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Mieke Welvaert takes a look at whether tertiary study will pay off for her, and whether it is an investment or consumption good

Mieke Welvaert takes a look at whether tertiary study will pay off for her, and whether it is an investment or consumption good

By Mieke Welvaert*

Next month I’ll be graduating.

For those who graduate with me it will be a time for celebration, but also a time to see what our peers have done in the six short months since completing study.

We’ll judge, we’ll compare and wonder what we would tell our ‘first-year’ self if we could.

Post-school education has become increasingly popular over the decades, but why do we do it? 

Are we really investing in our future, or are we taking advantage of a subsidised consumption good?

Although I am grateful for my tertiary education, my initial reasons for taking it on were significantly less thought-out than I had hoped.

So, as I’m about to wave my accidental, circumstantial and ‘I took this course because the lecturer played the ukulele’ degrees in the air, I am going to think through why anyone makes the decision to study.

Education as an investment good

In the past two decades, further (post-school) study has become increasingly popular.

Between 1993 and 2013, the proportion of the workforce with post-school qualifications rose from 47% to 59%.

As further education has become more accessible and as the demand for high-skilled workers has increased, society has begun to expect most school leavers to pursue further education.

In this environment, higher qualifications are increasingly relied upon as proof of ability (if not competence in the degree subject matter) in the job market.

Although people can acquire knowledge and skills through self-teaching, qualifications provide a formal endorsement of skills learnt.

Rising demand for qualifications as indicators of competence is purported to result in degree inflation where employers seek more qualifications from position applicants than a role requires. (This idea is also known as the graduatization of low skill-level positions).

Consequently, post-school education has become more of a requirement to get (better) jobs.

As a result, tertiary education is seen as an investment.

Worryingly, I doubt that many new students ever crunch the numbers on one of their biggest life investments. But why should they?

They don’t have to think about paying back their loans for a number of years (depending on the length of the course), and because students loans are interest free, there’s little incentive to rush the process.

We are less concerned about the costs of a degree because we are psychologically distanced from the ‘future self’ that has to pay them.

Put another way, if a thug comes up to you and says “tomorrow, I’m going to punch you in the face”, you’d be worried, but if that same thug instead said, “In five years’ time, I’m going to punch you in the face” you’d probably laugh.

As we find it difficult to empathise with our future self, we worry very little about the future costs of our education.

Education as an investment was the primary reason I took on a degree in the first place but, even though it is the largest investment I have made in my life, I was one of those students who never calculated whether it was financially worthwhile. 

So, with little recourse to change what’s done, I went on to the Careers NZ website to see what I’m likely to earn with my double degree in Economics, Geography and Finance.

When compared to not studying further after secondary school, my course of study breaks-even in roughly six years’ time.

Considering that, all things going to plan, I have another forty years of my working life ahead of me, I’m reassured that my investment is likely to pay itself off.

Subject choice and completion time are important factors when valuing one’s education investment.  Law graduates typically do not earn a strong hourly wage their first years out of study, lengthening the pay-off period.  

Medical students earn the most following study out of all of CareersNZ’s categories and will see their study become profitable in six years after graduating (when compared to not studying further after secondary school). 

At the other end of the spectrum, performing arts students have a lower median income than school leavers following graduation, indicating performing arts students receive negative returns on their education.

Education as a consumption good

Which brings me to my next point: If performing arts students exist, they could either be really bad investors, or education could be more than just an investment good.

Given that many gain satisfaction from study, education is also considered to be a consumption good. 

The crossover of how much a course of study is investment and how much is consumption, varies with the individual. For performing arts students, further study in the field will mostly be a consumption good.

For others, a degree or diploma can be a recognition of knowledge, and while the student may have been able to acquire the knowledge for free, they are investing in the recognition that a degree certificate provides.

For those in-between, paying for a degree is like paying for aerial yoga classes: no-one needs yards of fabric and an instructor to exercise (and invest in physical health) but, going to aerial yoga classes indicates a personal preference for receiving the benefits of exercise in the form of aerial yoga.

In choosing to pay for our further training we are signalling that education, as a combination of an investment good and a consumption good, is worthwhile.

Looking back, if I could talk to my ‘first-year’ self I would advise that education is a huge investment that should generate a sufficient return.

If this was not entirely the case, education is a consumption good that I better have liked more than the lavish around the world trip I could have gone on instead.


