In my previous post, I discussed suboptimal equilibrium that occurs when everyone would be better off without degrees, but individually we all choose to get degrees. In the circumstances I outlined, I forced everyone to assume with me that college is a credential or signal. Essentially, the demand for college graduates is higher primarily because earning a college degree proves to employers that a prospective employer can do hard things.
However, I think that's the worst way ever to think about college. In today's post, I'll explore how parents can help their kids develop career skills in the most cost effective manner possible. Hint- It's to stop thinking of college as a credentialing signal.
College as a credential is a horrible paradigm
A credential, in it's purest form proves that you can do something. Earning an MD proves to people that you can practice medicine to certain standard. A JD proves that you understand the law to a certain extent (kind of- that's actually a credential that drives me crazy). A CFP proves that you know financial laws and are a competent investor. Realtor means that you can buy and sell houses (apparently).
A college degree, in and of itself, proves nothing except that you can do school.
In high school, teachers, friends and even my parents told me things like, "Go to college, it will open doors for you."
Indeed, they were right. A few months after I graduated from college, I got a job at Target working as a Business Intelligence Analyst. My interviewers seemed satisfied to know that I had a basic understanding of statistics, that I knew how to do some basic computer programming (though I didn't know it was computer programming), and that I had a degree in a quantitative field (economics).
I was lucky. Many of my friends spent a few years bouncing from company to company, working as sales reps, customer service reps, and in low level positions until they managed to find themselves in a company that had upward mobility potential.
The fact of the matter is that in the modern economy, a bachelor's degree isn't anything special. 30% of the adult population has a degree. It doesn't really prove much of anything.
One thing that I hope to never tell my kids is that they should go to college because it will open up doors for them. It won't. A generic college degree is too much of a commodity, and it isn't helpful to young people (particularly first generation college goers) to tell them they need to attend college.
If my kids have no idea what they want to do with their life at 18, that's fine, but I'm not going to push a six figure option as the solution. If my kids want to be generic, I would rather have them do it on the cheap. Maybe they will find their niche without a college degree, or maybe they will figure out what they want to be after a few years in the work force. Is it really that bad for someone to start college at 21 or 22?
The importance of specialization
I believe that the reason our society perpetuates the myth of college as a credential because in some cases college actually serves as a credential. For example, most Registered Nurses become registered nurses through a nursing program in their college. Likewise, teachers become licensed during their undergraduate degrees. Accountants get most of their training in undergraduate programs, and many vocational programs (dental hygiene, plumbing, welding, etc.) offer valuable credentials.
However, just because some people get their credentials from college, doesn't mean it's valuable as a credentialing service. At it's best, college offers students the opportunity to specialize.
Now, I just need to clarify. Degrees do not mean specialization. Learning to create something valuable is specialization. Sometimes college degrees offer opportunities to specialize, and other times they don't.
If you're the type of person who wants to work for someone else, then specialization is the path to high wages. Highly specialized doctors earn a lot of money in our economy. Programmers who rock at Ruby on the Rails earn a lot of money. Most excellent engineers earn a lot of money. Business intelligence consultants, marketers, great graphic designers, and technical writers all earn a lot of money.
As a parent, if I don't see that my kids have an internal drive towards entrepreneurship, then I'm going to push them towards specializing. Not every specialty requires a college degree, but some do. Certainly the medical professions require degrees as do many finance related professions. Marketing, computer programming, and graphic design don't require degrees, but they do require some sort of education.
I want all my kids to learn how to be valuable employees, and I plan to take it on myself to teach them about earning money by working for others. However, I want to be sure that they understand that the more specialized they become in a field that people value, the more they will earn.
If my kids aren't entrepreneurial geniuses, then they will need to specialize in something. Some people can learn valuable skill sets through free and low cost internet based learning, but other specialities traditionally require degrees and hands on learning. I expect that one or both of my kids will want to be "specialists" and that they will require a degree. Specialization is the reason that I'm saving for college.
Entrepreneurship as a college alternative
The other way to (sometimes) make a lot of money in our current economy is to be an entrepreneur or a business owner. I think that entrepreneurship is something of a cultivated personality trait. That is to say, some people are big dreamers, some are big doers, and some are natural leaders. All of those people can be successful entrepreneurs if they learn to think as an entrepreneur. Even unexpected people can become entrepreneurs in their own way. For example quiet people can learn how to make money by using a blog as a platform to earn money. (Loud people too, that's what I've done).
If I have a kid who is always trying to solve a problem, to make an invention, to boss around all the neighbors or earn a buck, I want to encourage them toward entrepreneurship rather than college. A few years figuring out how to make a business work while living on my dime is not the worst thing that could happen. Although to be honest, I would really like to see any entrepreneurial kids start earlier (high school) rather than later. As an entrepreneurs parent, I can make it safe for them to fail, and give them a few financial resources for them to get started.
I would certainly rather spend a few thousand dollars when my kids are in high school to help them learn entrepreneurship then pay thousands for them to get a degree that they don't really want to use.
I'm a wife, a mom, an employee, and a personal finance nerd who is devoted to spreadsheeting my way through life.