The problem with graduate degrees in my opinion is that too many people get them. From a financial perspective, it’s not really justified in every case. Teachers, for example, earn about $8,000 more on average with a masters than without. That’s at the low end of the spectrum – but it’s also an average. Some people will get a masters and not earn all that much more, while others will more than that $8,000 a year. If you go to a high-end program that costs you $30,000 a year (for $60,000 total), you’ll have ended up wasting your money if you end up on the low end of that number.

This problem is most pronounced in law and business degrees, where while the average salary is very high, there are a lot of people who end up not making anywhere near the $101,000 that the article lists as the average. What adds to the problem is that it’s about as expensive to get a degree from a less-marketable school as it is to get one from a much better school. Take Ave Maria Law School – which clocks in at $30,000 a year for tuition, but, because it’s a new school, has only provisional approval to grant degrees and isn’t ranked among the top law schools. Pepperdine, another law school that isn’t ranked all that highly, also clocks in at $32,000. Harvard law is only a little more expensive at $35,000.

You see the same thing with business schools. Vanderbilt, ranked 49th in the country, costs $34,000 a year to attend. Boston University has a similar ranking and costs $30,000. Harvard Business School is about $38,000.

There are a lot of people who think the rankings don’t mean all that much – I’ll give you that for schools that are pretty close to each other in quality. But for a graduate education, barring a state school discount, you pretty much pay the same thing for a degree from the best school in the country as you would for a degree from the worst. And that means someone isn’t getting their money’s worth. If you’re coming out of Harvard Business School with $80,000 in debt, you’ve probably gotten a good deal. The vast majority of students there will find jobs that pay well enough to make it worthwhile. If you’re coming from a school whose reputation isn’t as stellar, you’re making a gamble by getting that degree. The top part of your class might do well enough to make it worthwhile. But what about the people at the bottom? Most of the employment statistics the schools give out aren’t trustworthy – and a lot of students end up disgruntled as a result. If you come out of a two or three year degree with a huge debt and not much more in terms of earnings potential, you’ve wasted both time and money – the debt PLUS the money you could have earned if you hadn’t gone back to school. And in many cases, you’d have made more simply by working to get yourself promoted in your current job.
In other fields you’re luckier: you may have a ready-made rubric for determining whether or not the increase in your earnings potential from going back to school will be worth it. If you’re planning on getting a degree in the same field that you currently work in, simply find out how much more you’d get paid by your current employer. Most employers will give you a bump to reflect your education – and most of them will be up front about how much it will be beforehand. If they won’t pay you much more, then it might not be worth the risk and cost to see if you can find someone else who will. If they would pay you enough to justify the cost, then go for it. You’ll have a lock on a job after graduation if nothing else pans out if your employer likes you – and if they don’t, or you don’t want to work for them again, you at least have reliable information about how much the degree would be worth.

Don’t get me wrong – going into law or business or getting another degree can be an incredible opportunity. If you do it right, you can make a LOT more money than you would without it. The problem is that too many people jump into it without realizing that there is a cost, too. Many people go to graduate school just because they don’t like their job or can’t think of anything better to do. In my experience, graduate school doesn’t make things better for them – it’s a temporary diversion, and many people jump into a degree program without an idea of what it would be like to have a job in that area. When it turns out to be something they absolutely hate, they’re forced to either switch careers again or be miserable until retirement. And they paid for the privilege. I’d ask myself two things before taking the plunge:

1) Am I sure I like the career I’d end up in? If not, try to get a taste of what it would be like beforehand.

2) Would my degree pay for itself in the next 10 years? That means both in terms of debt load from what you pay AND from opportunity cost from money you could have made working. If you’re not sure, it’s probably too speculative. Going to school isn’t supposed to be like gambling. You’ve got options, though: you can still do it if you can cut the costs. Look at state schools with residency discounts – or only go someplace where you can get a scholarship that will cut the costs. If, even after all that, you can’t make it work – then from a financial perspective it’s better to let it go and focus on getting the next promotion.
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Food banks, cheap shopping, and spending a lot of time paying attention to the budget. Her tips to find extremely cheap stuff that you’d normally pay more for:

“The obvious answers are sites like Craigslist.org and thrift shops, especially ones like Value Village that offer coupons and half-off sales. My 99-cent clock-radio wakes me up every morning just as efficiently as a high-tech alarm from The Sharper Image. Rummage sales are swell, too; my church has an annual sale called “Superfluity” (I love that name) at which I bought my desk for $4 and a small chest of drawers for $1. I also buy Christmas and birthday gifts at Superfluity and an annual “500-family” rummage sale. No one has to know that that hardback bestseller under the tree cost you only 50 cents.”

