I’ve put aside $100,000 formy daughter’s college education…and I’m wondering if she would be better off investing the $10 grand instead! Suppose we assume that she invests wisely…and re-invests the income. After 30or so years…is she better off without the education?
Purely an intellectual execise…but I’m beginning to doubt the worth of a 4-year college degree!
Depends on what she studies in college, IMHO.
If she studies something useless, then yeah, she’d probably be better off – financially, that is – keeping the 100k.
If she uses that 100k for, oh, medical school (or part of it), she may end up financially ahead in the long run.
It also depends on what she invests in. She may lose her shirt in the market, or she may invest the whole thing in the next Microsoft, which would probably leave her better off than most people with college degrees 
Diversify.
$50K in college, $50K in investments.
She’ll have one to fall back on if the other one fails.
If she fails on both…well then, I guess it was never meant to be.
How old is she? You can probably find some data on the relative advantage of a degree vs. no degree for different fields. Then you can either compare the income per year for the $100 K vs. tghe additional income she’d get from going to college, or assume she invests that income and figure out what it is in 30 year.
At 6%, I’d guess that college is a good deal.
She might also go to college and marry someone rich. Then she’d really be ahead. 
I also forgot one thing…she could be successful at both (college and investing) and be self-sufficient, regardless if she marries some rich or not. I bet you as a father would love to see her self-sufficient and happy.
At least have her take some finance classes.
What if you told her you would give her the $100,000 after she put herself through college? That would definately be incentive for her to finish.
And she would then have some money to start her own business, or to be used to get started in whatever career she chose.
And by working her way through school, she we be ahead, having some actual work experience, when making her start after school.
Or maybe a combination. If she chooses community college for two years, or if she works part time and pays for some of the stuff herself, she gets what is leftover.
As someone who has had both (or close enough to it), I’d say go for college.
Not because she’d be better off financially (there are too many variables to predict either way), but because she’ll still have to work to get through college, therefore it will be something she’s earning, whereas if she’s just given the cash, it’ll be unearned and therefore undervalued. And you’ll avoid the whole sticky strings-attached morass that could result if you both have different ideas on money management.
It’s not just the $100K that it’ll cost, it’s the lack of an income for those four years. Assume she could work, live at home, and save 10K a year, that’s more like $140K, $150K.
Let’s assume she could invest that in something that returns 10% per year (which used to be the average over the long term). At that rate, her money will double every seven years. So that $140K could get her an average income of about $20K/yr.
So the real question is whether or not a college education is ‘worth’ that. Like the others have said, it really depends on A) what she takes in college, and B) what she would do if she weren’t in college.
For example, if someone chooses to go to college to study education, while another person decides to become an electrician, the electrician is going to make WAY more money in his life, since a degree in education is good for a teaching job which pays less than a journeyman electrician makes, and the electrician would save the 100K and get a four-year career headstart.
On the other hand, if the person going to college studies electrical engineering, and the other option is working at the Gap, then the electrical engineer will come out way, way ahead even starting out with a big student loan debt load.
Other questions you need to ask: How smart is your daughter? How likely is she to succeed in university? Will she continue on to graduate school? The worst-case scnario is that your daughter goes to college for three years, spends the money, and then drops out.
But college isn’t just about making more money. It’s an end unto itself. Not just for what you learn in class, but the study skills you learn, the ability to see a project to completion, meeting new people from all over the world, easing into an adult social life, etc.
I believe there was a study done in Australia which showed that, on average, college education has a ROI of about 10% pa, slightly more for engineering, law & medicine degrees, slightly less for arts degrees. Graduate school had an ROI of around 19% IIRC. Either way, it’s probably more than your likely to get via any conventional investments.
Keep in mind, this is in Australia where education is fairly heavily subsidised so comparisons may not work across countries.
Maybe I was lucky, but pretty much every aspect of my current life can be traced to my college experience. There’s more (or there should be) to a college education than vocational training. I formed some of the strongest frienships of my life there. I was forced to question every aspect of what I had held to be true then. I learned how to go anywhere, with absolutely nothing, and survive (Thank you, mandatory work/study). I was exposed to a wide variety of thoughts, facts, and opinions outside my chosen field of study and I learned to detect bullshit when I smelled it. Everything, from my field of employment to my wife is a direct (and I mean direct, not “6 degrees of college”) result of the time I spent there.
I’ll take that over 10K any time.
or even 100K…
Actually, couldn’t I have both?
True, it depends on what she studies. If she has a choice between a B.A. in sociology at an out of state school vs owning her own home outright she is better off in the latter. If she gets a B.S. in a high paying field like engineering where she will make 60k a year she is better off doing that.
