There are a lot of problems facing humanity nowadays. Education is the main consideration of people. There are lots of reasons why it is profitable to invest in education. The first reason is that education allows people to use their intellectual abilities with the greatest profit. The other reason is that education is one of the guarantees of stability in life, especially taking into consideration the modern business affairs in the world. And one more reason is that education is one of the methods to improve people’s quality of life.
Lots of people, having received education search for new ways to improve it, and as a result, they get additional education. Investing in education is very profitable but, at the same time, is a very risky affair.
The compelling arguments for additional education may be as follows. People, who have 9th grade or less, have the average income $16,252. The individuals, who received Master’s degree, have the average income $46,768. Medians have respectively $12,770 and $39,305. The difference is $30,516 annual income. (Palacios, 2004, p. 25) So, the investing in the education brings some financial profit and increases people’s annual income.
Our research paper is based on the information about Natasha Kingery, who is 30. She is planning to retire at 65. She has a Bachelor of Science degree in computer science and wants to get additional education. Now she is hesitating around two educational programs, we should help her to choose one of them. (Berk and DeMarzo, 2007)
The situation is as follows, Natasha earns $38,000 a year and expects its growth at 3% per year. She has $75,000 which she had inherited from her aunt, but she cannot use them right now as she has invested them in 10-year Treasury Bonds. She has a choice: to attend certification in network design or to go back to school for an MBA degree. (Berk and DeMarzo, 2007).
Before giving some advice on what way to choose we should investigate the profit from these two options. If Natasha chooses the first option, a certification in network design, she will automatically promote her to a Tier 3 field service representative in her company (how she is as a Tier 2 field service representative). The income on this new level is $48,000 ($10,000 more). The expectations are the same, 3% per year, according to the growth of her annual income. The program requires one year of study and costs $5,000. (Berk and DeMarzo, 2007).
The other option is an MBA degree. It will allow her to take up the position of manager in her current company. She will be paid $58,000 ($20,000 more than current income). The expectations are the same, 3% per year, according to the growth of her annual income. The program requires three years of study and costs $25,000. (Berk and DeMarzo, 2007)
After making some calculations, we are going to introduce the reader to Natasha’s annual income which she will be able to get in ten years after finishing her education. If Natasha chooses a certification in network design, she will have an annual income of about $62,629 in ten years. The other option will give her a $75,677 annual income in ten years. During calculations, we took in our mind the 3% growth a year. The difference is $13,048, which is rather notable, taking into consideration that every year the income will continue to grow by 3% per year.
Natasha will be able to get back her money, spent on an MBA degree, in four years. If she chooses a certification in network design, she will get back her money in five years. After this analysis, we may make a conclusion that the MBA degree is a better investment of money as the financial profit will be higher, and money, spent on education, will return faster.
The next step of our investigation is to calculate what installments she will be able to provide according to her income if she decides to take up an MBA degree. Her education will continue for 3 years. Natasha has an annual income of $38,000. Taking into consideration her 3% growth, we will get such numbers: in a year she will get a $39,140 income, in two years $40,314 and in three years $41,524. Natasha has invested her $75,000 in 10-year Treasury Bonds. We may obtain Natasha’s closing yield or interest rate that she is earning per month (Historical prices for 10-year Treasury Bonds) from the table, which is put in appendix 1.
Hence, we may make a conclusion that Natasha is able to allow payment of a debt by installments in three years, paying her tuition once a year when she gets her dividends from investment and supplying them by savings which she is able to lay by every month from her salary. She also may sign a human capital contract, according to which she will be able to pay 10% of her income for several years, till she will not be able to pay a debt.
In conclusion, we followed the cases of investment in education, taking into consideration Natasha’s examples: a certification in network design or an MBA degree. Both cases were appropriate, but the investment into an MBA degree is considered to be more profitable. Natasha will have to spend three years studying and will pay $25,000, but she will be able to receive her money back faster, and the quality of education, which she will get, will be higher, which will allow her to increase her annual income.
- Berk, J., & DeMarzo, P. (2007). Corporate finance: Custom edition. Boston: Pearson Education.
- Historical prices for 10-year Treasury Bonds. Online. Web.
- Palacios, M. (2004) Investing in human capital: a capital markets approach to student funding. Cambridge University Press.
Appendix 1. Prices