Finishing a Degree

Undertaking a degree program is a serious decision that requires careful thought before beginning and an unyielding commitment to finish.  While I believe strongly that human beings should pursue their passions and be willing to change course when changes are necessary, I believe that education programs should be finished once they are begun.

The Bureau of Labor Statistics published a report in 2021 showing the median weekly earnings and unemployment rate for people with various educational backgrounds.  The report presented data that indicates that high school graduates earn 26.7% more than people who have not obtained a high school diploma.  Likewise, an associate’s degree adds 19.0% to the average salary of someone who has graduated from high school.  And someone with a four-year degree can expect to make an average of 38.5% more than someone with an associate’s degree and 64.9% more than someone with a high school diploma.  However, someone who has taken college classes without graduating with any degree can only expect to make 11.1% more than a high school graduate.  The report data indicates similar differences in median unemployment rates of people with various degrees.

I know several people who have enrolled in universities, changed majors multiple times and then quit without a complete degree after 5 or 6 years.  One person started out as a computer science major.  After 2 years, he had 64 credit hours left to graduate with a Bachelor in Computer Science.  But, then he switched to music because he could not see himself working in front of a computer for the rest of his life.  He loves music.  So, he switched to music.  Since he had not taken any introductory music classes, he had 90 hours left for a music degree.  He worked on the music degree for 60 hours and then decided that the job prospects were not lucrative enough and that he preferred to be outdoors.  So, he switched majors to marine biology.  The marine biology degree would require another 60 hours to complete.  After another year in the university, he had earned 154 credit hours and had racked up almost $60,000 of student loan debt.  He realized that he would have difficulty completing the “summer at sea” part of the program because he easily got motion sickness on boats.  The prospect of changing majors again and his large student debt drove him to quit the university.  After spending several months unemployed, he finally got a job as a barista in a coffee shop.  His salary was, arguably, somewhat more than a barista with a high school diploma.  But, after student loan payments, his take-home salary was less.  He feels that he wasted 5 years taking university classes and has little to show for it besides a large debt.

I agree.  Obviously, median salaries and unemployment rates are only one measure of success.  But, I believe that they are excellent indicators of value.  To me, they indicate that completing a degree program is critical and that simply completing a high school diploma before entering the workforce is better than starting a degree and not finishing it.

Leaving the Country to Escape Student Loan Debt

There are so many things wrong with this report that it leaves me speechless.

For starters, if a person is only willing to pay $50 per month for a hammock in the jungle in India, similar accommodations are available in the United States.

Secondly, note the article discusses loans with payments that are $700 per month or less.  I bet these same people paid at least that much between their unnecessary car payments, cell phones, internet access, etc.

And thirdly, $700 per month (the maximum amount mentioned in this article) is only $8400 per year.  Yet the average starting salary for the LOWEST paying college degree (elementary education) is $14000 per year more than the average salary of a plain old high school graduate.

I could go on and on.  It is sad that these types of articles are written because, unfortunately, there are people who read articles like this and then decide to commit to a lifetime of minimum wage jobs after high school.

Notes from Robert Kaplan’s Presentation to Rice Alumni (19-Feb-2019)

On February 19, 2019, I went to a Rice Alumni event at the Federal Reserve Bank in Dallas.  The Dallas Fed is one of twelve Federal Reserve Banks in the United States.  The CEO’s of the Fed banks meet every six weeks or so to set national monetary policy.

Robert Kaplan, the CEO of the Dallas Fed was speaking about the state of the economy.  Peter Rodriguez, the Dean of the Jones School of Business at Rice University, was asking Dr. Kaplan questions.  Late in the presentation, Rice Alumni and their guests asked questions.

Here are some key points that I took away:

