What a college degree does and doesn't buy

Research explores the relationship between wealth and education

While educational attainment is strongly correlated with higher income, a new report finds other factors—such as family background and health—may play a larger role in building wealth than most people think, Victoria Stilwell reports for Bloomberg Business.

William Emmons and Bryan Noeth, a pair of researchers at the Federal Reserve Bank of St. Louis, examined the relationship between wealth and educational attainment between 1989 and 2013. They used data from the Federal Reserve's Survey of Consumer Finances and limited their analysis to households headed by someone at least 40 years old. Overall, the survey collected information on 40,000 families.

As in past studies, the researchers found evidence for the value of higher education. Notably, more education correlated with higher income, and more educated households saw their overall wealth rise during the period studied while less educated groups saw their wealth decline.

Between 1989 and 2013, median household wealth:

  • Decreased by 44% for those without a high school diploma ($37,766);
  • Decreased by 36% for those with only a high school diploma ($95,072);
  • Increased by 3% for those with a two- or four-year degree ($273,488); and
  • Increased by 45% for those with an advanced degree ($689,100).

However, Emmons and Noeth say the trend of greatly increasing wealth among more educated households cannot only—or even primarily—be explained by educational attainment. "It's entirely possible that what's learned in the classroom has much less influence on lifetime earnings and wealth accumulation than most people believe," they write.

Study: More education equals more wage growth

"Some important contributors to the economic and financial success of many highly educated people cannot be granted along with a degree," they explain. Specifically, factors such as inheritance, ability, and health care expenditures can play an important role in wealth accumulation.

Even so, Emmons notes that there is still a strong case for attending higher education: "for those who don't go to college, their opportunities look much less promising in this narrow financial sense," he says (Stilwell, Bloomberg Business, 5/5).

The takeaway: A new report finds higher levels of educational attainment are highly correlated with rising household wealth, but other non-educational factors may play a larger role in financial success than is broadly assumed.

Next in Today's Briefing

The highest-paying majors... and why that list shouldn't matter

Next Briefing

  • Manage Your Events
  • Saved webpages and searches
  • Manage your subscriptions
  • Update personal information
  • Invite a colleague