Income and college education are not as correlated as they are presented (to state the obvious). It depends on what you study, a 1 year degree at a $3000/year community college for an LPN or medical technician degree is worth more vocationally than a B.A. in something like political science or sociology at harvard.
It really depends on what type of person she is and what she plans on studying. If she is very independent and wants to be a filmmaker, yeah, maybe the money could be put to better use than a communications degree. Of course, I truly believe you can have it both ways- just send her up to Canada, where the tuition is low and the rent is (generally) cheap, even for international students. Pay for her tuition (about $10,000/year for McGill undergrads), part of her living expenses, and she can get an on-campus job. To boot, she’ll get all the social aspects of college with slightly less of the American frat-type atmosphere.
Why not ask her what she thinks?
A college education has value beyond simple salaries. One of the most important things you can get from college is making professional connections. These may take a while to come to fruition, but you are much better of knowing a bunch of college graduates than a bunch of non-college grads.
There are also many jobs- especially with the government or in very large companies- where a college degree is required to get past a certain point of advancement. If she is in a field where she is competing with college graduates, she will always be hampered by not having a degree. My mom faced a lot of problems at her job because of this- some organizations don’t have the flexibility to bend the rules even for good workers.
You know, this is pretty close to the question I asked myself in my “third” year at university. I put “third” in quotes because it had taken me almost five years to get that far.
One day, I sat down and calculated how much money I’d been living on since I graduated, I estimated how much I could have made if I’d been working full time, and finally I added in the cost of school. I then looked up how much a welder makes --welding being the lowest skilled labor I could think of that wouldn’t make me want to slit my wrists-- and factored in the cost of a training program. My figures at the time (ca. 1997) showed that I would have been able to buy a low-to-medium priced house, with cash, with the difference in income and outlays up to that point, assuming my living expenses remained the same.
I ultimately graduated from university in 2000, almost eight years after graduating from high school. If my family had saved enough money to pay for school, like you’re doing, it would have taken half the time. I continued because I would have been unhappy being a welder or doing something else of the kind. There really wasn’t much of a choice for me that way. If I could get paid for learning things, I’d be perfectly happy.
Because of my degree I’ve been able to live and work overseas, something I’d wanted to do for a long time. The only regret I have is that I didn’t major in something more employable. I picked my major because I wanted to study it, but I was also frustrated and just wanted to graduate and get the hell out of school. I still make less than a welder, and I still owe money, but I’ve got wider horizons than I would have had if I’d dropped out and gone to a trade school. I might even go back and get more debt…er, go back to graduate school and major in something else in a couple of years.
I think for people don’t really have a desire to go to university, or don’t have a goal in mind for afterward, it might be a mistake to go. If you’re not academically inclined, it would probably be a mistake to go, especially if you think you might not finish. I met a lot of people who, in my opinion, were there because they felt that they should “better themselves” by going, even though they had no clear goal in mind and didn’t like going to classes. They would have been much better off finding something else to do with their time and money. They might have been very good candidates for the $100,000 cash.
–
Side issue: This vaguely reminds me of something from Psych classes. There was a study on lower-income families and spending strategies, one of those social problems-related studies that were really popular in the 60s and 70s. They gave some kids the choice between immediate rewards and greater future rewards. It was supposed to investigate something like the ability to delay gratification. I don’t remember the details well, but it seems to tie in a bit with the OP. The kids were tracked over time and those who were able to hold out for the later but greater reward ended up being generally more successful financially than those who opted for the immediate reward. Anybody have more details?
Here is what I think just about everyone should try- go to a local Community College- it’s pretty darn cheap. Take all the required basics- English 101 is English 101 at Harvard or Harbor Community Coll. If the student likes it, does well, and is eager for more- then allow them to finish off their 4 year degree at any college they can get into- up to the $100K. If you get your BA from CalTech it really doesn’t matter if the 1st two years came from a local Comm College. What’s nice is that after they spend 2 years at a local commity college- they can then afford to go one and get their Masters (if that’s what they want)- there should still be enough money for that.
After 2 years at a Comm College- you should know if College is right for you. And- if it isn’t you have the $100K for investments- or better yet- Vocational School. And, like I said- if it is- you can go in style and maybe even get your Masters.
There is no bigger waste of money that spending your 1st 2 years at an expensive University.
I’d say invest the money AND go to college.
Get a loan for college. You don’t have to start paying it back until after you’re out of school for a year or so and the interest rates are usually pretty low. You could probably pay off a substantial portion of the loan 4-5 years from now without getting into the principal $100k (assuming your daughter doesn’t attend a fancy private school).
For instance, the estimated total cost for a year at the University of Virginia (in-state) is $15,860. That’s tuition and fees, books, and room & board, plus a little extra for personal expenses. Add in some spending money or a car payment and it’s about $20k.