I’d add that while you can live on Ramen noodles and those $1.00 microwave pizzas, I got a lot of mileage out of combining cheap ingredients myself – if you’re willing to eat the same kind of sandwich for lunch and dinner six days in a row, you’re not going to have to spend too much at the grocery store. College students also have it easier because you can find a lot of events with free food, but she takes advantage of food banks, which are a more viable option for adults.

I’ve said before that I think improving your income is the only long term solution to living under this kind of budget, but it is possible. One thing just as important to take away from her article as HOW she lives on that budget is WHY: she’s getting a degree, which can help her come back into the workforce with better pay. It’s not a guarantee, but it’s an effort at self-improvement, and that’s the only way you’re going to advance your living standard. I’m not sure it’s the ideal plan – she’s taking off work entirely to live on alimony payments, and I think going to school at night is a viable option, and probably a better one, for an adult looking to get a degree. But a lot of people end up deciding to do nothing at all – and the harsh reality is that no one is going to pull you out of poverty but yourself. There’s a good discussion going about the article in MSN’s comments, with some obvious points about it (such as that it’s a lot harder in California, that health problems could destroy your careful budget, etc.) – but there’s also some good advice by people who are trying to live on similar budgets. One of the posters is attempting to live on a similar budget on a much bigger salary – great for your savings if you can do it, but I don’t know that I’d have the discipline to do so myself. There’s also a very good discussion at another board about the article by a bunch of people describing how they scraped by on small budgets – but it’s not exactly a family-friendly message board (think South Park), so if you’ve got any qualms on that front I’d stay away. If not, you can check it out here.
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Instead, a good financial advisor will assess whether you should be saving for college at all. If you aren’t already maxing out on all your own retirement savings options, or you have a big chunk of high-interest credit card debt, you have no business putting your kids’ college costs ahead of getting your own finances in good shape.

A financial advisor who has your best interests at heart — and your kids’ for that matter — will explain that if you retire without sufficient income to live on, or in serious debt, you’re going to be a financial burden to your children.

This is kind of an obvious point, but it’s become pretty much the standard for all parents to try to save money for their children’s college expenses. My suggestion is that there are a lot of other reasons why you might not want to, and you should think through this instead of assuming it’s your duty:

1) Student loans are easy to get. True, college is more and more expensive. But it’s gotten to the point where unless you’re making a ton of money, it’s a big sacrifice for a normal family to save the hundred thousand or so that it takes to get through a four-year private school. But consider the alternative – these days you can get student loans for almost the full amount at low interest rates.

2) Multiple children make it a lot harder. Are you really going to save $100,000 for each kid? They’re going to expect roughly equal assistance, and you may not be able to give it.

3) There are cheaper options. In my experience, in going to graduate school you should pick the most prestigious school, even if it’s more expensive. That’s assuming you are going into a career where you can pay back the loans – if you’re getting an art history PhD, it’s not a good idea. But for your undergraduate degree, I don’t think it matters all that much if you went to a state school versus an elite private university. Admission to graduate school will weigh your test scores a lot more heavily than the brand name. There’s some benefit to it – but I’m not sure it’s worth the cost in the long run if you really can’t afford the more expensive school. The state version may be a few thousand a year versus $30,000.

4) They don’t have to go for four years. Graduating in three is easy. That cuts down on the expected expenses by 25%, immediately.

5) You may genuinely not be able to afford it. If you aren’t saving 10% of your money for your own retirement, minimum, you shouldn’t be saving to pay for your kid’s college. Sounds harsh, but think about the ways the world is changing. The traditional safety net in old age was having your kids take care of you. You saved no money, you had fourteen kids, and a few of them lived and were successful enough that you could live with them when you got older (if you got older). That doesn’t work anymore. You may only have one or two kids – and they may not WANT to take care of you in old age. It’s not as normal to have a random grandparent living in the house. Your kids may die, or get sick or disabled, or be shiftless bums who can’t even take care of themselves, let alone you. With only two shots at it, your retirement just isn’t safe that way. You have to be prepared to pay your own way. And if you’re on an average income, it will be very hard to do that when saving for college for multiple children.

6) You can make smaller investments that will pay off down the line by reducing college expenses. That $400 SAT prep course could get your kid a scholarship, and then you’re saving tons of money. Those Advanced Placement courses? $50 to take the test – and eliminate $5,000 worth of college expenses by not having to take another course at full price. Making the cheap investments down the line will help hold down costs to a level where your children can manage it on their own.

7) Some kids treat college as if it’s just a four-year party. You won’t know until it happens, and you may not even know then. If your kid isn’t assuming some of the responsibility themselves, they may not worry too much about partying on your dime. If they’re paying for some of it, or taking out loans, it’s a different story. Why pay a ton of money for someone to get drunk every weekend and get a credential at the end?

