In class we talked about how losses are affected by the
actions that we take and who we are as people. In order to reduce certain
risks, we make decisions that provide a little clarity into the uncertainties
of our lives.
As I am approaching the half point of the semester, I
started to reflect on my previous and current decisions regarding college and wanted
to analyze how these decisions might affect my future. Being a rational person,
I believe that most of the choices that I make have been made with an eye
toward the future to reduce income risk. Although I don’t have a clear picture
of what my future will look likes, I like to partake in choices that will
minimize risk in the future.
During my Junior year of high school, I would say that I
viewed a college education and degree as a type of “insurance” that would minimize
my income risk in the future. Given my interests, various social norms, and my
situation at home, I was 90% sure that I was going to attend a 4-year
university. However, looking at both choices (going to college or not going to
college), they both entailed income risk reducing outcomes but with varying
degrees of security.
Going straight to work after college would have been good
for me in the short run in that I would still have a relatively steady income. However,
I would have to take a risk into knowing that many of the jobs without a
college degree would pay significantly less than jobs that require one. Also,
it’s hard to say that many jobs that don’t require a degree would be able to financially
support me and pay all my bills. If I was focused on the here and now, this is
the choice I probably would have made because going to college would mean I
would have to commit four+ years of my life to schooling without much income
and accrue debt with student loans. On the contrary, going to college results
in an accruement of human capital and a degree that would allow me to have a
higher paying career that would ultimately allow me to maximize my utility.
Below is a graph from the New York Times to illustrate the
difference in income between someone with and without a college degree.
Once I came to the decision to attend college and got
admitted into one, I had to make financial decisions for how I was going to pay
for the tuition and other fees that the school required. First, I had to assess
the financial state of my family and how much we would be able to pay for the
tuition. The most risk averse behavior would have been to not take on any loans
as loans would only add to the risk of income, but I have outweighed going to
college far more profitable to not take on any loans. When taking on student
loans, I made sure to only take federal loans with lower interest rates so that
I would have pay back “less” in the future compared to other loans.
Lastly, I ended up picking a major that best suited my
interest and abilities. In addition to my preferences, I also took into
consideration the job prospective for the various majors offered at UIUC and
ended up choosing Economics. Currently I am continuing to take risk averse
actions as I am making myself more marketable through getting involved in
various organizations.
Ultimately, there is no magic formula that will guarantee my
success with zero income risk, but taking risk averse actions would definitely
alleviate the risk to a certain extent. Through this reflection I was able to
see that we can’t always make the choice that is maximally rewarding because
sometimes it’s simply not possible. We have to take into consideration the
circumstances that we are in and realize that things are not always black and
white.
Was not going to college and working immediately a real possibility for your? Or did you mention it only to have something to talk about for this piece. I do think that many college students are immature and that blocks them from getting as much out of college as they might. If they worked for a few years and then went to college it might produce a much greater return.
ReplyDeleteCountering that, however, is that many students go to college right after high school and it is good to have peers to go through college together. Much of the learning is peer to peer happening entirely outside of classes. There likely would be much less of that sort of thing if you worked for a few years.
A related issue, something you didn't talk about much in the post, is whether your parents could help some with college costs and/or whether you qualified for some scholarships. On a pure investment return analysis, looking at the decision say 10 years after you started college, the low wage path that you'd have by working pre college and then the delay to getting to the high wage path post college might actually generate less of a return than going to college immediately.
There is, however, something misleading about the NY Times graph that you presented. It represents population means. What is true for the mean is not necessarily true for each individual within the population. As they used to say in automobile commercials - your mileage may vary. That is definitely true about earnings as well.
One last thing. While as a risk averse person you definitely try to minimize downside risk - such as not finding a job at all - you may still be open to taking some risks that have a big upside. We'll talk about this some in class on Tuesday.
While working immediately after high school wasn't the most appealing choice for me, it was a real possibility. If I had no idea what I wanted to do in terms of my future career, I would have most likely taken a year or two off to work or attend a community college while having a part-time job. Going to work would have given me experience in the workplace and potentially spark an interest in an area of study. This could have produced a greater return like you mentioned as I might have gotten a different and more fulfilling experience later in college. Going to a community college would have allowed me to at least take general education courses so that once I decide to attend a four year university, my graduation year would not have been affected too much. This choice would have also lessened the burden of student loans compared to attending a university for four years.
DeleteHowever, like I mentioned, I have made the decision to attend college due to my interests,abilities, and financial situation. I enjoyed taking Economic courses during high school and did pretty well in the courses. I also felt that Economics was a broad field which provided a lot of career paths, so even if I wasn't 100% certain about my future career, I would have more options in the future. In regards to your comment about my financial situation, my parents were able to pay for what the federal loans didn't cover through the payment plan provided by the university. I was not qualified for any scholarships.
I am confused about your statement about going with a low wage path pre college and getting to the high wage path post college. In the first paragraph you mentioned how working for a few years and then going to college might produce a much greater return. What did you exactly mean by working pre college? Working immediately after high school then attending college? Working in high school?
It is true that each individual case in different, but you can't disregard the fact that majority of college graduate in fact do earn a higher income. With that in mind, that is why I have made the decision to get involved in various organizations to gain relevant experience and help with my job search in the future.
In your blog post your talk a lot about the choice of going to college or not and in the end of the post you clarify the choice of your major. I'm wondering if you tried any economics courses on high school? Or was your first your at UIUC an undecided major to find out what your interests and abilities were?
ReplyDeleteDid you (or your parents) take in consideration that the low interest rates made it a very good time to borrow money from a bank? The banks are stimulating consumption at this time, so a bank loan would have been something good for the economy. I think a lot of people are 'scared' of the idea of having a debt as big as the tuition and that this causes that a lot of people are asking for money within the family, which is a very interesting topic in economics in my opinion.
I have taken economic courses in my high school and enjoyed taking them. This was a huge reason why I decided to pursue economics as well as the diverse career fields that the major entailed.
DeleteWe have considered taking out loans from a bank, but the repayment plan from banks are a lot less forgiving. Most bank loans require you to start paying back your loans before you have even graduated. Also, many bank loans don't provide forbearance or deferment options.
I found it interesting that my mentioned the idea of not going to college versus going to a four year university. When looking into your after high school options, did you ever consider attending a two year college? This option might have been another way to get an education without the full burden of a four year college tuition. I know of many people who opt of this route and attend a smaller two year community college then transfer to a bigger university to finish out their major specific course work.
ReplyDeleteI also found it interesting that you chose to only take out federal loans. I also took out as much federal loans as I was able to because of their longer payback schedule and lower interest rates. However, I was limited with how much I was able to take per semester.
I agree that going to a community college would have taken off a lot of the financial burdens that normally come with going to a 4 year university. I think that this would have been the most optimal choice if I wasn't sure what major I wanted to go into.
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