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A Degree is a smart investment

16 February 2016

 

New data released today by Universities New Zealand - Te Pōkai Tara shows the value of investing in a degree with a typical graduate earning around $1.6 million more over their working life than a non-graduate.

The Executive Director of Universities New Zealand, Chris Whelan says there is a lot of misinformation, myths and misconceptions around the value of different types of degrees. 

“I’m always surprised at how many people think that it’s not worth getting a university education because there’s better job security in the trades.  Or, that the average arts graduate ends up working as a barista or in the local McDonalds.

Chris Whelan has spent a bit of time over the last year looking at the 2013 Census results to understand what the evidence actually says about education, earnings and job security.  “At a headline level when the numbers are crunched for all 2.15 million people that were in the workforce at the time of the Census, the clear message is that a degree is a very good investment.”

“The more educated you are the more you earn.  And, the more educated you are, the less likely it is you will be unemployed.  Taking just people in full time employment at the time of the Census, those with a PhD (doctorate) were earning 22% more than people with a masters or honours level degree.  Those with a masters or honours degree were earning around 9% more than those with just a bachelors degree.  Those with a bachelors degree were earning around 77% more than those with just a school level qualification.

“A typical university graduate will earn around $1.6m more over their working life than a non-graduate.  This is much higher for a medical doctor ($4m), professional engineers ($3m) and information technology graduates ($2m), but is still high for arts graduates – with an average earnings premium of around $1m to 1.3m (depending upon subject).

“Interestingly, unemployment rates 3 years after graduation are lower for arts graduates (typically around 2-3% unemployment) than for plumbers or carpenters (8% unemployed on average).  And, even when you account for years of lost earnings while studying and student loans, arts graduates typically have life-time earnings that are double that of those with a trades qualification. 

“The much maligned arts graduates do well on other counts also.  Only 10% end up in jobs that, on the face of it, probably don’t need a degree – such as sales assistant, personal assistant or other administration roles.  90% are in degree relevant roles such as teachers, managers, policy and planning roles.  The average arts graduate is earning above the national median for salary and wage earners.

“If money and job security are your main motivations for getting a degree, the worst choices you can make at university are the creative or performing arts or studying philosophy and religious studies.  But these too earn well above the median for salary and wage earners and have unemployment rates averaging only 2-5% (depending upon the exact field of study and level of study).  Though a relatively high proportion of these graduates end up working in fields outside what they trained for, more than 85% are in jobs that you would need a degree to get into.

“The taxpayer contributes around two-thirds of the cost of tertiary education.  Just looking at the average income tax paid by graduates, graduates typically pay back all the costs of their education plus another $200,000 over their working life.  That’s before other contributions through GST and company tax.  So even from a Government and taxpayer perspective, the outcomes are pretty good.

“I realise that the word ‘average’ is peppered liberally through the statistics above and not everyone is average.  There will be some super-stars who beat the average and some who struggle and never come close.  I also realise that none of this accounts for factors such as how much people enjoy their jobs and lives.  I know people who just love being a chef or builder and who hate the idea of being stuck in an office in a nine to five job.

“Ultimately, my message is simple.  Parents and potential students; if you are interested in university study there isn’t really a bad option.  Follow your heart and the evidence says you are likely to end up personally and economically better off”, advises Chris Whelan.

ENDS

Top 10 reasons a degree is a smart investment

  1. The more educated you are the more you earn. 
  2. The more educated you are, the less likely it is you will be unemployed.
  3. A typical university graduate will earn around $1.6m more over their working life than a non-graduate- this is much higher for a medical doctor ($4m), professional engineers ($3m) and information technology graduates ($2m).
  4. Arts graduates earn around $1m to 1.3m more than a non-graduate.
  5. About 10% end up in jobs that, on the face of it, probably don’t need a degree.
  6. If money and job security are key motivations, then the worst choices at university are the creative or performing arts or studying philosophy and religious studies – but they earn well above the median for salary and wage earners and have low unemployment rates averaging only 2-5%.
  7. Taxpayers get their investment back - graduates typically pay back all the costs of their education plus another $200,000 over their working life.
  8. It takes an average of 7 years to pay off a student loan - the average balance on graduation is $14K.
  9. A degree pays off by the age of 33, where net additional earnings from a degree exceed the costs of getting a degree and the income lost while studying.
  10. If you are interested in university study, there isn’t really a bad option.  Follow your heart and the evidence says you are likely to end up personally and economically better off.

Background

  • Universities New Zealand, is the peak body representing the interests of New Zealand’s eight universities nationally and internationally.
  • The earnings data is taken from the 2013 Census and the employment rate data comes from the Ministry of Education’s 2014 “What Young Graduates Earn When they Leave Study.”
  • Earnings models (used to calculate payback times and return on investment from different qualifications) were independently quality assured by the Ministry of Education.
  • Earnings figures are calculated from everyone in the NZ workforce in 2013 in fulltime and part time employment.  They have been age-standardised.
  • Net present value (NPV) is a calculation done in finance to compare the financial return of different investment options.  The NPV calculations compare additional costs (including foregone income while studying and loans) against additional income of a graduate above that of a school leaver.  Future values are all in 2013 dollars.  A discount rate of 3% has been applied (a dollar in 2015 is not discounted, but a dollar earned in 2016 is only worth 97 cents and a dollar in 2017 is only worth 94.09 cents, etc).  Because all values are compared against someone with no post-school qualification, the NPVs for these people is $0.

 People in the workforce aged 29-38 at the time of the 2013 Census

 

No post-school qualification

Lvl 4 (Certificate)

Lvl 5-6 Diploma

Lvl 7 (Bachelors)

Lvl 8 (Honours)

Lvl 9 (Masters)

Lvl 10 (Doctorate)

Total Annual Income 20-65+ Yr Olds Full Time & Part Time

$43,412

$41,359

$47,949

$57,654

$64,544

$64,202

$83,112

Total Annual Income 20-65+ Yr Olds Full Time Only

$58,183

$54,007

$62,695

$75,618

$81,850

$82,559

$99,279

Avg Annual Income 30-39 Yr Olds

$54,148

$53,526

$58,679

$71,326

$77,084

$74,749

$83,041

Total people aged 30-39

127,122

31,639

28,332

74,992

15,511

13,711

2,841

Additional lifetime earnings above a school leaver 20-65+ Yr Olds

$0

$671,161

$942,179

$1,381,743

$1,643,726

$1,623,010

$2,088,255

Whole of life Net Present Value (NPV) for grads at Lvl 4 & above in full time employment 20-65+ Yr Olds

$0

$295,685

$383,856

$538,738

$637,360

$609,301

$727,318

Age when better off as a graduate (NPV goes positive) Lvl 4+ only 20-65+ Yr Olds

NA

26

31

33

33

34

36

% on a benefit 2 years after graduating 20-65+ Yr Olds

11%

7%

4%

2%

1%

2%

0%

% on a benefit 5 years after graduating 20-65+ Yr Olds

14%

9%

7%

2%

1%

0%

0%

NPV of income tax paid to Govt above school leaver 25-65+ Yr Olds

$0

$59,686

$89,770

$150,385

$182,061

$174,912

$232,120

Last modified: July 13th, 2016