Mieke Welvaert is a data analyst at Infometrics. You can contact her here »

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What would u have studied if it was free?

it's never free as long as teachers expect to be paid and campus owners collect rents.

You are a bit out of context its free to the student while the tax payer picks up the tab. That obviously has/had limits, ie the Govn couldnt fund everyone so places were rationed. These days anyone can get a loan and do a course. Not sure if that is better I'll add, there seem to be worthless courses that wont get ppl jobs/careers to compensate, both them and the economy.

not out of context, just brushing away the naivety.

The students course is heavily subsidised by non-students.
Why should non-students pay subsidises for worthless courses?

Yet the "worthless courses" or better courses with content that need expanding beyond the narrow beliefs of the professor or insitution, are frequently the most important to people and to the public.
 Yet without the worker bees, specialised worker bees, where would we bee?

And what expectation are those subsidised people willing to accept in return for their public funding from others?

Free...the only thing free of charge is your cellphone when you need to call your missus when you're out late drinking...

While you are making this analysis Mieke then why don't you go a bit deeper in to the consumptive. Actually Economics, Geography and Finance are also consumptive, the only thing you haven't worked out is who is paying. You almost get there, but don't quite distinguish between work and job. Work is when you produce something, a job is simply an activity you happen to get paid for.
Commerce is a parasite on production, and finance is a parasite on commerce. Aristotle.

Framing education in economic investment terms is like marrying for money.  What you lose has a greater value than what you gain.

it costs resources to provide an education therefore it is always an economic consideration

As someone with 5 children weaving there way through the university system, I've started to get a hang on things.


 How motivated are you? Do you like pushing yourself and the idea of being self employed? 


  My eldest dropped Uni and works in London on a cracker of a salary and looking to set up her own business. For her Uni was a complete waste and she dropped out after six months. She is highly motivated, budgets, saves and plans. Not as confident as the others but very capable.Used to run the farm for me from a very young age.


 My next went to Uni and did sound engineering, cost dad 15k for the course and probably 20k in board etc. She's a dreamer, not so motivated but gets more out of the little things in life. Can play her guitar or the piano all day. Has a great ear and is heading back to a very good job in London. She did not enjoy her course but it got her into a great job and now she is branching side ways. Drives her father nuts, total dreamer but lives in the now and is happy. Boys come from miles away to ask her out, so she must have something. I had to push her, it wasn't easy but she needed me to motivate her.


 The next has been in the system for 2 years started with Eng and then this year is doing Chem, tells me she's doing Bio/Chem next year, motivated plans and works hard. She looks way way ahead and thinks too much some times. She will benefit from the system. Very confident child, I keep telling her to 'chill out'. Prone to burn out.


 Next is 19, into her violin and art at the moment, got very good grades at school, she's a  mystery to her dad, bloody strong willed, so will do what she wants in the end, I've got very little influence over her. Did very well at sports as she has determination in buckets. Is staying at home at the moment, so I never have a car.

The neighbors dogs used to bark all the time, but since she's been on the violin it has gone away.


 The next is in school mode, in a large Californian high school, there are some advantages in being number five, likes school, I don't think she's Uni material but could surprise, can take life too seriously, needs to lighten up a bit.


 Everyone of us is obviously unique. Someone older told me years ago to make sure your children all learn music, no matter how much they hate it at the the beginning, they will all come back and thank you when they are older. My children all started Piano at about 9 years and continued till at least 16, except our youngest who stopped at 14, I was older and getting soft, but I see she is in the school band next year.


 Music helps with concentration and is a big help academically. Also when my children get a knock in life I notice they will pick up a guitar or find a Piano and immerse themselves. One even plays drums. Make them do a structured music course, ours all did Royal Academy and had to sit exams.


 I don't think Uni is for those who are super motivated who like being hands on and getting stuck in, they can learn more on the job.


 Most of my best paid friends didn't go to uni, the smartest guy I know ( his father is a physicist and his mother is something similar) is in a crap job and at 50 has to make some tough choices. He consulted on the Dreamliner, he's been a great friend for 30 years and It's tragic to see him so frustrated. Most of my friends who struck out on their own are semi retired at 50. They learnt things the hard way but the lessons stuck. Some are not wealthy but they have learnt whats important, they enjoy life and don't work too hard. 


 I think if we as parents can give our children confidence and emotional security then the world really is their oyster.


 Teach your children Music and art if nothing else it will give them a great appreciation and enjoyment all their life.

 Confidence will carry them through difficult experiences, strong family ties mean they always have someone to talk to. 

