The College Wealth Premium Has Collapsed

Discussion in 'News - Breaking News & Political Forum' started by Black Ambrosia, Jan 13, 2020.

  1. Black Ambrosia

    Black Ambrosia Well-Known Member

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    The College Wealth Premium Has Collapsed
    Younger folks have come of age during an era of consumer debt.
    Annie Lowrey

    January 8, 2020
    [​IMG]

    Younger folks have come of age during an era of consumer debt.

    Is college worth it? As the cost of American higher education soars, inequality widens, and wages stagnate, millions of Millennials and Gen Zers have asked themselves that question. The answer, at least from economists, has remained a resounding yes. One study found that college graduates earn nearly twice as much as their peers without a college degree.

    But what if those earnings are no longer translating into financial security and long-term prosperity? A new study by researchers at the Federal Reserve Bank of St. Louis suggests that might be the case. College still boosts graduates’ earnings, but it does little for their wealth.

    The paper, by William R. Emmons, Ana H. Kent, and Lowell R. Ricketts, is an exercise in pulling apart averages. As a general point, college graduates earn more and are worth more than people without college degrees. And, as a general point, the college earnings and wealth premiums—meaning how much more a person with a college diploma makes and owns than an otherwise similar person—are large. But upon close examination, terrifying generational and demographic trends emerge.

    The college earnings premium has proved durable and considerable overall. White people born in the middle of the century got more of an earnings boost for attending college than white people born in the 1980s—but the boost for both groups was big. (“People” is close-enough shorthand here; the authors use a more technical household comparison.) And black people born in the ’80s got a similar income bump, compared to black people born in the ’40s and ’50s.

    But the wealth premium has collapsed precipitously over the past 50 years. White graduates born in the ’30s were worth 247 percent more than their non-college-educated peers; white people born in the ’80s were worth just 42 percent more. Among black families, the wealth premium sat at more than 500 percent for those born in the ’30s and fell to zero—yes, zero—for those born in the ’70s and ’80s.

    Notably, the study corrects for the fact that households tend to accumulate wealth as they age; the issue is not that members of the Greatest Generation and Boomers have had more time to let their homes appreciate and their money sit in the stock market. They were always on a different wealth trajectory than their kids and grandkids.

    The authors cite a few reasons why this might be the case. The first has to do with asset prices. Older generations were able to buy houses and stocks when prices were low, then saw the value of those assets rise. Recent generations have faced high housing prices, and have found themselves unable to buy their way into the stock market. Therefore, they have not been able to take advantage of the recent run-up in asset values. “The three oldest cohorts we studied generally have experienced fortuitous asset price fluctuations,” the authors write.

    The second potential factor involves Wall Street’s financial engineering. Younger folks have come of age during an era of consumer debt, with banks more than happy to load customers up with credit cards, car loans, and so on. Those debts then get subtracted from the value of families’ assets when determining their net worth, helping to explain the Millennials’ crummy wealth accumulation. “The leveraging of college-graduate balance sheets over time is entirely consistent with the progressive weakening of their overall financial positions that we identified—even while the college and postgraduate income premiums remained intact,” the authors write.

    Finally—most obvious, and perhaps most important—is the cost of college and graduate school itself. The price of consumer goods has increased by a factor of four since the late 1970s. College costs have increased by a factor of 14, the study notes. More and more students have taken out heavy debt burdens to be able to go to school, burdens that then eat away at their earnings, month after month, for years on end. That has forced millions of Millennials to delay life milestones, including getting married, having children, and owning a home, for years, if not for decades, if not forever.

    Even if going to college is still important for young people’s earnings and employment, it is less of a clear economic boon than it was 30 years ago. In a way, the paper makes a powerful argument for making college a public good, low-cost or even free for everyone. The spiraling cost of higher education is choking Millennial families, and more young people would be able to go to college—and get the full financial benefit of getting a degree—if they were able to do it for the same price as their parents paid.

    TLDR College is good for earning potential but it’s impact on wealth has diminished significantly and is basically zero for black people. This is because everything costs more than it did for previous generations especially college. Because of their debt and the higher cost of things millennials are delaying life events like buying homes and investing which has caused them to miss out on the recent run up in values.
     
  2. Black Ambrosia

    Black Ambrosia Well-Known Member

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    We’ve all heard this before but I thought this was slightly different since they look at wealth instead of just wondering why millennials are buying.
     
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  3. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    Unfortunately for blacks--we are at that point where so many are choosing college and have to rack up educational debt to finish their degrees, and now that they are finished---the bill has come due.... I dont think thats going to change in the short term.For the next generation, my own children are going to be enjoying low debt or loan free college bc mom and dad are NOT living high on the hog and investing in Florida Pre-paid for both of them (age 2 and age 6).

