Life After High School

POSTED: April 11, 2014 | BY: Annamarie Cerreta | TAGS: , , , , , , , , ,

April 11 214x300 Life After High School

By Jeffrey Lacker, President of the Federal Reserve Bank of Richmond.

What path should a student choose after high school? Apply to college? Join the workforce? Enroll in career or technical training? Median earnings for college graduates are around $50,000 annually, compared to $28,000 for high school graduates, while the unemployment rate for college graduates is 3.4%, nearly half the 6.4% rate that high school graduates currently face. Given the numbers, it might be tempting to conclude that college is the best path for everyone. However, this recommendation takes into account neither the uncertainty lurking behind the reported numbers nor the preferences and constraints of the individual.

In recent times, only about half of the students who start at a four-year college complete a bachelor’s degree within six years. Moreover, starting college but not finishing provides only a small increase in earnings compared to what high school graduates get. And maybe worst of all, students and their families often borrow along the way. The average debt burden among students who drop out of college with debt is $14,000.

What accounts for the high rate of non-completion? Research suggests that preparedness and self-knowledge are central to completion. Surveys find that freshmen tend to overrate their ability to succeed in college. As they progress through college, many revise their expectations downwards and end up dropping out—often after more than two years. On the flip side, research also shows that some low-income, very high-achieving students fail to apply to selective colleges because they overestimate the costs of college and underestimate opportunities for financial aid. In other words, while post-secondary choices carry enormous consequences, for better and for worse, they are choices that many appear to confront with only limited information.

CEE recognizes the value of understanding the economic impact of decision making. If the consequences of a decision are large and, as with college, the decision is not easily reversed, getting it right is particularly important. Financial education efforts at the Richmond Fed are focused on providing reliable information to help people with their decision making. This year we’re piloting a new course called “Invest in What’s Next: Life After High School” that helps students explore and evaluate various education paths and assess their own readiness for higher education. The course will provide an interactive decision framework that takes into account students’ career interests, desired lifestyle, education costs and funding so that students can learn to make informed assessments of their options based on their individual circumstances.

There’s a lot more to post-secondary choice than enrolling in college. But for those who wish to follow this path, there appears to be scope to increase completion rates by improving preparedness and awareness of the demands of college and the costs it carries. Such improvements would also benefit those who ultimately choose not to go to college: they would be doing so, after all, in light of an accurate perception of their options. There also appears scope to bring in more talented youth to college who, if equipped with accurate information on the costs, would enroll and complete a degree.

Arguably, the most important role that financial education can play for all students is to improve the information that they are armed with by the time, and ideally, well before, they reach the key fork in the road after high-school.

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  • In a speech that former president of the World Bank, James Wolfensohn made on Jan 11th, 2010 at Stanford Univerisy he made couple of very interesting points. Basically he’s argument is as follows: by year 2000 a sixth of the world’s population in rich countries (i.e. 1 billion people) had 80% of the global income. The rest of the 5 billion people in the developing countries had only 20% of the globe income. And this is the world perspective that most of us grew up in. However by the end of the 2050 this paradigm will shift drastically: it’s expected that within the next 40-50 years the world’s population will be around 9 billion people. Out of the new 3 billion people added to this planet, only 100 million will go to the rich countries, while 2.9 billion will go to developing countries. Hence the previous balance of 1/5 billions rich/developing countries, will shift to 1.1/7.9 billion. The other consequential change is that the structure of the economy is being driven by the population development as well as new technologies and ideas that allow innovations to move to the developing world. So the old 20/80 projection that we grew up with will become more like 35/65 (e.g. 35% of the world population in reach countries will own 65% of the global income). This is not a trivial change but a change of monumental importance. So much so that by 2050 China & India, two of the leading countries in developing world will constitute 50% of the global GDP. This indeed will affect the middle class in both rich and developing countries. Today the middle class is estimated around 1 billion people in rich countries and 0.5 billion in developing world (i.e. characterized between 10,000 and 100,000 USD/capita). The projections are that by 2050 there will be 3 billion middle class people in the world, and 2/3rd of them will be in Asia. In China for example, there will be a population of 1 billion middle class people. The income will also be growing from 10K today to 30-40K/per capita in China & India. Africa emerges as one the greatest potential for further developments and China & India already took a great interest in starting investment opportunities. As a matter of fact right now there are 750,000 Chinese in Africa.

    Having said that one very fundamental question emerges: SHOULD COLLEGE STUDENTS WORLD WIDE CONTINUE TO COME TO THE WEST TO STUDY? By 2007 there were 110,000 Chinese, and over 100,000 Indian students studying in the US. Today there are about 11,200 American students studying in China and 2800 studying in India. James Wolfensohn makes the point that it’s a tragedy in terms of the potential for young people, which are still being guided to look towards Europe or US, when the world’s is telling us that the dimensions have changed. Historically the Western countries were able to stay ahead because of advantages in technology, manufacturing and, services, which are all shifted to Asia now. Hence the challenge that our kids will be facing in this new world is what exactly is left for them if Asians’ are eating lunch and dinner in terms of things that we used to do?

    POSTED: April 21, 2014 | BY: Valentin


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