  1. Business Pricing Power:  In the current market, consumers have real-time access to prices of products.  They have never had such comprehensive access before.  Because of this, price competition is extremely stiff and businesses are not able to pass on cost increases to consumers.  Dr. Kaplan specifically mentioned the recent steel and aluminum tariffs as costs that businesses are not able to pass on to consumers.
  2. The number of people in the labor force and productivity are the primary drivers of GDP growth.  More people in the labor force yields higher GDP growth.  Likewise, higher productivity yields higher GDP growth.  Technology and education drive productivity increases.  Education is a big problem for Texas because Texas lags the US in general.  And, likewise, the US lags many countries in the developed world.  (More on this below.) Texas’ growth looks positive for at least the short and medium term, however, because Texas is experiencing large population growth.  This is dampening the education disadvantage that Texas has.  Likewise, Texas’ population growth – which results in higher GDP – allows Texas to solve its education problem in the future easier than states with stagnant or declining populations.  Dr. Kaplan specifically mentioned Kansas, where he is originally from, and Illinois.Dr. Kaplan mentioned immigration as a component of population growth in Texas.  But, he did not explore the subject.
  3. Technology helps people with post-secondary educations or specialized training in the trades.  It hurts those with a high school (or less) education.  This is the biggest driver of the growing divide between the wealthy and the poor.  Dr. Kaplan mentioned STEM many times as the path to growth.
  4. Dr. Kaplan specifically mentioned Khan Academy and edX as potentially disruptive forces in the post-secondary education arena.  He stated that education delivery needs to be significantly revamped.  He believes this should be done with steps such as busting teachers’ unions, eliminating tenure for college professors, and financially separating teaching from research at the university level.
  5. The media concentrates on the U3 unemployment rate.  However, the Fed primarily looks like the U6 unemployment rate which considers people who have given up looking for work and part-time workers who would prefer to be full-time.  The U6 unemployment rate is about 8%.  This paints a much less positive picture of the economy than the U3 rate that the media reports.
  6. The US owes $54 Trillion in unfunded entitlements such as social security, medicare, and retiree pensions.  This is a ticking time bomb.  It does not show up in the deficit or national debt numbers that we hear.
  7. 2018 saw GDP grow at a rate of 3%.  That was largely due to the tax overhaul and increases in government spending.  The effects of the tax overhaul are likely over for individuals.  The effects of the tax overhaul for businesses may be longer lasting.  But, that is not clear.  The effects of increases in government spending last year are probably over.  Therefore, GDP will likely grow at 2% or less in 2019.
  8. Dr. Kaplan believes that education spending will yield productivity increases (which will yield GDP increases).  He specifically mentioned early childhood education and that 60% of children who enter 1st Grade behind will never catch up.  He also believes that college prep should have more emphasis at the high school level.
  9. Shale oil/fracking:   The petroleum yield from this kind of oil production is short-lived.  That likely means that the US’ production levels will struggle to maintain their historic high levels and that the oil industry will profit from high oil prices in the future.

Short Commentary

During the question and answer session from Rice Alumni and their guests, one gentleman told Dr. Kaplan that there is either no correlation, or negative correlation, between spending on education and educational achievement levels.  If you think about it, such an assertion is absurd because, if true, the best thing for society (including individuals) would be to spend absolutely nothing on literacy.  Obviously, Dr. Kaplan disagreed.

After the presentation, I spoke with Dr. Rodriguez, the Jones Business School Dean.  I told Dr. Rodriguez that I was surprised by this question and was also surprised that Robert Kaplan did not point out that much of the spending labeled as “education” spending really goes for athletic programs which do not increase literacy.  Dr. Rodriguez agreed and mentioned the huge high school stadium in Allen as a great example.

I told Dr. Rodriguez that I would like to understand the research about the relative effect of employment growth and productivity on GDP.  For example, immigration increases the number of workers in the workforce.  But, immigrants come with various educational levels depending on their circumstances.  So, more immigrants cause GDP to grow.  And highly educated immigrants increase productively and that causes GDP to grow too.  But, illiterate immigrants have the opposite effect on productivity – at least initially.  That means that the positive effects of increased workers are dampened if those workers have lower than average productivity.  Unfortunately, Dr. Rodriguez seemed to take this as a political question and brushed it aside.  It was not meant to be.  I am sure that the Fed has data on this question.  I would love to see it.


How Did Stocks Really Do in 2015?

How did your investments do in 2015?

Any of you who know me know that I am a big fan of investing in stock market index fund. These funds mirror the performance of the stock market as a whole and do not seek to pick and choose winners. Historically, most people who invest in index funds make more money than the people who try to gamble on the performance of a specific company or industry.

One of my favorite index funds mirrors the performance of the S&P 500 Index. The S&P 500 Index measures the performance of the 500 largest companies in the United States. Let’s see how it did in 2015 by way of examples:

In 2015, if you invested $1000 at the end of each month, you would have $11933.78 at the end of the year. In other words, you would have lost $66.22 out of the $12000 you invested.

Or… If you had invested $12000 on the first business day of January 2015, you would have had $11907.37 at the end of the year. In other words, you would have lost $92.63 out of the $12000 you invested. That’s less than 1%.

To put that in perspective, it is interesting to note that if you had sold such a hypothetical investment just 2 days ago, you would have gained more than 1% for 2015.

Remember that stocks are long term investments. It is normal for them to change day by day and from month to month or year to year. Economists have studied stock fluctuations for many decades and have found that there is no real pattern to day to day movements in stocks. If stocks go up one day, that does not mean that the economy is getting better. And if they go down one day, that does not mean that the economy is doing worse.

But, one thing we can say is that, in general, stocks increase in value over 10 or more years.

It is also important to remember that 2015 was the first year in 7 years that stocks went down over the course of the year. (And that was just barely). Where were stocks 7 years ago?

