Is education really an investment?

Education, particularly at the tertiary level, is usually viewed as an investment by economists. It’s a voluntary cost that you pay to get skills and qualifications that will increase your future wealth and prosperity. That metaphor is reflected in the wealth of research into the ‘rate of return’ on university study and the discussions of externalities from the accrual of skills.

Nonetheless, it is a controversial view since the investment metaphor is not a natural choice for most people. Indeed, most people refer to the fun they had at university, the people they met, and the parties they attended. These are the ‘consumption’ elements of university education in the language of economists; the parts that you would pay to enjoy then and there with no expectation of future benefits. Now, via Economic Logic, I see a paper that asks prospective students how they view tertiary education and finds that

…most students do appear to value college consumption amenities, including spending on student activities, sports, and dormitories. While this taste for amenities is broad-based, the taste for academic quality is confined to high-achieving students.

As summarised by the Economic Logician, “except for the top students, high school graduates do not care about academics at all. All they want is excellent “college consumption amenities.” And this likely explains why they learn so little while in college. Their focus is on the university as a consumption good, not an investment good.” The policy-maker’s view of the value of university and the student’s view are very different.

What does this mean for policy, then? Well, if the private value of university is largely in the consumption value then the total value is far higher than most estimates suggest since they are usually based entirely on investment value. That has implications for the level of the subsidy we want to provide to tertiary students. In addition to the efficiency questions we also need to ask whether,as a society, we want to heavily subsidise most students’ on an extended holiday?

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    Investment has many terms and meaning. In education its refer to as one of the best ever way out to make someone positive along with developments. It does not seem unreasonable to suggest that as per the blog this is clear that education is the sure shot investment to make the future proper as well as precise for all. Form the beginning of the earlier age of education to the tertiary level it’s somehow an investment which is worth in all the way. Its not meant as wastage. Thanks for sharing.