IS HIGHER EDUCATION AN INVESTMENT?

Capitalists of the world, unite; you have nothing to lose except your false rhetoric.

Is spending for higher education an “investment”?  Everybody says so now days. Politicians love to use the word for any spending they think is desirable.  Economists love it because it makes analysis easily quantifiable. College administrators love to justify tuition increases that way.  For parents and students it makes swallowing high debt loads more palatable.

Paying for a college education is not an investment; it’s a form of smaryt consumption. Here’s why.

Spending in ways that produce long term benefits is one thing. I go out and buy nuts and olive oil so I can enjoy the benefits of the Mediterranean diet.  That’s a smart  form of consumption, but it’s not “investing”  because the return is not in the same form as the expenditure.  I will never again  see  the money I give the cashier at the grocery store.  That’s OK. By making that expenditure I hope to live a healthier, more productive life.  True,  I may eventually save money on medical bills – or Medicare may. But the original expenditure is not recoverable in the monetary form it was made.

Investing, it seems to me, is just the opposite.  You don’t invest unless you think you can get your money back, not just interest or dividends but the capital itself. The key to sound investing, as Warren Buffett keeps reminding us,  is preservation of capital.  No smart  investors buys assets  where there is no  reasonable chance of recovering the original expenditure.  He or she may be focused on a good  return, but also expects eventually to be able to sell the stock or cash in the bond, or otherwise  recoup in monetary terms  the original investment.  recover the capital and put it to work again.  

Paying for college is not an investment. It’s a form of smart consumption, like  paying for  a smart diet.

So what?  Is this just a pedantic distinction? By no means. “Smart consumption” reminds us that the benefits we seek may not be in the same form as the expenditures we make. Smart consumers  spend money in the hope of some other good – taste bud pleasure, health, personal satisfaction, whatever.  But when we talk about a college education as “investment”, here’s an example of what we get:

… our governor [Pat McCrory of NC] has been working to ensure that every student who invests in higher education will attain employment as well as the skills necessary for his or her future career.

Mousa Alshanther, a first year student at Duke, writing in the Raleigh News and Observer February 26, 2013

Not a word about satisfaction, or kinds of richness that are not monetary. Of course not! “Investment”  has misled the poor  student, as it has so many others.  It implies recovery in the same form as the original expenditure—money, money, money.


Denis Feeney comments:
It's interesting how different the debates are in UK and US, even though the philistine rhetoric is so similar on the surface.  In the US people still talk about whether this or that education is a good investment for the individual, whereas in Britain the Sir Humphreys are all talking about which education is best for society as a whole.  I find the UK version much more sinister.