If you want to be rich and successful, you need to go to college and get the most prestigious degree possible right? Well, whether this is true or not, the reality is that this advice has been disseminated to the masses and unfortunately these words of wisdom have not made as many people rich as one would imagine. But why is that?
Millions of students in the United States and across the world, have been sold the dream that if they study hard and get the right degree, they will land a job that will absolve them of all financial worries in life. In fact, this is the mentality I had not too long ago and after spending tens of thousands of dollars on my education I soon came to realize that while education has a purpose, it may not be the key to building true wealth. In fact, in many cases, formal education can hinder your financial progress and I believe to be true for the following seven reasons:
Reason #1: Education Doesn’t Improve Your Financial IQ
Take a moment to think about your experience through the education system. You probably took classes in math and science and while these subjects may have been relevant to your future career, one subject that for sure would provide value throughout the course of your life is financial education. Sadly, most students are never taught even the most basic financial principles like budgeting or the financial impact of taking on debt. In fact, the school system just assumes that you will naturally adopt these skills over the course of your life but this is simply not the case.
Take the example of highly skilled professions like medical doctors or lawyers. Sure, they know a whole lot about medicine or law but that doesn’t mean that they know anything about money. Even in my profession of accounting, there are many people I know that simply cannot figure out how to track their spending or manage their debt yet they can prepare financial reports for major businesses.
The reason most professionals lack this financial IQ is because school does not place any importance on money management skills. And the truth is that it doesn’t matter how many years of school you endure or how many degrees you acquire, until you put in the time and energy to learn how to manage your money you will always be living a suboptimal financial life. For those who never got a financial education, which is most of us, what’s the solution? I can’t speak for everyone but one strategy that helped me out was reading and listening to books on finance and money management but online courses and finding money mentors will also help you raise your financial IQ.
Reason #2: Formal Education Is The Only Education Most People Pursue
If you’ve completed college, you will know that amazing feeling you get when you walk across the stage and receive your hard-earned degree. But, what’s better is the idea that there are no more classes to attend or exams to write. Essentially, you are free. While this is all well and good, the sad reality is that when most people’s formal education ends, so does their learning in general.
You see, for so many people in the world, education equates to that degree that they pay tens of thousands of dollars to acquire which they hope to trade in exchange for a good paying job. But, the truth is that education is about so much more than that. It’s about gaining and applying new knowledge that will help you see the progress you desire in life. While most people obtain this knowledge through formal avenues, there are certainly many other ways to learn. For instance, you can listen to audiobooks or read. You can find mentors who can share their experiences and wisdom with you. You can even take online classes or learn through YouTube videos. Probably the biggest mistake that holds people back financially is allowing their learning to end once college is over. In my eyes, this is just the start of what should be a life long journey of education.
Reason #3: More Education Means More Attachment To Your Future Job
Let’s face it, school was designed to train you on how to be an employee, and the more time and money you invest in this training, the more likely you will be to hold onto the outcome of your efforts otherwise known as your job. So, like most people, you will join the workforce and keep that job or a similar role for the rest of your life, working away with only your one brain and single set of hands. But quite frankly, no one that becomes rich works this way. Truly wealthy people are those who leverage the minds and bodies of others which allows them to work thousands if not millions of hours a day.
Now, not everyone can build a large business and employ thousands of people but luckily there is a solution that you can implement today to start growing your wealth. What I recommend is to start looking into businesses you can build while holding down your 9 to 5 job. The internet has created a new world of opportunity for online business of which many are quite viable and very lucrative. And as you start to form this business, you should also leverage the power of investing. Allow your money to work for you the same way you put in the work at your job each and every day. With these two simple steps you will start to see your income rise over time which will ensure you aren’t held down by the single income lifestyle that most people are living!
Reason #4: Educated People Think They Know Everything
One of the most important concepts when it comes to learning can be linked to a very famous quote by the Greek Philosopher Socrates when he said:
“I am the wisest man alive, for I know one thing, and that is that I know nothing.”