 Its been a bloody long haul for us, I've been doing Saturday sports for 25 years. 


 I'm expecting a few curve balls, hopefully my wife and I can handle what ever comes along. I don't worry like I used to, age has its blessings, tomorrow is another day. I never compare my children to others, my parents did that so its a lesson I learnt the hard way.


 If any of my children drop out of Uni, I just say 'How exciting, whats your plan B'? To be met with a blank stare usually.


 I like to work out worse case scenarios and if i can live with the consequences, what the hell give it a go.


 No doubt we are putting far too many children through university and some are being damaged by the experience. We need a school system that focuses on students strengths, not teachers and results. I'm not holding my breath on that one.

I suspect today that many students see Uni as the safe option, its a big illusion. Why the hell play life safe you only get one.


 Student debt is going to be a huge problem sometime not too far away. Student loans are some form of child abuse. 


 We all get born perfect, from then on life gets interesting, but we all have choices just make them, they could be wrong but you can have another go, or even two or three.

breeders <shudder>

Wow, five daughters. You have my respect.

Children are our wealth, besides I like breeding.

The Wealth divides between the number of consumers.
You like breeding more, good chance your children wouldn't see anything wrong with going past ZPG either.   Why should you get to consume more than others, especially more non-renewables, and resources subsidised by others?

I have enough resources to support my children. No student debt, no house or credit card debt. I pay my taxes every year, more than most.  
  You thinking about choosing winners?   Based on what, qualifications?

you have enough resources? are you building the factory that built their cars? the hospital and factories for their medical?  are you paying the entirity of rates and infrastructure? Did you tell their school and tertiary education to waive the goevernment subsidies for their education?

If growing population increased resources, why are costs and prices continually rising?

Well actually yes, my family have lived in NZ, worked hard and saved for generations, so we did build the hospitals, the schools and the roads, even died in wars.


 We never qualified for a health card so I paid all my childrens health costs. My 3rd daughter is very dyslexic so my wife began to home school her, eventually she home schooled all of the children until they where up and running. 


The youngest two have spent two years in the California state school system and done very well. All have tried Uni with varying success.


 I'm a farmer so while I didn't built the factories I did feed the builders who did.


 Costs are going up because every year the governments of the western world get that little bit bigger and promise that little bit more. Costs are killing industry we can no longer afford our own government and its going to get worse before it gets better. Expect more taxes and more red tape, it just won't make any difference, down we go.


 Money should be backed by intellectual pursuits,making stuff, growing stuff and mining etc. It should be backed by human endeavor, now its a casino and much our debt can never be paid back because there are not the resources backing it to pay the interest let alone the principle.


  I'm just going to keep smiling and make the most of life while the ship goes down, and hope my life jacket does the job.

  I've given up trying to fight the inevitable.

I have never met someone who regretted gaining a qualification. I have met plenty of people who regret not gaining one. Definitely one of the best investments you can ever make. Even better if you can enjoy it along the way.

The curent system and measures of proof of ability dictate that a qualification has become a necessity.
A qualification is not proof of ability.

A qualification is proof of ability. It proves someone has the ability to see something through to completion.That is something that any employer will value.
Certainly it is not necessarily proof of any level of knowledge. That has always been the case though. 

Michiavelli - I know numerous people who have no qualification and they are highly capable and have the ability to see something through.
Look at the number of multi-millionaires and billionaires who have no qualifications - they obviously have the ability to see things through.  NZ needs entrepreneurs, people who can think outside the box not people who can place a tick inside the box.

Good on them. I am not saying a qualification is necessary to achieve success. I am just saying if I was a young person starting out I'd get one. If you have a qual you have more options. End of story. If you choose not to use your qual you can do the same as the next guy without a qual. But he won't have the same options as you.
I hate the outside the box cliche sorry. We actually do need people who know how to tick inside a box. Or hit the nail on the head as the case may be. Besides who says getting a qual limits your thinking.. I would say the opposite. I studied humanities though!

Unfortunately, as I have found, there are many people and organisations which are happy to promise qualifications and teaching (and even employment opportunities) that are willing to take your money and give you nothing or a worthless qualification in return.

At least three of my partial qualifications are in courses which have discountinued or significantly rebranded.  The organisations provided the qualification want me to re-buy my passes or even re-purchase the entire course (some of which have "bums-on-seats conditions for completion) in order to complete the courses.   
 As usual the offical and government bodies involved claim no liablity or responsibilty for anything.

