Can you afford to give your kids a higher education? Some can and for some, it’s just out of reach. When kids are in the picture, college is a goal. If you look behind the scenes, you can understand what is making this a difficult situation.
Our research shows that we historically get stock and economic bubbles in the latter part of the fall season when technologies are moving mainstream. A generation is aging into its peak spending and productivity while simultaneously, inflation and interest rates are falling. All of these factors increase profits and speculation.
The growth companies that are moving mainstream create huge profits for entrepreneurs and growth managers. The bubble in stocks accrues heavily to the top 1% to 20% that own most financial securities outside of personal real estate.
In the fall bubble boom peaks of 1929 and now (since 2007 to today), the top 1% garner near 50% of the net worth and even higher for financial assets. But that can fall to as low as 26% in the late spring and summer seasons when new technologies become ubiquitous enough to raise the wages and net worth of the middle-class like they did in the fall boom for the upper class.
The demographic and technology trends peaked in late 2007. But in today’s unprecedented boom, the Fed and central banks around the world have pulled out all the stops to keep this bubble going and the end result is that the rich keep getting richer.
But there is another unique factor in today’s extreme inequality in incomes and net wealth where the top 1% garners over 20% of the income and the top 20% over 50%…
And that is education. Look at how much average income varies by age between high school dropouts at $40,000 and professional degrees (doctors, dentists, lawyers, accountants, etc.) at $193,000. That’s almost five times.
Big Bucks and Inflation
You have to make around $120,000 to be in the top 20% today. That’s primarily the people with the top three degrees from masters to professional. The top 1% at $450,000 would be the upper professional and include entrepreneurs, top executives, medical surgeons and specialists.
Note here that the highest degrees peak the latest, in the 55 to 64 range. Most, including master’s degrees, peak in the 45 to 54 age range. Our detailed research into spending by age suggests that the most affluent peak around age 53 and the everyday household at age 46. People who are more affluent generally go to school longer, and then their kids do so as well, extending their consumer spending cycle.
It obviously shouldn’t surprise you that higher education creates higher incomes. But the degree is what’s so important here. And there is an important trend driving that which most people aren’t as aware of: the unprecedented inflation in higher education.
Since 1983, education has experienced the highest rate of inflation of any other sector — much more than even health care.
Instead of subsidizing higher education, like in Europe, government policies have shifted away from that and have turned to encouraging student loans, wherein they actually make substantial profits.
The rate of inflation locks out all those kids who don’t already have rich parents. If these kids do get student loans, it weighs them down and reduces their ability to get married, buy a house and live well.
For years, the U.S. has been an immigration magnet and an entrepreneurial country with high social mobility. That’s no longer the case. That changed dramatically with the explosion in education costs.
So what we need is a revolution in education. Everything about the Internet and this age of information points to the fact that this should and will happen. Why should the cost of education be ever increasing when it’s an information-intensive industry and the costs of information and communications are falling dramatically?
Teachers’ unions, tenure, the high costs of large campuses and rising student loans feed the inflation bubble. I fully expect education to shift toward more classes being taught online or streaming directly from the best experts in the world, not just the local professors.
There will still be interaction and live courses in many areas but campuses could be cut substantially and facilities leased out to the private sector or to research and development companies.
I cover this more in Chapter 9, pages 310 to 313 of The Demographic Cliff. As long as special interest groups fight this, and they will, that revolution won’t take place. It’ll only happen when our economy melts down and educational facilities no longer have parents and students by the jugular. The educational institutions will be forced to either change… or fail.
Then we could see the cost of education fall dramatically — after all, it’s the biggest of all the inflationary bubbles and the bigger the bubble, the bigger the burst. This and falling costs of health care and housing will give a shot in the arm to the growth of the middle class again and restore upward mobility, as occurred from the mid-1930s into the mid-1970s.
The wisdom of our governments and present leaders in education will not break this inequality paradigm. It’s the winter season that will make the change… and I welcome it.