What about the reasons why you might want to save for your kids? There are some situations where I think that hands-down it’s a good idea. Here are some of those:

1) You make so much money that you wouldn’t even notice it missing. If you CAN pay for your kid’s college expenses, why not? It’s not a bad thing to do it. Making sure they get a good education and a head start on life is something all parents want – which is why so many pony up. If you’re not going to miss the money, then I’d go ahead and do it. If you’re worried about personal responsibility, then condition the checks on good grades (or more realistically, condition any money given for “fun”).

2) You make enough money that it hurts your kid’s ability to get financial aid. This is true to some extent – parental salary can reduce eligibility for student loans if it’s too high. You’re damaging your child’s ability to get these loans, and if you’ve got enough income that your kid can’t qualify for financial aid, you probably can figure out a way to pay for at least some of their expenses.

3) It’s so cheap that you can afford it easily. If little Susie goes to the $2500 a year state school, then why not pay for it? You don’t have to make a big savings effort, you just have to cut back a little.

4) You save for part of the costs, but not all of them. I think this is ultimately the best approach. Most people just can’t save the full amount it would take at the most expensive college. And in reality you’re making a rough guess when you make this decision. You may have a four year old, and you have to decide whether they need enough money to go to Harvard or junior college. You just don’t know. I would try to save a smaller fund that would help them get started. $10,000 or $15,000 in today’s money seems about right. It won’t pay for everything – but it will give them a guaranteed minimum that if they pick a cheap school, they’ll be able to go. If they want something more, then they can borrow, get a scholarship, or work. Those aren’t bad options – they may not all be viable for any particular person. But there will be a lot of ways out there to supplement the money you’ve put aside – and in the end, most people are going to have to bear at least some of the responsibility themselves. All you can do is try to put your kids on a steady footing when they first go out on their own.

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The job is complicated, and people who become London cab drivers have physical changes to the structure of their brains as a result. They get better at navigation and better at pathfinding, and they grow new neural pathways that they didn’t have before.

There’s a long-running debate about how to succeed in life that this has implications for – the metaphor of the hedgehog, who knows one big thing, versus the fox, who knows many little things. I’ve always sided with the fox, but there are people who are ardent hedgehogs. The fox theory is the same as above – learn a lot about many things, and you have a lot to draw on when you run into new problems. For example, in academia, some of the most insightful people have been those whose work straddled two fields of study – often creating entirely new ones as a result. The understanding of one field, say psychology, can be applied to problems in another field, say economics. People who just study one or the other don’t benefit from the insights the other field has to offer, even though they may be experts in their own field. Structural growth of your brain is an added benefit that can help you in life across the board.

People who are hedgehogs point to those like Warren Buffet, who was wildly successful in understanding just a few kinds of companies (for example, insurance companies). Whenever he went outside his area of expertise or tried to broaden it, he didn’t do as well. There are also lots of fields where you can carve out a tiny niche for yourself that no one else is an expert in – and use your near-complete knowledge of that subject to make yourself the go-to guy for that area.

Even though I lean towards the fox end of things, I think a lot of it is about personality as well. I get bored if I try to focus all my efforts on one thing – but some people are great at doing that and it works better for them. I’d suggest taking a look at these studies, however – you may not need to broaden your efforts at work. But learning something entirely new and different at home might help you out in ways you don’t expect.

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I picked up a copy, and it’s a very good read. There’s not much of a theme to anything – the authors just try to explain why certain bits of conventional wisdom aren’t true or explain how somewhat mysterious processes work. For example, the book has an analysis of why and how baby names become popular. It turns out to be a function of wealth – rich Americans tend to name their kids trendy names, which gradually become more and more common. The Gavins of one day become the Petes of the next – at which point they’re too common, and the rich have to look for some other weird name to make their kids stand out.  Another chapter is on online dating services and how they work, using a huge set of data from one of the online dating services – and pretty much all the stereotypes are true. Women want rich men, men want attractive women. Blondes have more fun – in fact, they conclude that being blonde is worth about as much as a college degree in terms of attracting a mate.

Then there’s an explanation of why drug dealers have a lot in common with the corporate world in terms of structure – and in fact, most drug dealers are poor and living with their parents, shooting for the big score with about the same chance of getting it as a high school athlete has of making pro. It also explains how a Superman radio show sent the KKK into a lengthy decline by revealing its secrets to children.

I’m not sure how practical the book is – if you’re involved in one of the activities you might get something out of it. The online dating section could practically be a “what to do” guide, and the sections on race have some interesting points as well (noting that minority test scores drop dramatically if there’s a little “check your race” box, along with a look at the muddled effect of stereotypically black names on economic success).  Some of the claims might be downright disturbing to you, depending on your political outlook (the suggestion that abortion resulted in the current crime drop). Overall, though, it’s a great book. It bounces from point to point with only minor connections, and essentially is just an extended look at weird things that economics can uncover. It will likely explain a few of those things about society you always wondered about, but never really understood – along with some you’d never thought about, period (cheating in Sumo wrestling). It’s well worth picking up a copy.

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