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Education as an investment

Education investment is when people and their families put time, money, and hard work into going to college or learning more after high school. This investment can lead to better job opportunities and a brighter future for the person. Created by Sal Khan.

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Video transcript

- 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 gonna get more than that amount of money back. And the extra amount that you get back, you'd 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. And you could think of it in broader terms, that what you're gonna get back is hopefully more money, maybe more energy and more time as well in some future world. And that's why you can really view, in many situations, education as an investment. The whole idea here is especially if we're thinking about college, is if you are willing to put the time, the energy, and the money, and there's really several costs here, there's the actual tuition costs, there's the room and board costs, which is the living expenses, the food expenses while you're at college, and there's also that lost income. You could be working over those years when you're in college, so there's also that lost income. So it can be a pretty substantial investment. But the reason why many folks are willing to do that is the belief that coming outta college they're going to have many more career opportunities, ones that better resonate with their interest, and maybe coming down to financial literacy, ones that give a better return in terms of income. So 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, and also the opportunity cost of not working during those years. But when I come out, maybe I'll be able to make two times, three times as more just right out the gate. And maybe 10 years down the road or 20 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 wanna 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 gonna offer you grants and things. And 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 and given what you know about yourself? And 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 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. And so when you start thinking about what you wanna major in, what type of career path do 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 4 or 5 years, 10 years ahead of you. And 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 don't wanna just take your word for it, a college that you have good placement into jobs. I wanna 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 think 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 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, or housing and eating and all of that, there's some places that it could look like it's 50, 60, $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, if you put tuition and living expenses, it was about 30, $35,000. And 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 gonna 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. And you don't know what it's gonna cost you until you get in and they give you a financial aid package. And that package is going to be some scholarship, maybe some grants, and it'll be some loan. And then 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. And even when I was starting to graduate from college I didn't just rest on my laurels and say, "Oh, I have a good degree. Surely someone will walk up to me and give 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.