Well… if you had invested $12000 seven years ago, then you would have almost $18000 today.

Things are not so bad after all. And today begins a new year. Good things are in store for those who invest regularly in a diverse portfolio of investments.

How do I know? It has always been that way and there is no reason to believe that things are different now. 🙂

Happy New Year!

Should I Pay a Loan Off Early?

Dear Jim,

I have a 5 year loan for a vehicle that I took out 4 1/2 years ago.  I have 6 months  left to pay and the balance is just over $2400.  The interest rate is 7.75%.  I also have $3000 in cash that I am thinking about investing.  Should I invest it or should I pay off my car loan?

A friend told me that I’ve already paid most of the interest on the loan and that, from this point out, it’s not worth paying off since I’m pretty much just paying principle at this point.


Chuck, your friend is both right and wrong.

Assuming you haven’t made any extra payments along the way, it looks like you borrowed about $24000 to purchase your auto.  Over the past 54 months (4.5 years), you have paid about $5000 in interest.  But, if you keep the loan and finish making the payments over the next 6 months, you will only have to pay $65 in interest.  Your friend is absolutely correct that you have already paid the majority of interest on this loan.

However, it’s probably best to pay off the loan now.  Here are explanations of your two options:

  1. Pay the loan off now.  You will save $65 in interest.  Over the next 6 months, you can save ~$500 each month instead of making payments.  You’ll have $3000 in cash in 6 months that you can invest.  Even if you don’t get any interest on your savings over the next 6 months, you will have saved $65 in interest.
  2. Keep making payments and invest your $3000 in a safe investment like a CD.  You’ll pay $65 in interest on the loan.  If you look around carefully, you should be able to find a CD that pays 0.5% interest. can help you find the best CD rates.  But, at 0.5%, your CD will only provide you with $7.50 of interest income.  Depending on your tax situation, you could pay up to 26% tax (15% Federal plus 11% state if you live in Oregon or Hawaii) on this interest income.  At the end of 6 months, you will have $59. 45 less in your pocket.

It’s clear that the first option is usually better.

One exception may be in the case where you are among the 28% of Americans without emergency savings.  If you have no savings, it may be advisable from a psychological perspective to start building an emergency fund rather than saving the $65 by paying off the auto loan early.  You’ll still have $65 less at the end of 6 months.  But, often, people find it easier to borrow money rather than give up savings.  If you have savings, you’ll carefully think before you dip into it.  With no savings, however, it can be more tempting to label purchases as “emergencies” and charge them to a credit card.

No Longer Funding 401K?

On May 23, 2012, Yahoo Finance posted an article  by K. W. Callahan explaining why he is no longer funding his retirement account.  Here is a snapshot of Mr. Callahan’s article.


Mr. Callahan has a business degree from the Indiana University Kelley School of Business.  Unfortunately, he seems to have forgotten much of what he learned in business school.  There are many misconceptions about the way the equity markets work.  But, this post concentrates on the power of dollar cost averaging and how Mr. Callahan has missed out on a significant opportunity to grow his retirement savings.

Mr. Callahan explains that he stopped contributing to his 401K in late 2007.  At that time, his retirement account balance was about $38000.  He correctly points out that his balance was only $33000 in late 2011 – almost 5 years later.

Assuming he makes about $50000 per year, a 3% contribution would have amounted to $125 per month.  If he had saved $125 per month in a non-interest bearing account, he would have added $7500 to his savings over the course of 5 years.  That would have brought his retirement savings today up to around $40000.

But, a better strategy would have been to invest his 401K in a diversified basket of securities reflecting the total market value, such as the iShares Russell 3000 Index Fund (IWV), and keep contributing.  If Mr. Callahan had done this, he would have had around $45000 as of June 1, 2012.

The reason is simple.  With regular contributions at set intervals, investors are able take advantage of low points in the market.  For example, purchasing $125 could have bought 3.15 shares of  (IWV) on February 2, 2009 — at the low point of the market.  A similar investment of $125 on April 1, 2011,  would have purchased only 1.56 shares.  Catching the up’s and down’s of the market by purchasing set amounts at regular intervals allows investors to accumulate more shares when prices are low and less shares when prices are high.   This is dollar cost averaging.

Obviously, there were months that such a strategy would have left Mr. Callahan’s account with less than $38000.   But, over a reasonably long period of time (years, or decades),  dollar cost averaging using a diversified basket of securities has historically produced much better yields than buying securities all at once and then holding them.  And it has produced better results than government bonds, real estate, gold, or other investments.

Dollar Cost Averaging
Mr. Callahan's Investment Alternatives

The lesson is to keep investing a set amount regularly in a broad range of investments.  Never give up.