Education: Your Hedge Against Inflation

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Every now again, we hear about inflation, and the way it erodes your earning power.

As prices rise, you either have to earn more money, to keep pace, or you have to cut back on your spending so that you aren’t using as much of your money.

Most people prefer to look for better returns.

The right investments, or leveraging your money on low-rate loans to position yourself for the future, can help you make the most of your money now and hedge against inflation.

However, you can also hedge against inflation in a more indirect way: Get an education.

Higher Degree = Better Earning Power

You’ve heard stories about how someone with a degree makes more money than someone without one.  And, for the most part, it’s true.  If you invest in a college education, you are repaid with a higher lifetime earning power.

Take a look at the following chart from the Bureau of Labor Statistics on how education pays off:

education pays off

The BLS shows how a higher degree pays off.

(http://www.bls.gov/emp/ep_chart_001.htm)

This chart represents full-time salary and wage workers, age 25 and older, in 2010.

You can see a clear difference in earnings — and in the unemployment rate — between those with more education, and those with little education.

Those with bachelor’s degrees made more than the average of $782 a week.  Those with more education, on average, make more money each week.

This extra money can be put toward the future, offering a hedge against future inflation while providing more purchasing power now.

Additionally, during tough economic times, the chart indicates that more education, in general, helps protect you against layoffs.

The unemployment rate amongst those with associate degrees and higher was below the national average of 8.2% during 2010.  An education can protect you from some of the ravages of an economic downturn (although it’s not fullproof).

Do You Really Need a College Degree?

Some argue, though, that you don’t actually need a college degree to have a good job and protect yourself against inflation.

To a certain extent, this is true.

There are those who make a decent living with more technical jobs and certifications.  However, the key here is that a marketable skill or certification is required.

Trade jobs require that you learn a useful skill.  Becoming a mechanic, plumber, service manager, dental hygienist, personal trainer, or a pilot may not require a degree, but you do need to have training.

Developing a skill that others find valuable and useful is your surest hedge against inflation.

And, of course, you must keep your skills up to date.  You can receive an IT certification without a degree, but if you don’t keep up with the latest developments in technology, and continue learning, you could fall behind and lose your job.

If you want access to opportunities and better pay, you need to develop a skill that is in demand.

And you can never stop learning.

In fact, some employers will pay you to continue your education.  My cousin did such a great job as a rad tech with a two-year certification that his employer paid for him to complete a bachelor’s degree — and then went on to pay for his master’s degree.  He now works in administration at the hospital.

Your Degree is What You Make of It

As with most things in life, your education is what you make of it.

You don’t need to spend $100,000 over the course of four years for an education that will lead to a good job.  Indeed, with some majors it’s foolhardy to spend so much.

I remember how, a few months ago, I was a little offended when Darwin’s Money posted a blog post asking why anyone chose communications when the result was no job at the end of college and six-figure student loan debt.  My undergraduate degree is in communications, so I felt a little slighted.  But, I later realized that he made an excellent point: Spending so much money for a degree that might not be in high demand, or that comes with a low earning potential, can lead to financial difficulty.

There is no need to go to an expensive school to get an education when you can get a great education at a public school.

Honestly evaluate your options for school; create a plan for the future, and figure out how you will pay for college.

Some private schools can offer the alumni network and connections that can make the price worth it for certain majors, but for many majors, you’re better off (financially) to go to a less expensive school — at least for undergrad.

But, in the end, a degree can’t make the money for you.

A college degree can open doors, and provide access to opportunities you might not otherwise have had access to.

And, of course, no one can take your knowledge from you.  It’s always there, ready to be called into action to help you provide more value at your job, and protect you as much as possible from the vagaries of the economy and inflation.

What do you think of education as a hedge against inflation?

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Published or updated October 24, 2012.

Comments

  1. Getting a college degree was the best investment I’ve ever made. The trick is to do your research before shelling out money for a formal education. You may be able to boost your income without paying a dime. Or, if you’re looking to increase your earning power, a community college or vocational school may be all you need. Like any investment, you need to perform a cost benefit analysis. If you wouldn’t blindly invest tens of thousands of dollars in a company without doing any research, then why would you do it for a college education?

    • Totally agree with you Shawanda. Unfortunately, I bet most students don’t put that much consideration into their degree when they are in high school or even when they are in college.

  2. They should have under the “Education Pays” from BLS, like they do for all investments. Past performance does not guarantee future results.

  3. Couldn’t agree with you, or Shawanda, more. You have to know what you’re potential salary will look like after graduation to judge if taking all that money out is worth it, but in general that little piece of paper can be THE difference between living in poverty or prosperity.

  4. I think direction is important in college, as well as master’s programs. Too often we see kids graduate from college, with a check-mark degree (in politics, for example) and they see the economic situation and they think, “gee, I think I’ll go to law school,” and then POOF they’re in six-figure debt without really ever thinking about which direction they would like their lives to take.

    • Agreed. But it’s tough to really know what you want to do when you are first entering college. But then again, if you aren’t sure what direction you want to take then you should make sure to not get into debt with your undergrad, at least.

  5. The proof is in the numbers. Of course the paradox is how people are going to afford higher levels of education when it rises with inflation.

  6. Jenna, Adaptu Community Manager says:

    I think going to college enables you to get out of unemployment faster, networking, events, etc. all pay off in time.

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