There are obviously good qualifications and bad qualifications. Stick with a good, recognised, long-standing tertiary institution and you should be fine. 

My second year of university saw the start towards more user pays. i.e. fees started the hike upwards. Which set the path for an amusing side note when I got to postgraduate level and several protagonists in one of my classes were going through a process of seeking course refunds. Their case being that the course was so far sub-standard as to be worthless. And they being paying customers wanted that put right.

Some people without formal qualifications are capable, determined and able to see an undertaking through. 
Everybody with a formal qualification has formal proof that they are capable, determined and able to see an undertaking through.

capable of what?

One candidate that was interviewed for a job as Network Engineer had a full MSCE (Microsoft Certified Engineer, serious trade qualification).    

He didn't get the job as he not only did not own a computer at all, but had never actually worked on one.  Let alone a server/cluster.   But he WAS fully and properly certified.

And anyway, most of the assignment writing/prep can be outsourced onto the 'Net these days anyway.   Although exam subs for practical tests aren't common in NZ yet.

And you can rob banks instead of getting a job, steal food instead of buying it, squat instead of paying rent. What's your point cowboy? There are cheats in the world. I don't think that is reason to discredit the entire tertiary education regime..

"A qualification is proof of ability

- your statement ^.

- tested.

- false.

Why are you cheating or lying.  Don't you comprehend the longterm foolishness and cost of such behaviour?

MDM - I was capable, determined and able to see an undertaking through before I got any qualification. My children were also the same along with my husband.
I think the issue of a qualification gets clouded when people who have the qualification obtain a false sense of self-esteem from that qualification.
It is also worth remembering that B's and C's get Degrees.
Does getting a qualification make you any more productive, efficient and creative?
Have you ever been self-employed?

I'm really not sure what the dispute is.
Yes, as I said, some people without/before formal qualifications are capable, determined and able to see through an undertaking.  You and your family are clearly among of them, which is great. 
Yes, some people with qualifications over-estimate themselves.  So do some people without qualifications. 
No, getting a qualification in itself doesn't in itself make you more productive, efficient or creative.  What it does is provide you with a quick and efficient way of demonstrating to a potential employer that you have applied yourself to learning enough about a given subject to pass an assessment.  That's not everything, but it's not nothing either.  Without that, you need to find other ways of demonstrating that capability.

"dictate that a qualification has become a necessity."
not necessity, a saleable commodity.  One that, like gold, is only worth anything when someone else values it.

I have a bunch of Lotus courses I regret.
Plus the agricultural poisons and ACC courses which are completely bollocks despite me getting them.

Have you asked around?

I have a friend who got his full private pilot qualification...flew one decent trip and decided he'd rather drive (more places to stop for coffee and piss...)

Others who have several courses even Masters that they realised later in life were a complete waste of their valuable youth.


biggest cost is the opportunity cost of using that time for something else. . getting into a trade early and then starting own business after 5+ years has been good to a lot of people i know

refrigeration technician, electrician, even plumbers can make some serious cash.  If you want your kids to stay in nz id nudge them in one of these directions.  Add some business sense and they will be loaded in no time.
I'd add builder to the list, but it seems to be the default trade for many looking toward a trade and labour rates lag the other trades I assume due to there being more builders around than these other trades. Refrigeration is my pick; keeping our valuable food produce cool, and seems to be overlooked by most who tend to default towards building and electrician.

I'd keep away from building, especially with the LBP cash-farming.
Refrigeration and sparky and plumbing is good, as we'll always need them and they're only going to get more complex (priced).  The nature of their work makes them price-setters, and the way the trade qualification works it limits the ability for people to easily compete in your market. (ie they have to get physcial apprenticing with existing operators, that makes the registration more valuable)

Thanks to Steven and Scarfie for raising interesting points this morning.
And also to Andrewj for his thoughtful essay on his kids. The common factor in their quiet achievements seems to be his obvious love and respect for them.

About the only thing I found university good for, was the amount of time I got to spend flyfishing. All of my working life has been far away from the subjects I studied at university. My wife in terms of career is well ahead of me. She stuck to her convictions and dropped out of university in her first year.
If I had my time again, I would have gotten into surfing as well while I was at university :)

I have found repeatedly with university students especially, and the higher the learning, the deeper the depth, the more off the real track their thought conditioning is.  They truly get institutionalised, especially when it comes to having corporations and employers suppling tools and materials and economic expectations.