    If they have the credit and the money, they should consider going ahead and investing in starter homes while the getting is good to start building wealth. The problem is, many are part of a very entitled set: I'm part of a Public Health group for black women online and the older ones like me (more than 1 degree, established 10-15 years in our field) are spending a lot of time trying to get ladies with no kids, no entanglements (so they can easily move) to accept the entry level jobs. Many are leaving school with a Masters Degree but limited experience and skills. They are often opting to wait for the "big one." And thats because the market is now saturated with LOTS of black women with MS degrees and its almost becoming like a bachelors (in that field)....and they were promised certain income levels with a year or less of experience. Yeah that was the case as little as 5-7 years ago. You used to could walk into the CDC with no experience, an MS degree in anything health related and they'd throw $60K at you. No more. ---Or $60K isnt enough to live in certain areas (CDC is everywhere). The rule that you need to "start somewhere with your no skilled self" still applies. These newbies are also competing with highly experienced professionals who are taking advantage of online MS or even PhD degrees that traditional brick and mortars are offering---so they can get promoted faster. So someone with an MPH isnt going to get chosen over someone with a BS and 7 years of experience who can walk into the door, take a little less than someone with an MPH has so they don't have much training to do---only to finally finish the degree and get promoted with a raise within a year or so. Can't they cannot compete.

    New graduates need to play the long game and be patient....
     
  4. Laela

    Laela Between point A and point B

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    I think the resurgence of long-forgotten vocational careers can help blacks stay competitive and keep them in the wealth game; unfortunately those careers are stigmatized but as consumers buy homes, they'll need service companies to address the aging homes.. plumbers to fix or replace aging pipes/systems.. HVAC folks ...etc. Hispanics and low-income whites are cornering those markets. While getting a PhD is grand, everyone isn't cut out for academia. Nowadays, a traditional college degree is the equivalent of a high-school diploma.
     
  5. NijaG

    NijaG Well-Known Member

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    I have two (5 & 2) boys and when they get a little older, I plan on getting them involved in some non-IT related technical skill set.
    They will still go to University, but before that I want them to have skills they can use to help themselves make money as needed.

    I do taxes and I can tell you that many of these non-IT skilled technical taxpayers are doing quite financially.
     
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  6. Everything Zen

    Everything Zen Well-Known Member

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    I keep telling people to be smart about how you get your education. I was blessed to have my folks pay for undergrad but my masters was covered at 90% by my job bc I was able to work for the university itself with no golden handcuffs- I was free to leave at any point without having to pay anything back. I keep telling young people to look into Walmart - they’re willing to pay for degrees in supply chain among other degrees or you could even use it to work on some of your core curriculum coursework. Work whatever angles you can.
     
  7. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    Non traditional fields for sure. I saw a black guy and his black friends on You Tube...they created an Eviction Processing Company. Pay them and they will serve your eviction with you. Its lawful, possibly lucrative...and its THEIRS. There are other cool things, like cleaning up crime scenes. Nasty but lucrative. I'd like to see more black folk entering unique needed services and creating that niche and ownership of said field....like South Asians and Nail Care.
     
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  8. naturalgyrl5199

    naturalgyrl5199 Well-Known Member

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    "More and more students have taken out heavy debt burdens to be able to go to school, burdens that then eat away at their earnings, month after month, for years on end. That has forced millions of Millennials to delay life milestones, including getting married, having children, and owning a home, for years, if not for decades, if not forever."

    And see. This is why Bernie Sanders and whomever else...want to delete student loan debt. It WILL improve the economy in spades. More home building, more purchasing, and a people will feel more solvent in financing. He has a HUGE point. Or reduce it by 90%.

    What the problem is...and this is what the rich and banks like to do is to monetize EVERYTHING. Since when was college profitable business? Student loans are profitable for banks as long as they get their payment. When people were throwing those ARM loans at people (as a result of the law saying you can be penalized for discriminating against people and refusing loans based on color)...they were throwing it at them and figuring out a way to monetize and easily passing the loan to another bank when it no longer became profitable---such as the loan rates dropping.

    Also---everyone bit the college apple. They told everyone "College is the WAY, the truth and the light." Errbody bit...and the market is saturated with a bunch of educated people who still have no soft skills, no transferrable work skills. And even though they are social media savvy, I can still see kids coming out of their teens with no REAL computer skills. At all. So we have a new crop of kids with book education, no common sense or street smarts, and no work skills.....wanting to be paid $60-80K at the first job they apply to. Do they deserve it? Sure. But its not there. Period.

    So Bernie Sanders assessment makes sense. People with little to NO DEBT can live well for less than $50-$60K in MOST of the territorial United States.
     
  9. Laela

    Laela Between point A and point B

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    Glad you mention that... Real estate is another lucrative field (investments)... There's also a young man pushing the multifamily movement...I think he's based out of NO and is telling all black millennials who will hear how to live rent-free while building wealth by buying multifamily properties and living in one of the units. He's got a whole business and appears very successful.
     
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