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Investing in Education: How Much It Pays
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There are several ways to estimate returns on investments in education. One way is to compare wages between jobs using general workforce skills with jobs that need college degree skills.
Compare wages for a certified teacher with a college degree to wages for a teaching assistant, for example.
Another way converts college tuition and expenses into an estimate of a minimum wage or minimum salary increase that will make college a paying investment. The process requires interest calculations because money paid for college tuition and expenses could be used to buy stocks and bonds or other interest earning assets.
Tuition and expenses amounts to an investment in a higher paying job, even though college students may want to go to college for other reasons.
Suppose in-state tuition at public college is $6,000 per year each year for four years. In some states like North Carolina, the state tuition is reported as $3,886, while in others like Michigan it is $7,115. Some are above and some are below, but let's use $6,000 as a representative tuition for 2007.
In the first year, $6,000 invested in stocks and bonds would earn interest or dividends. Similarly in the second year, except $12,000 would be invested and the second year earns interest or dividends on $12,000.
At the end of four years at the time of graduation, the principal invested and the interest earned is a total amount, which will equal $27,230.82 at 5 percent interest.
The principal amount of $27,230.82 earning 5 percent interest over the next 10 years and compounding monthly will be equal to $44,849.42. Start at graduation and $288.82 of extra income each month over the next 10 years using 5 percent interest will also be the same $44,848.63.
The $288.82 equals the minimum extra monthly earnings necessary to pay for a college education at an interest rate of 5 percent. Using a forty-hour week and 160 hours a month, it is less than $2.00 an hour of extra wage and salary that pays for college.
Nothing is a guarantee — but expect college to pay.
Our thanks for these calculations go to the built-in spreadsheet functions on MS Excel. Experiment yourself.
Use the Excel help file under FV, which is the future value function. The spreadsheet entries above are =FV(.05/12,120,0,-27230.82,1) and =FV(.05/12,120,-288.82,0,0).
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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Why Bill Gates Shouldn't Be Worried About Technology Grads
When Bill Gates testified before Congress on March 13, he had his usual requests: more money for math and science education, more funds for research, and more visas for foreigners to come and work in the United States.
He claims foreigners need to come here to "maintain a competitive edge in technology innovation."
The Bureau of Labor Statistics defines 7 different computer occupations that need at least BA degree skills, and one in computer and information science research that requires a doctorate. The Bureau of Labor Statistics reports these 8 occupations totaled 3.2 million jobs in 2006 and growing year by year.
However, computer programming jobs are down from over 500,000 in the late 1990s to fewer than 400,000 in 2006. The above mentioned research occupation has reported employment of 25,000 for 2006, but here the Bureau of Labor Statistics is forecasting annual growth under 1,000 per year.
When we look at the National Center for Education Statistics, we find 1,679 doctoral degrees in computer engineering and computer information sciences for the year ending June 2006.
The remaining 6 occupations needing at least BA degree skills include two specialty jobs in software engineering, and one each for systems analyst, database administrators, network computer systems administrator, and network systems and data communications analysts.
In our logical minds, recent graduates should compare to recent job growth for the United States to fill its computer jobs with graduates from American Universities. For the year ending June 2006, the National Center for Education Statistics reports 72,400 BA and MA degrees granted in computer and information science and degrees in computer engineering.
The average annual increase from 2004 to 2006 for the 6 computer occupations mentioned above was just over 75,000.
However, some of the nearly 20,000 MA degrees undoubtedly went to those who already have BA degrees in computing or computer engineering, so we doubt the 72,400 degrees represent new people available for computing jobs. Even so, jobs as computer programmers dropped an average of 10,000 per year from 2004 to 2006, which makes us doubt the need for 75,000 new graduates to fill those jobs.
The data for the recent years does not suggest large shortages of available degree candidates in computing from American Universities, despite Mr. Gates' worries. More ominous, though, is a decline in jobs as computer and information systems managers, down from just over 280,000 to just under 24,000 from 2004 to 2006, an average drop of 8,000 jobs a year.
We think Mr. Gates should tell us why!
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How Labor Productivity Affects Your Savings
We tend to think of savings in personal terms as income set aside in personal accounts.
But improvements in labor productivity are also saving because new and better ways to produce products and provide services save resources.
Take the customer service representative, a job with potential savings. Customer service representatives serve as a point of contact for customers in nearly every sector of the economy, although they have more jobs in the financial services sector than anywhere else.
There are now almost 2.2 million jobs as customer services representatives, making it the 7th largest profession in America. More importantly, their numbers continue to grow.
Unlike autoworkers, who have to be at the auto plant to do their work, customer service representatives can be anywhere they have a computer and a telephone. Working from home saves the personal costs of transportation.
Even better, the cost of driving for gasoline, car insurance, car repairs and child care saves after tax dollars. The savings go directly to those who hold the jobs.
Telecommuting also saves businesses the expense of providing office space, building maintenance, electricity, heating and air conditioning, which gives them incentives to have some staff working at home at least some of the time.
To top it off, telecommuting saves society from clogged highways, air pollution, road maintenance and traffic enforcement.
Given the complexity of America's many service plans in loans, credit cards, insurance, telecommunications, health care and utilities, customer service work will not be decreasing anytime soon. The growth rate for customer service jobs continues to be above the growth rate for jobs in general with nearly 250 thousand new jobs reported since 2000.