Similar with many trade qualifications.  The equipment (especially in NZ) isn't going to be a closed shop, it interfaces with other peoples' stuff, idiots install things wrong, people get tired/distracted, people misread instructions, or just plan can't be bothered.  We don't have 5 times the budgetted hours to have a specialist make sure everythings going to run right on the day.

Depends on where you want to go in life, if you fancy the corporate world then a degree is a pre-requisite for most good positions and certainly for advancement.  Even if you want to be self-employed a business degree or diploma certainly wouldn’t hurt.  You have to choose your degree carefully and make the link to the type of job you’ll get at the end, as a general rule if the degree is hard the job at the end will be well paid.  Best to be very specialised rather than a jack of all trades; for example general IT skills wont be as valuable as specialising in IT architecture or,  say, one type of application (e.g. only general ledgers).  
Agree with Simon that the trades are a great option, you can start earning as early as 16, have real, practical skills and the transition to self-employment is relatively straight forward.  There is potential career progression also, qualified tradesmen, foreman, project manager, owner or high level manager.  
Hamish, you should definitely get into surfing, never too late.  
London is a great place to start a career, great experience and great money. 

I've been surfing for a few years now thanks :) Loving it too. I just wish I'd picked up the basics a lot earlier on when spare time was more a luxury than it seems now.
Hindsight is a wonderful thing. Looking back, the most engaging lecturers and tutors I had at university often weren't in the subjects I had pencilled as being the most likely interesting ones. The subject matter wasn't that important it turned out. A well structured course that leads you on a journey of discovery though, much more so. I think if you are hungry for knowledge and learning you will be fine whether you go through a university system or not. But as a stop gap between finishing school and trying to figure out 'what next' you'll find on the whole that you are just another number to them.

I can never surf enough, sooo addictive.  Should be good out west later this week. 

Indeed. Yesterday evening very nice.

A far better qualification than university is being able to talk and encourage other people (and put up with/walk away from their issues.)   

University is so often about making more issues, getting more technical about stuff no-one really has resources to deal with.

where dealing with people, making them feel better, not getting caught in the negative bs... everyone will want you around, people will share stuff with you, people will want you present, people will spare you the time to pick things up if they like you.
 At the end of the day, this will get you hired.  This will get you a good team.  This will help your team perform way more than any other leadership style.  This will be what sells you and your team to the clients, and the clients will be willing to pay a bit more for people they like.

Surfing far more useful.   the sun and waves are today, university will always be there, filled with people looking to make a living.

I agree about the specialisation.
Have a broad base is kind of handy, but you quickly find that you fill in the gaps left by other people.  Do a trade? don't have an accountant, do that. Don't have sales person? cover that.  Marketing? no problem.   PAYE, IRD, contracts for employment, workplace safety and ACC...? just how many places can you be at once?   Whats going to be put on the back burner?  How tired do you want to get?

Interestingly, most self-made millionaires do not encourage their children to follow the same path they did as it is risky (may have to fail many times), requires seriously hard work which can affect you homelife and relies on an element of timings (being in the right business at the right time). Most children of millionaires are in qualified professionals such as doctors, lawyer or accountant. These are the safe paths to prosperity rather than a long-shot at wealth.

Hi Kiwimm, I don't like to generalise but my experience agrees with your comment.  Some interesting psychology behind such advice/decisions, not selfish I think, usually some other reason. 

You likelihood of success as a qualified professional is high and your range of expected earnings is narrow. This is a safe path and involves little hardship.
If you are self-employed, your chance of success and earnings span a much larger range from bankrupt to billionaire with the former far more likely than the latter.

I agree with you wholeheartedly. Do not follow your parents profession but go to university. You will make friends for life and if you like what you work at and get on well with people of all types then you will be succesful. You will soon catch up to and surpass those who started working before you. Those who say you are mad to go probably never went to university or if they did then they failed to graduate.

As another aside, relative performance is more important than absolute performance when it comes to education. Students who are top of the class at lesser institutions do better than middling students (who may be more intelligent) at more prestigious university in terms of course completion rates, academic papers published in premier journals and career earnings.
Read David and Goliation by Malcolm Gladwell for more details though note that this is the most insightful part of the book and the rest is mostly stories dressed up as fact.

Although qualifications are not everything but  I  still wouldn't want to be treated by a doctor with no medical qualifications or be operated on by a surgeon with no qualifications as a surgeon.

Days to the General Election: 27
See Party Policies here. Party Lists here.