Probably the wisest man of his era, Socrates knew that while being very educated, he was barely scratching the surface of all there was to know.
Sadly, many people, because of the formal education they’ve obtained, seem to think they know all they will ever need to succeed in life. What’s worse, is that these people tend to judge those who dropped out of the college or have less formal education than they do. As a result, they devalue the advice or knowledge that these people can offer them when in fact these lessons may be more valuable than any edification college could provide.
For instance, perhaps the person who dropped out of college used their time to start and grow an online business that is making them millions of dollars a year. Wouldn’t that be someone you would want to talk to if you were trying to increase your own wealth?
Ultimately, while formal education can improve your knowledge, it can also make you closed off to other avenues of learning which can hinder your progress towards your dream rich lifestyle!
Reason #5: Formal Education Leads To Student Debt
I think we can all agree that the prices for college have become quite ludicrous and paying for this education is almost always done using debt. In fact, as of 2019, 69% of all college student in the United States took out some amount of student loans to pay tuition and according to a recent study, the average college graduate in the United States leaves school with $37,172 in student loans, nearly triple the average two decades earlier.
Now, I wish I could say that paying down this debt would be quick but unfortunately that’s not the case. According to Glassdoor, the average entry level position in the United States for a college graduate is $28,000. When you factor the cost of living against this meagre salary, the potential to pay down this student loan in a reasonable timeframe is almost impossible. It’s for this reason that the average debt repayment period for a student loan of between $20,000 and $40,000 is 20 years. Think about this for a second. Assuming you live until 80, you will be making payments towards your student debt for a quarter of your life and these statistics don’t even take into account students who obtain graduate level or extended levels of formal education which will only make the debt load worse. Therefore, when it comes to gaining formal education and student debt, this is a money trap that will keep you poor for years to come.
Reason #6: Educated People Are Prone To Taking On More Debt
We just went over the fact that formal education can put you in a serious amount of student debt and what we often seen is that those who find themselves owing the bank tens of thousands of dollars after having borrowed money for school are more susceptible to taking on other forms of debt. And this makes sense. They are already drowning in debt so why not add to it by buying a new TV or car while they are at it.
This behavior is known as the “what-the-hell” effect which suggests that falling off the wagon causes a feeling of failure, which leads to more indulgence. This effect makes spending $500 on a new television seem like not as big of a deal if you already owe the bank $100,000 in student loans. However, as small of a component as these subsequent debts make in your overall debt balance, each one still pushes you further and further away from achieving your future rich life.
Reason #7: Educated People Pay More Tax
In August 2011, Warren Buffett wrote an opinion piece in the New York Times in which he wrote about his 2010 Federal tax rate of 17.4% compare to the 36% average rate paid by the twenty other workers in his office. Now, you may wonder what this has to do with being educated but as I previously mentioned in this video, most people who gain a formal education earn their income via a job and being an employee subjects you to the maximum amount of tax possible. To be frank, most tax laws in the world were made to optimize tax revenue from employees since they make up the largest part of the workforce and this means that those with extensive educations are paying the price.
Unfortunately, the tax burden that educated people face is only getting worse as the middle and lower classes are taxed more while the rich are taxed less. In fact, for the first time on record, in 2018, the 400 wealthiest Americans paid a lower total tax rate — spanning federal, state and local taxes — than any other income group. But things weren’t always this bleak for the educated class. In the 1950s and 1960s, the wealthy paid vastly higher tax rates than the middle class or the poor. However, over time the tax laws have changed dramatically with many of this modifications improving the tax consequences of the rich and worsening them for everyone else. This is why, in order to achieve financial prosperity, you need to really assess your monetary decisions and the value you will gain from obtaining a formal education. Whereas a degree used to mean access to an amazing salary and career with little to no debt attached, it is now a debt sentence with much less upside and as shown a lot more tax!
In summation, education is important but it shouldn’t come at the cost of your financial well-being!