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This chapter is from the book

Could the Fortunes of College Graduates Wane?

Let's take a closer look at the Survey of Consumer Finances (SCF) numbers on household assets. We'll focus on two groups: the college graduate household (which represents 35 percent of the U.S. population) and the high school graduate household (which represents 33 percent of the U.S. population).

Recall that college graduates are more likely to be homeowners, and the value of their principal residence is higher as well. The college graduate owns a home with a median value of $280,000 whereas the homes owned by high school graduate households have a median value of $150,000. (All these are 2007 numbers, which is well before the housing mini-crash of the last few years.) More important, let's examine the debt and mortgages college and high school graduates have on those houses.

According to the SCF data, 62 percent of college graduates report having a mortgage secured by their primary residence, versus 45 percent of the high school graduate group. In addition, the college graduate has median debts of $124,000 versus only $40,000 in debt for the high school graduate group. The college graduate has more than three times as much debt as the high school graduate, including mortgages, installment loans, credit card debt, and other unsecured lines of credit. So, although the college graduate net worth is much higher than the high school graduate, their (traditional) balance sheet looks different as well. They have both more assets and more debt. Moreover, the assets they own are more susceptible to fluctuations in the market prices of real estate and stock markets.

So, will the college graduates be (that much) better off in the future? Or might the increased volatility of their financial and real estate holdings potentially pull their net worth down? Or perhaps the relatively safe investment in education enables college graduates to take more investment risk with their traditional financial capital—because they're invested more heavily in an asset class (human capital) that stands to pay dividends over a long period of time, they are set up to assume more risk with the rest of their (financial) assets. Right now, the questions I'm posing have no firm answers. My intention here is to illuminate some of the surprising financial impacts of a college education—impacts that I think are worth considering when contemplating education decisions. The rest of this book guides you through protecting your wealth as you move through money milestones, including how to assess and adjust the amount of financial risk you take on.

The SCF includes some other interesting statistics about the value of human capital. It turns out that people who are classified as self-employed, as opposed to working for someone else, report both greater income and much greater net worth. In 2007 the self-employed household reported an average net worth of almost $2,000,000 compared to only $350,000 for those who work for others. This means that Americans who are their own bosses are six times wealthier in conventional net worth terms than those who are employees—and they may be happier, as well, given their increased work autonomy. It is likely that one of the reasons for this discrepancy in net worth is that the mean reported household income for the self-employed is more than double that of those who work for others: $191,000 versus $83,100.

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