Understanding the ROI of Career Pathways

At CWM, we remind high-school, college-age students, and their families, that approaching these decisions is similar to weighing other investment opportunities. Whether we are talking about buying a business, funding retirement, or signing up for tuition, what we really care about is the return on investment (ROI) – or more broadly, the lifestyle and financial outcomes it will allow us (or our children) to achieve.

While ROI shouldn’t be the only determinant in higher education or career choice, it is a major factor – especially at such significant expense. In the past 30 years, the cost of tuition has almost doubled. According to College Board, the average estimated cost for tuition, room and board, books, transportation and other personal expenses in 2020-2021 ranged from $26,820 for public, in-state, four-year colleges to $43,280 for out-of-state tuition at the same schools. Private schools cost upward of $54,880 each year.

We believe asking smart questions to establish goals, gathering data, and seeking counsel gives young adults and families a significant jumpstart to make informed decisions and achieve their idea of success down the road.

Here are the steps, questions, and resources we encourage our client families to consider when analyzing the ROI of career pathways and investments in education.

What lifestyle is right for me?

Although this is a big question, we’ve found it’s helpful to start here – in much the same way we ask all our clients to define what it means to them to Live Richly. Envisioning your ideals for personal and professional happiness shouldn’t wait until you’re a middle-aged earner or retiree. Encouraging young people to contemplate, “What will my lifestyle look like as an adult?” is a first step to establishing financial and lifestyle goals.

Breaking this into more measurable pieces can make the big question a bit more digestible:

• Where do I want to live, and what is the cost of living in that area? (Check out this helpful Cost of Living Calculator from Payscale.com)
• What will my house or apartment look like?
• Is extensive time off for travel or hobbies important to me?
• What kind of car do I want to drive?

For example, do they want to drive a Honda Accord or a BMW 5-series? Do they envision renting or owning their home, or even a large estate? If free time is important, they may wish to steer away from time intensive careers known for excessive hours and few vacations, though recognize the likely trade-off is lower compensation.

Answering these questions will establish a baseline for target compensation, allowing for reverse engineering to narrow the field of potential industries and roles. We recommend identifying three potential career options that match financially. To start, Admissionsly offers a useful guide to starting salaries for graduates in high- and low-paying fields.

Then, explore further to find one or two careers that also fit skillset and interests. Online tools such U.S. News & World Report’s Innate quiz enable prospective students to answer a series of questions and see career suggestions based on the young adult’s natural affinity for (or tolerance of) various work environments and job requirements. Is the young adult a budding entrepreneur or does she crave stability? Will he prefer to work in an office or seek a physically demanding role?

Establishing lifestyle and financial goals and cross-referencing anticipated compensation and work styles of various roles leads us to the next step – selecting a major.

Will my major pay for itself?

New research by Third Way offers a detailed look at the ROI on specific fields of study, calculated based on price-to-earning premium (PEP), or the time it takes students to recoup the cost of their degree based on how much more they earn than a typical high school graduate. It shows that nearly two-thirds of bachelor’s graduates earn enough money to cover the cost of their degrees within ten years. That’s hopeful news in the aggregate – but disparities appear when we compare specific fields.

For example, STEM-related bachelor’s programs in nursing, electrical and industrial engineering, aerospace, and construction management were most likely to allow graduates to recoup their investment in five years or less. This held true for graduates with associates degrees in healthcare and technical fields, too. Meanwhile, arts programs such as drama, dance, and music – along with some science fields such as zoology and animal biology – were among the highest proportion of bachelor’s programs with no economic ROI. Associates degrees in human development, teacher education, and audiovisual technologies followed suit.

Beyond identifying a course of study that supports a specific career pathway or pays for itself quickly, the ‘best major’ often is the one that helps you get a good first job. Many people wind up working in careers that have no relation to their degree, but a ‘good first job’ can be a strong platform for learning technical and human skills, networking, and upward mobility.

Where should I go to college?

With more than 5,000 colleges, universities, and trade schools in the United States alone, selecting a higher-ed destination can be overwhelming. Here are a few things to keep in mind:

• Out-of-state vs. in-state: Heading to a university in another state or across the country may be a good fit for a variety of reasons – opportunities for more independence, exposure to different regional cultures and experiences, and access to specialized programs. However, paying out-of-state tuition can double the cost of a student’s education – potentially increasing the need to take on extra debt.
• Public, private, or Ivy League: In 2019, Investopedia published an interesting analysis of the ROI on an Ivy League education compared to public and private universities. Overall, public schools provided the highest rate of return at 51.6% compared to 44.6% for the other two categories.
• Trade school: A recent study by ECMC Group found that many high schoolers are exploring trade degrees, especially since the start of the pandemic. In less than a year, the number of high schoolers who anticipated attending a four-year college dropped from 71% to 53%. Degrees vary but many are in construction, healthcare, or technology – high-growth professions with more than two million job openings in 2021. According to BestColleges.com the average cost for trade school is $33,000 in total, less than one year’s tuition at some colleges and universities.
• Community college: Costing as little as $5,000 a year, community colleges are also affordable options, especially for students who are unsure of their career pathway or intended major, and could benefit from taking prerequisites before transferring to a four-year institution. Some colleges make the two- to four-year pathway seamless; for example, Edmonds College (where I serve on the board) offers direct credit transfer to programs at 4-year institutions including Washington State University (where I proudly serve as trustee), Central Washington University, and University of Washington.

What else should I consider?

Here are a few final pieces of wisdom learned over years of counseling intergenerational families.

First, to make the college experience a successful springboard, I think students should have some skin in the game. Working and contributing financially while completing school ensures they feel personally invested in their education and helps them understand the gravity and motivation of financial obligations. Plus, studies show that students who work during college have greater earning potential in their future careers.

Second, consider talking to a private college counselor (not to be confused with a counselor at a private college) to help with preparation and planning for the higher-education journey, from everything to applications and educational fit to pursuing scholarships and financial aid. As you’ll read in our profile of Kathleen Griffin, a close collaborator of our CWM team, the expert guidance is invaluable.

Finally, if you have questions about how to explore the possibilities and ROI of your young adult’s career pathway and investment in higher education, CWM financial advisors are always here to help, and in addition to advanced planning for established households, offer a Starting Strong program for recent grads and entry level investors. Reach out today for a complimentary phone call to discuss your and your family’s needs.