Attending college has become a rite of passage for the youth of America's middle class. But does getting a college degree make financial sense? And if it does, how much should you be willing to spend on a college education? I recently decided to try to answer these questions using rigorous financial analysis. The answers I discovered might surprise you.
Before I left for college my dad asked me what I was thinking of studying. I had just completed a great literature class in my high school so I said, "Well, I was thinking of something like English literature." In a market society, one way of determining whether something is worthwhile is whether or not it enhances economic value. Of course there are many other metrics. Following this logic, if education (i.e., the development of human capital) were a worthwhile endeavor, you should that reflected in higher pay for people with higher levels of education. Fortunately, this is exactly what we see.
In a 2008 study conducted by Bill Adamson and Rita Hooda at South Dakota State University, education levels were associated very clearly with different levels of income as illustrated in the following chart.
Based on these data, it is pretty clear that going to college is a smart economic decision. In fact, just for f