A bit of a loaded question here because I am not going to answer it. I aim to get you thinking about this matter that has been weighing on my mind recently.
University costs are increasing year on year at a rate that is much higher than inflation, not helped by low inflation over the last 5 years or so. This means that with each passing year, tertiary education is becoming more and more expensive.
Below are some common degrees and what you can expect to pay
Typical costs of University degrees in New Zealand
This is just the fees for a diploma. It doesn’t include any double degrees or postgraduate study. All other costs are also not included.
the costs of university
Fees are only one part of the equation. When we go to university we incur a whole range of costs as set in the example below:
Books
$500 per year
Rent
$10,000 per year (don't include this cost if you would also be renting if you weren't studying - they will balance out).
Social events
$5,000 per year
Travel/flights
$1,000 per year
Using the above example, a 4-year Physiotherapy degree would cost $156,000 (assuming $15K a year of other expenses) and 4 years of time. The question then becomes, how long before a Physiotherapy graduate would be able to catch up to the earnings of a full-time receptionist straight out of school?
We will have to make a few assumptions. The receptionist salary will be $40,000 (after tax) per year, increasing at 2% per year. The receptionist and the Physiotherapist will both have expenses of 75% of their income. Any savings (after expenses) will be in an investment account earning 5% per annum. The Physiotherapist has a student loan of $60,000.
Total cost of University in New Zealand
Net worth of a University graduate vs going straight to work
Net worth of a University graduate vs going straight to work
Is university worth it?
It would take almost 11 years to get back to even ($0), i.e cover the cost of university
It would take 29 years (25 years of work, 4 years of study) to catch up to the net worth of the receptionist
After 40 years though, the Physiotherapy graduate would come out $347,000 ahead
A university degree doesn’t guarantee anything
This is only one example and is definitely not applicable to all. There are so many different factors to consider that are unique to your situation. For example:
If you can work part-time whilst studying or full time in summer holidays, then this will definitely help the university graduate.
The university graduate will benefit greatly if they can get a scholarship or some kind of financial assistance.
If the Physiotherapist earns more money, the trend is to live a higher standard of living. But if you can maintain your standard of living to the same as the receptionist whilst simultaneously earning more money, then the graduate has potential to come out much further ahead more quickly. Creating a large gap between earnings and spending is the fastest way to get ahead.
Just because you go to university it doesn’t mean you are guaranteed a job immediately after you graduate, or even in a field of your study.
The straight out of high school employee may be able to become more than a receptionist. Just because we don’t have a degree, it doesn’t mean we can’t achieve great things. Note – there is nothing wrong with being a receptionist. It is a position that is much needed in society that requires special skills. I just mean there are examples of all sorts of successful people that don’t have university degrees.
If someone has a goal to become financially independent at a young age, then working straight out of high school may be the better option. Over 40 years, the university graduate will often end up ahead, but over 20 years or less the straight out of school employee will often be better placed if done right.
Deciding to go to university is a personal decision
Because of everyone’s unique situations it will be easy to poke holes in the example given. You may say “I wouldn’t have a $60,000 loan”, or “I would earn more than that”.
The example also doesn’t include major life expenses that occur after university such as buying a house and having children. Both the university graduate and the receptionist may do these things so that they balance each other out.
The key is not to get hung up on the final numbers in the example, but to look at calculating your own numbers. Look at your personal situation and consider what you want to achieve in life. Do you want to travel after university? This will set your financial goals back several years. Do you want to work for 40 years? University may be a good idea. Do you want to retire before 45? University may not be good for you. Do you want to take time off for children? Factor that into your numbers.
Final Thoughts
I realise that an 18-year-old will not know the answer to many of life’s big questions, which makes the decision to go to university, and what to study, a difficult one. What we think we want at age 18, will often differ to what we want at age 21, age 25, age 30 and so on. We can only make the decision based on how we feel now. At such a young age you don’t need to know all the answers, but you do need to start pursuing them with clear intentions.
There are a myriad of factors to consider when looking at the decision of whether to go to University or not. The point is to consider the factors and look at the long-term cost of going to university vs the long-term cost of going straight to work.
Too often we accept common wisdom that university education is a must have. For many it may be, but everyone it is not. Consider your situation and assess the numbers. If I could jump into a time machine I would probably not have gone to university.
I thought that I had no choice. The common wisdom told me to go to university, work for 40 years and retire. But since I became another cog in the employment machine, I have found I definitely do not want to be doing this for 40 years. I am now hoping to achieve financial independence by age 50. If I hadn’t have gone to university for 5 years, I probably could have achieved this by age 40, instead of 50. 5 years of no income and high costs takes a lot of time to make up. A big caveat here though is I would have needed to be as disciplined with my money at age 18 as I am now, which is highly unlikely in my case.
In saying that though, university gave me the ability to think about things critically, how to research, social skills, as well as lifelong friends. These are hard to put a number on and have provided great value to me.
I followed my interest and chose a degree in Management and Physical Education. The problem with these degrees are they are quite broad in scope. This means that even with a degree, it is a challenge to find related work.
After graduation, it took me almost 6 months just to find some temp work. Then another 6 months to find a full time job. Albeit, not in my field of study. All the jobs I wanted in my field were looking for someone with experience. And all jobs I wanted just so I could at least earn some money thought I was too qualified. I was stuck in that terrible space that I’m sure many graduates can relate to. Either not qualified enough or too qualified.
It is tough out there and sometimes it can make great sense to go to community college or work in a trade. Much cheaper and viable career paths still remain. The trades is one of those careers that has huge demand due to more people studying and a large number of older tradies retiring.
As an employer in the Operations field, I would much rather have someone with experience over a piece of paper. I know not all employers are like that, but a lot are too. A university degree is not the be all and end all it may have used to have been.
I was working for 10 years before I finally got a job in my field of management. At least with more specific degrees such as Engineering, Accounting, Physiotherapy, Law and Medicine, employment prospects are more promising.
So, if you are to go to university, choose your degree carefully. Ideally it will be a mix of something you want to do and something practical. Following your passion, but not choosing a practical degree, may be a very costly exercise.
Note: Labour has introduced a new policy where your first year of full time study will be free. This will be of tremendous assistance to tertiary students.
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here
Share your thoughts below. Are you still paying off a student loan? Did you struggle to find employment even with a degree? Are there any success stories of successful people without degrees? Do you wish you got a degree?