Education as an investment | Careers and education | Financial Literacy | Khan Academy

At a very high level, an investment is when you're putting, let's say, your money now into something in the hope that in the future you're going to get more than that amount of money back. The extra amount that you get back you would call your return on your investment. Now you can think of an investment in slightly broader terms, where you're not just investing money. You could also be investing your energy or your time.

You could think of it in broader terms that what you're going to get back is hopefully more money, maybe more energy, and more time as well in some future world. That's why you can really view, in many situations, education as an investment. The whole idea here is if, especially if we're thinking about college, is if you are willing to put the time, the energy, and the money.

There are really several costs here. There's the actual tuition cost, there's the room and board costs, which is the living expenses, the food expenses while you're at college, and there's also the lost income you could be working over those years when you're in college. So there's also that lost income. It can be a pretty substantial investment, but the reason why many folks are willing to do that is the belief that coming out of college, they're going to have many more career opportunities—ones that better resonate with their interests and, maybe coming down to financial literacy, ones that give a better return in terms of income.

You might say, "Oh, it might cost a good bit of money. It might cost tens of thousands of dollars or even, in certain cases, hundreds of thousands of dollars to put the time and money into college." Also, the opportunity cost of not working during those years, but when I come out, maybe I'll be able to make two times or three times as much just right out the gate. And maybe ten years down the road or twenty years down the road, because it puts me on a career track, I could make a lot, lot more than I might otherwise.

And once again, I would be doing it in a job that maybe I enjoy more. Now, generally speaking, and I tell this to my own family, I tell this to my own kids, I think that's a good idea—college is a good idea. But you have to tread very carefully when you decide where you want to go, how much you want to spend, and what you decide to major in and how you end up leveraging that major into a career.

Because when you go to a college, folks are going to offer you things like student debt, and they're also going to offer you grants. Grants are awesome because that's essentially people are just giving you money. Obviously, you have scholarships as well, but especially when you're taking on debt, you really have to think about: are you going to be in a position to pay off this debt in the future and have a good standard of living that you hope to have, given the major that you choose?

Both of those are really important because sometimes you might say, "Oh, well, you know, I've heard people in this major can make all of this money," but there might be a lot of work above and beyond doing the major. There might be a lot of hustling involved to make sure you get the job, and there might be people who aren't in that situation, and you're only hearing about the good stories.

There might be certain majors where people are having trouble getting a job, they're having trouble paying down their debt. When you start thinking about what you want to major in, what type of career path you want to go into, how much tuition you want to pay at which universities, I really encourage you to talk to as many people as you can—especially people who have gone down that path, maybe four or five years, ten years ahead of you.

If you don't know those folks, ask the college, ask the university, "Hey, I would like to talk to some of the graduates. I want to see, you know, I don't want to just take your word for it— a college that you have good placement into jobs. I want to talk to some of the recent graduates and see if they were happy paying that tuition, putting that time and energy, the opportunity costs, and see if they think that was a good path or if they have some regrets that they wish they picked another path."

Now, the other thing to think about when you're thinking about investing in your education, there's often a, let's call it a sticker price. If you just do a web search and you were to look at some university and you'd say, "Well, what's the tuition and what's the tuition plus the room and board, which is the cost of living and eating and all of that?"

There are some places that it could look like it's $50,000, $60,000, $70,000 a year when you put it all together. Now, some folks will have to pay that amount of money, which is a lot, so you have to be very careful if you take on that type of obligation, especially if you're taking on debt.

But in a lot of cases, you can get significant financial aid depending on the university. I'll tell you from my point of view—when I was in high school, a lot of my, let's call it my dream schools—when I looked at the tuition back then in the 90s, it was, if you put tuition and living expenses, it was about $30,000, $30,000 to $35,000.

My family—my mom was, I was in a single mother household, made about $16,000 in the year that I was a junior and a senior. I was like, "Okay, there's no way we're going to be able to afford that." But I applied anyway, and the reason why I did is my sister, who was three years older, told me about financial aid because she also went to a similar university.

You don't know what it's going to cost you until you get in and they give you a financial aid package. That package is going to be some scholarship, maybe some grants, and it'll be some loan. When I got that package, I realized that it was actually doable. Now, I still did take on many tens of thousands of dollars of debt, which is real money, and so I took it very seriously.

I asked a lot of questions, I tried to do my best to make sure I was going into a career that I had a good chance of paying off that debt. Even when I was trying to graduate from college, I didn't just rest on my laurels and say, "Oh, I got a good degree; surely someone will walk up to me and give me a job." No, I hustled. I hustled to make sure that I got a job that put me in a good financial position.

So talk to a lot of people, think about these questions. College generally is a good idea, but all college isn't equal, all career paths aren't equal, and what you do with those degrees—they aren't all equal. So really think hard about that, but if you do it, you'll probably make a good investment.