You could get a loan for $80k to cover the 4 years of college (you’d probably get a $20k loan each year or something). $100k invested for 5 years should earn you about $30k.
Net result: A college education and $50k in the bank. That’s a pretty good start in life, IMHO.
Just for balance:
My mother has had to HIDE the fact that she has two BA’s to get a job – and in one case, I’m fairly certain she lost a job because she had them. (The person hiring her didn’t have a problem with it, but the insecure, POS male chauvinist pig boss did.)
Long story short: she majored in History and English but didn’t want to teach. She liked to cook, though, so she’d work in restaurants.
Try getting a job in a restaurant when you have a degree, and the person doing the hiring did well to finish high school.
I don’t know what makes people so insecure. All a degree shows is that you’re able to stick with something long enough to finish it. There are dumbasses with degrees just as there are dumbasses who never went past 10th grade, and there are also smart people in both categories.
I’ve never been in a position to hire/fire people, but I’m wondering if people with degrees are seen as less likely to be controlled? The “dumber” someone is, the more BS they’ll put up with, and maybe some bosses figure a degree holder has more options, and therefore won’t take a lot of crap?
Of course, overall I’d think a degree would be a nice thing to have, but in some industries it seems to be a hindrance.
This is a very common attitude in California. One of my daughters’ teachers said that going to the local Community college for the first two years is the same as going to Harvard.
I’ll try to not make this pit-worthy, but it is wrong, wrong, wrong.
It’s fine for some people who hate school and want to do their four years and get out. But for many community colleges are brain numbing. My daughter’s ex-boyfriend is going to ours, and though he is not an academic star, and not even very motivated, he hates it. Even he finds it deadening. The fantasy is just as Dr. Deth said, but the reality is that many sink into an academic morass. If your classmates don’t give a crap (and most don’t) it will be hard for you to stay motivated.
Teachers at community colleges mostly do a good job for not much money under adverse conditions. But anyone saying the experience of going to a community college for two years is the same as being in a good 4 year school, let alone a great one, is out of his mind. Living in a dorm is different from living at home. Being around those who are leaders in their fields is different from being around competent but non-special teachers.
My daughter who just graduated got to take Hittite for fun. She got to work with someone mentioned in the NY Times as a possible Nobel Laureate in Economics. When I was an undergrad I learned biology from a Nobel Laureate, and was in small seminars with some of the top people in AI. Being in industry, I can assure you that companies recruit from top universities as much as they can.
Community college is a good solution for families who really can’t afford even a four year state school, or for kids so academically iffy that survival in college needs to be examined. But I see lots of parents around here who claim they can’t afford a UC, but have lots of money to buy fancy SUVs. It all depends on your priorities, I suppose.
BTW, the NY Times yesterday, in an article about divorce rates, had another advantage. Divorce rates for female college grads are 1/2 to 1/3 that of female non-college grads. The OP might save the 100K on weddings.
Sleel
It sounds like the famous Stanford Marshmallow study.
"… Walter Michel of Stanford created a simple test of the ability of four year old children to control impulses and delay gratification. Children were taken one at a time into a room with a one-way mirror. They were shown a marshmallow. The experimenter told them he had to leave and that they could have the marshmallow right then, but if they waited for the experimenter to return from an errand, they could have two marshmallows. One marshmallow was left on a table in front of them. Some children grabbed the available marshmallow within seconds of the experimenter leaving. Others waited up to twenty minutes for the experimenter to return. In a follow-up study (Shoda, Mischel, & Peake, 1990), children were tested at 18 years of age and comparisons were made between the third of the children who grabbed the marshmallow (the “impulsive”) and the third who delayed gratification in order to receive the enhanced reward (“impulse controlled”).
The third of the children who were most impulsive at four years of age scored an average of 524 verbal and 528 math. The impulse controlled students who scored 610 verbal and 652 math! This astounding 210 point total score difference on the SAT was predicted on the basis of a single observation at four years of age! The 210 point difference is as large as the average differences between that of economically advantaged versus disadvantaged children and is larger than the difference between children from families with graduate degrees versus children whose parents did not finish high school! At four years of age gobbling a marshmallow now v. waiting for two later is twice as good a predictor of later SAT scores than is IQ. Poor impulse control is also a better predictor of later delinquency than is IQ (Block, 1995)."
http://www.sybervision.com/Discipline/marshmallow.htm
“Years later when the children graduated from high school, the differences between the two groups were dramatic: the resisters were more positive, self-motivating, persistent in the face of difficulties, and able to delay gratification in pursuit of their goals. They had the habits of successful people which resulted in more successful marriages, higher incomes, greater career satisfaction, better health, and more fulfilling lives than most of the population.”