants walk away with as much as a $5,000 to $10,000 profit.  (Of course some participants also have weeks where they lose a few thousand dollars on storage units, but we, as humans, like to be optimistic and focus on the units that make thousands of dollars.)  Maybe you watch a few episodes and think, “I can do that!”

Or, maybe you like to tune in to HGTV on the weekend and watch people renovate their yards and homes in their spare time or watch experts come in and make a home more aesthetically pleasing so it will sell faster as they do on shows like Sell This House.  You may begin to think about projects around your home that have bothered you—the old wooden kitchen cabinets that you wish you could brighten or modernize, the old worn out couch you would love to replace but can’t afford to.

The Benefits of These Types of Shows

These types of reality shows may help you make frugal improvements to your home.  Take that worn out couch—maybe you watch Sell This House and learn how easy it is to cover your couch with a slip cover and make it look much better.  Maybe you learn that you don’t have to spend $50 per window treatment; instead, you can go to Goodwill or a thrift store and buy flat sheets to hang on the window.  By watching the show, you are learning simple, frugal tips to improve your home.

The Problems with These Shows

© by Bosta

The problem comes when you watch these shows and they cause you to become dissatisfied with your current situation.  Maybe you never thought about creating a patio of pavers behind your house, but because you saw it on one of the shows and liked the results, you want to do the same.  You spend $500 to have someone lay the pavers for you and create your paver patio.  Supplies were another $200.  You have now spent $700 for something you didn’t even think of, let alone want, before watching the show.

Another problem is when you watch enough of these shows to think that you know what you are doing and will be able to replicate the success of the people on the show.  An acquaintance I know was dissatisfied with his job and quit.  His back-up plan?  Buy storage units and sell the contents.  The problem is that he does not have the expertise or the eye for valuables that the people on Storage Wars have.  He pursued this line of work for several months and lost quite a bit of money.  Now he is back to work in his old field.

These types of reality shows can be useful sometimes, but often, they increase your level of “want” or make you think you can do something you are really not qualified to do.  Remember, these shows are for entertainment purposes, and the chance that you will be able to replicate the success of the participants is slim.

Have you watched a reality show that made you think you could do something you couldn’t?  Did you lose money?