A college degree is so powerful, that children growing up in rich families risk poverty without one. At the same time, children coming from poor families want to go to college and obtain a degree in accounting or even healthcare management so that they have a better chance of earning a better salary. A college degree may be risky, but it is also a critical element to income mobility.
I’ve been writing about college finances so much lately, I’m starting to think I made a mistake in naming this blog. My goal has been to provide sobering information about college to help families and young adults make wiser education decisions and thereby save tens of thousands of dollars plus unbearable disappointment. That’s why I’ve talked about the odds of succeeding after college and how high tuition costs could risk putting college graduates at a disadvantage to high school students. Today, it’s all about class and income mobility.
The Fed put together some probability data showing the odds of earning different income quintiles based on level of education and the income range of parents. In non-boring-econ-speak, that translates into what are the odds of a rich kid staying rich and a poor kid staying poor after getting a college degree?
You’ll find a money-nerd graph throughout the topics below. I’ve highlighted the important sections in each.
A High School Diploma is the Road to Poverty for Rich Kids
There is a shibboleth in modern social thought that once your family is rich, it’s rich for all eternity. This perception is not true. In fact, data shows that having less education is the path that many rich children find their way into poverty.
Based on the Fed’s findings, a rich kid with a high school diploma has a greater chance of ending up the lowest wage earner than a poor kid with a college degree.
A College Degree Almost Guarantees Rich Kids Stay Rich
Out off all the interesting characteristics on the graph, there was one demographic worth betting on. If a child, born into a rich family goes to college, they are almost guaranteed to remain wealthy. Children in this category have over a 50% chance of making it to the top quintile.
My guess on the differences in odds for rich children is that parents use a college degree as a rite of passage for passing on wealth. Despite popular perceptions, most of the rich parents I know want their children to earn wealth, not just inherit it.
Poor Kids with a Degree have Similar Odds of Wealth as Rich Kids without a Degree
When comparing the look of each distribution. You’ll notice that distribution showing the income probabilities of rich kids without a degree is very similar to the probabilities of a poor kid with a college degree.
A college degree is almost a perfect equalizer.
Middle Class has 40% Chance of Earning Riches with College Degree
Without a college degree, a child born in a middle class family has slightly better than 10% chance of earning a top salary. However, a child in the middle class with a college degree has better than a 40% chance of netting a high paying salary. A degree, nearly quadruples your chances.
Getting a college degree is risky. You are far better off being unemployed with no college debt, than unemployed with $30,000 in student loans. However, if you want to improve your chances of income success, then you should work towards a degree. Just be sure that you understand that there is no guarantee with a degree, unless you were born into a rich family.
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