The Bureau of labor Statistics is forecasting annual growth at around 55,000 new jobs a year. Telecommuting for customer service representatives would generate substantial savings given their large numbers in the labor force.
And, unlike so many other jobs, some of the savings goes directly to the workforce.
Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
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How to Get a Raise at Your Job
Over at CE Pro (my day job), we've just posted a story called "8 Ways to Get a Raise at Work." It's aimed at custom electronics installers, but the message it delivers can be translated into whatever you do for a living.
Fred Harding, the author of the piece, shares his background on looking to increase his salary:
When I was in high school, I worked for Jack Houchins of Jack’s Vacuum Exchange fame. After working there for about a year, I decided I deserved a raise.
So, I broached the topic with him. His reply was to ask, “Why?”
Jack went on to explain that I wasn’t any more productive over the past couple of months; I wasn’t selling more and so on.
Simply showing up wasn’t enough, he said. I needed to earn a raise.
I thought about that for awhile and came to realize he was right. I really wasn’t worth any more to him at that moment in time. I could change that, though, and I set out to do just that.
Keep in mind: you don't deserve a raise. You need to earn a raise.
Penelope Trunk says that it isn't enough to do your job well — you need to be doing more than when your salary was originally set.
I've been in a very good situation during my young career. My company automatically adjusts salaries every summer, and since I've been promoted to new positions twice, I've effectively had five raises in under three years.
Have you earned your next raise?
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Traveling on the Company's Dollar
For the past few days, I've been out at the Consumer Electronics Show (CES) in Las Vegas, covering the country's biggest gadgetfest for CE Pro.
It's an exciting time, with lots of new product introductions and announcements, but it's also overwhelming — 140,000 people and not nearly as much time to see everything as you need.
CES is one of the four or so tradeshows I travel to every year for work, which brings with it some interesting money situations.
When I travel for work, I'm given a stipend of $55 per day for food. Now, $55 is a LOT more than I would normally spend a day for food, but when you have to eat out all of your meals, it adds up quickly.
At CES, I'm also expected to put my hotel room charges on my own credit card. For the five days I'm here, I'll rack up a bill of over $1,000.
Traveling also brings transportation bills (cabs, monorail, etc).
Of course, my company reimburses me for what I spend, but the money has to come from my pockets first. For that reason, I charge nearly everything to my credit card. I don't want the money coming out of my pocket any sooner than it has to!
Normally, it doesn't take too long for accounting to send out the checks for what I've paid. But when you're racking up a bill over $1,000, I want to make sure I have the money to pay it first.
Although I only have one credit card, it would make sense to use a card with cashback or airline miles. You get the points, but don't have to pay the bill.
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10 Smart Money Moves We Made in 2007
2007 was a great year for us financially. No, we didn't win the lottery or get any other kind of windfall, but we made a bunch of smart money moves that will pay off well in the long run.
Here are 10 smart money moves we made in 2007, in no particular order.
- We Moved Cities
It wasn't a cheap move, but by moving to a more affordable area, we're much more prepared to purchase real estate. Moving is not a small change — but it can have big effects on your financial situation. - We Started a Housing Fund
In order to meet our home-savings goal, we opened a new online savings account earmarked for housing money. Every month, HSBC automatically pulls money from our checking account and deposits it — paying ourselves first. - We Started Using Index Funds
Rather than trying to beat the market (an unsuccessful long-run plan), we transferred our Roth IRAs from Ameriprise to Vanguard, investing in low-cost index funds. - Increased Monthly Roth IRA Contributions
In addition to our move to Vanguard for our Roth IRAs, we increased our automatic monthly contributions. Last year, we used a chunk of money from our tax returns to max out our Roth IRAs — this year, we'll be closed to maxing them out without additional funds. - Got a Promotion
Earlier this year, I got a promotion at work, leading to more responsibility, more work and, yes, more money. While my paycheck is a bit fatter, our lifestyle isn't. We're spending nearly the same amount of money as we were before the promotion — pocketing the difference for savings. - Bumped Up 401(k) Contribution to 10%
At the same time I got a promotion, I upped my 401(k) contributions to 10% of my salary. Because I did it at the same time my pay went up, I never "knew" the difference and questioned its worth. - Opened an FSA
As I've said, the smartest $400 I ever spent was on my FSA. With a flexible spending account, the money comes out pre-tax, and with a debit card, purchases are seamless. Since it's not coming from my normal accounts, it's like buying things for free! - Joined Yodlee to Track Finances
If you don't know where your money is going, you don't know how to save. Even though we use a written budget, we joined Yodlee for more automatic budgeting and to track all of our accounts and net worth. - Downgraded Cell Phone Plan
I wasn't using all of my cell phone features, so why should I pay for them? Earlier this year, I downgraded my cell phone plan, saving money every month on features I don't use. (Even though Spring screwed up my plan change.) - Automated Our Finances
Even though we think about our finances daily, we don't worry about when bills are due or if we can pay for them. Nearly all of our bills are paid automatically, our savings are transferred without a key stroke, and our salaries are deposited directly.
Well, you've heard our smart money decisions for last year. Now, we want to hear yours.
What were the smartest money moves you made in 2007?
- We Moved Cities
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