Should You Get a Degree?

Many young adults have asked us for advice on if, when, and where to seek higher education. Often this is people in our personal lives, but sometimes this comes from clients asking a question while we are otherwise working on something else because our opinion is respected.

This question is actually a fairly good proxy for breaking down some types of decisions into core components, a skillset used in strategic decision making and a variety of other business processes.

With that in mind, lets explore if people should go to post-secondary education.

The question of if one should go to school is roughly broken down into the following components:

1. What is your objective?

2. What is the cost/benefit of school in relation to this objective.

3. What is the opportunity cost compared to any identified alternatives.

To expand, lets use some examples of real people with names anonymized.

Jane, Tiffany, and Clara just finished high school and says they wants to be doctors.

First, why does she want to be a doctor, what is the objective?

Jane wants to be a doctor because it is all she has ever dreamed of and virtually all other factors are irrelevant. 

Tiffany wants to be a doctor to make her parents happy.

Clara wants to be a doctor because they make a lot of money.

Let’s explore each based on each of these different objectives.

Jane – Lifelong Dream / Life Purpose

If becoming a doctor is Jane’s lifelong dream, then going to school has massive benefit.

Doctors are licensed and regulated professionals that require higher level education. If Jane does not go to school, she effectively cannot become a doctor.

If this is her life’s purpose, then she ought to be willing to accept quite extreme costs in pursuit of this objective.

So long as the cost does not get in the way of the overall objective of becoming a doctor, it

would likely be tolerable.

As an example, a financial cost that makes Jane near-destitute would be tolerable so long as this effect does not make it so she fails her program or cannot perform as a physician.

If this is her life’s purpose, Jane would be willing to accept living in a shelter, minimal or no free social time, etc. so long as she can still become a doctor.

When looking at opportunity cost, Jane would need to identify if there are other professions that meet her ‘need’ to become a doctor. 

If becoming a doctor is placed on such a pedestal, then nothing realistically compares, no other healthcare profession is relevant, etc. then this element is significantly simplified.

Some readers may find this version of Jane to be unreasonable or mentally unwell, others may find they identify with her as someone with a very focused passion. This actually doesn’t matter, if one ‘steps back’ a bit, the individual/client has clearly identified their objective, it doesn’t matter if one thinks it is unreasonable, it is still their objective.

With all this in mind Jane should:

1. Create a plan to become a doctor.

2. Map out the time and resources it will take.

3. Ensure this resource cost will not negatively impact her ability to become a doctor.

As part of mapping out the time and resources Jane will ought to also plan for if there are any setbacks, it is not guaranteed that she will ace every course and placement in her

possibly over 10-year project (Bachelors + Medical School + Residency).

Tiffany – For the Family

Tiffany’s primary reason to go to school is because her parents have told her so.

The cost/benefit in her case will be the perceived benefit of pleasing her family against the cost of pursuing this schooling. She also might want to consider the sunk-cost reality of achieving a medical degree where, once obtained, pivoting to do something else might be

less practical.

This means that she might have to consider if becoming a doctor at the end is in the benefit or cost category for her ideal long-term life goals/vision.

Once that gets worked through, it can be compared against other long-term options. Does Tiffany have a particular career passion that is not being a doctor that her parents greatly dislike? Is there something that she wants to do, but has not broached the subject with her family yet to discover if they actually disprove of the idea or are actually ambivalent?

Could this be the case where her family just wants her to be financially secure and happy and doesn’t actually care how she does it in particular and this is all just a communications

breakdown?

This case has a lot of uncertainty before a more concrete decision can be made, so much of the work may need to be done before starting a conclusive decision process.

Clara – Wants to get Paid

Clara is much more straightforward. This is a numbers question and comes down to income against time required to obtain.

Assuming Canadian numbers:

Clara’s bachelor’s degree tuition will be approximately $6,000 - $10,000 per year.

Medical school tuition will be approximately $10,000 - $30,000 per year.

There are some other costs but we can assume those will either be factored into the tuition range or would exist regardless of what Clara does in these eight years so they are comparatively irrelevant.

This puts Clara’s costs of schooling to become a doctor (before opportunity cost) at approximately $64,000 - $160,000.

This gets weighed against the doctor’s salary. As a resident, this is the position she would be in after medical school, she starts at around $60,000 - $70,000. Depending on sub specialization this range could be higher and the residency duration would be somewhere between 2 and 7 years.

Once a medical doctor, the average gross annual compensation for a doctor in Canada is $230,000 - $520,000 depending on specialization. 

Additionally, as this is gross, not net, for many doctors in Canada that effectively run a business and have expenses that impact this number, the final net number may be considerably lower.

Here are some things Clara should consider when doing the opportunity cost comparison:

1. Not going to school and just working.

The lowest minimum wage in Canada is $15 an hour. There are about 2,000 working hours in a year for a standard full-time job.

This works out to an absolute minimum of $30,000 a year for Clara if she works any full-time job in Canada.

There is going to be an assumption here that full-time school and full-time work are mutually exclusive. While part time of one and full-time of the other might be possible, the reality is that Clara could instead have a full-time job + a part time job, or do full-time school + part time job. The relevant question is the opportunity cost of full-time school against a full-time job.

The amount of money she does not make by going to school for eight years is a minimum of $240,000.

Added onto her tuition, school has actually cost her $304,000 - $400,000.

This is assuming: 

• The lowest paying job in the country 

• No promotions or pay raises 

• Does not adjust for the value of money now versus later

• Being advantaged by a lower tax bracket

• 
  

When comparing these two the question becomes: how long until the doctor salary catches up to and outpaces the cost to obtain the position?

This is actually really simple mathematically. Let’s assume Clara would make an average of $100,000 a year as a doctor; some years in the residency it is lower, in later years it would be higher. We will also assume she works the worst job possible and her tuition is as low as possible (biasing towards medical school for the example).

This is a solve for X with X being years. Setting the clock to start after the school is over:

Minimum wage job = 30,000x + 304,000

Doctor = 100,000x

The problem is structured as 30,000x + 304,000 = 100,000x

Solve for x

Accounting for the initial 8 years: After 12.34 years, or 12 years and 4 months, the doctor will start making more money than the minimum wage worker in this example.

If both versions of Clara are 18 when they make this decision, then Clara will have more money until she is 30 working minimum wage, and more money after 30 becoming a doctor.

Obviously, this is an oversimplification, but more factors can be introduced and running the numbers again for a more accurate comparison is trivial in comparison to the gravity of deciding one’s life’s trajectory.

The example that will commonly be brought up in a Canadian context would be to “go into the trades”. To explore this Clara would need to:

1. Figure out what skilled trades she is willing to do.

2. Determine the cost and duration of the program.

3. Determine how much they get paid and the duration while progressing through their qualifications (apprentice, journeymen, master, etc.).

4. Compare it against the doctor example.

Ideally, these comparisons would also include adjustments for tax bracket, would focus on net-income, and would consider the value of having financial flexibility earlier (can take advantage of earlier appearing opportunities).

If medical doctor is not the dream or initial position, that is perfectly fine. Replace it with whatever the initial goal is and work through the problem.

The idea is the method of framework, not the particular example.

Learn more and watch the associated video here.

Vezina is the CEO of Prepared Canada Corp. and is the author of Continuity 101. He can be reached at info@prepared.ca.