An Interesting Education Spending Chart

As I was revising my intro economics textbook, I came on an odd education fact. I don’t know quite how to interpret it, but it seems interesting.  The chart below shows the share of consumer spending on education, by income class.

What’s interesting that the top 20% of households have dramatically increase the share of their spending that they devote to education, from 1.8% in 1999 to 3.1% in 2009. Meanwhile, the other income quintiles have seen a much smaller increase in education’s share. For example the third quintile–the “middle class” –has  only increased education spending from 1.1% to 1.5% of their budgets.

There are of course all sorts of potential explanations. The top quintile are more likely to send their kids to expensive private colleges; the middle income quintiles are more likely to get financial aid;  the middle income quintiles don’t have the resources to send their kids to college, and so forth. Take your pick.  

But even if we don’t know the reason, we know the implication: Education spending is increasingly concentrated in the high-income backet. The top quintile accounted for 56% of all consumer spending on education in 2009.  That makes education spending one of the most ‘top-heavy’ spending categories.  Is this a sign that high-income households are the only ones who can afford to pay for college? Or is a sign that higher-income households are being soaked?  Your choice.

Comments

  1. Very interesting. Some comments and questions.

    (1) I assume by “education” you mean “post-secondary”.

    (2) How are you defining education spending? Does it include expenditures covering past education services i.e. paying back student loans (which as you know can stretch over decades – mine sure did).

    If it does then you could be seeing the effect of outlays for children as well as outlays covering personal education. As you know education produces higher income. So a household in the higher quintiles is more likely to be in this situation than those in the lower quintiles.

    (3) I’m assuming this includes graduate & professional schools. I suspect there is a correlation to income and attendance to these schools (lawyers beget lawyers; doctors beget doctors…) These schools are significantly more expensive than undergrad programs and could account for that higher percentage.

    (4) I of course realize that by definition the top quintile is “high income”. But in Southern CA, or the NY metro, or many other parts of the country $90,000 for a family with children (which would seem to be the group in discussion) is hardly living large. College affordability is just as much an issue, at least for the vast majority of households composing the lower portion of that quintile.

    (5) I suspect the explosion in MBAs provides explanatory power. There were 112,000 MBAs granted in 2000. That is now well over 150,000. MBA programs are very expensive. They often include professionals going back to college, professionals that are in the lower rankings of that top quintile.

    Cheers!

  2. Both, they can afford it and they are getting soaked. If you factor in how heavily subsidized education is, the top quintile is probably paying even more in taxes to subsidize the other quintiles, all wasted on the currently worthless curricula. I suppose if there’s such dumb money in the top quintile, it only makes sense that the college scamsters graft away their piece of flesh, but it will be funny to see when they get destroyed by a real business like online learning. :)

    • Again, on-line learning is interesitng and has a lot of potential, but the bigger market is in fact for the credentialism you despise. Businesses want to know “Who can I trust to get things done?” People in a position to hire can, and do, ask for all kinds of strange credentials because there’s enough slack in the labor market for thme to get away with it. And because the applicants (and the government) bear the direct costs, not the employers.

    • I think you misunderstand what credentialism I despise. I have consistently said that the current dumb credentialism of requiring a degree will be replaced by more specific and useful online certification. The way it works now is that the degree is just a checkbox, an easy way to throw out a bunch of resumes if they don’t have a degree. Entry-level professionals are made to have a bachelors, even if the subject studied is completely irrelevant to the job, researchers are often required to have PhDs. After that, if the job requires certain knowledge, you’re usually quizzed on job-specific knowledge, often very basic stuff, in which case the college certification is essentially being ignored. The irony of college credentialism is that the degree itself is used just to filter the non-college educated out, then the contents of the degree are ignored. Nobody ever asks for your college transcript, that is the hallmark of the contents being ignored. If the degree had any value as a certification, you could skip the basic questions yet that never happens, highlighting how worthless a credential it is.

      What I suggest will happen online is that we will see the growth of a real certification market. You’ll pick and choose what classes you want and be certified in Basic Writing or Statistics or Fundamentals of Control Systems. As opposed to being forced to take a 4-year curricula, you will choose a handful of certifications. Then the employer will be able to choose the handful of certifications that apply for the open position and automatically weed out using those certifications. This is what they try to do with keyword search of resumes these days, but resumes are too loosely structured and ad-hoc to be of much use, probably throwing out as many good candidates as filtering out unqualified ones. Of course this leads to people stuffing their resume with keywords even if they don’t know anything about that subject. I met a guy once who used to do that, then skim a book on the subject if called for an interview. :) I am against the stupid credentialism that now goes on, but I have consistently said that one of the potential great benefits of the nascent online learning market is that it can create a real certification market that is actually worthwhile.

  3. They are the only ones likely to profit from it substantially, and only the upper ones at that, so they pay and they get.

  4. As far as ‘accreditation’ goes, Rick Perry is seeking to make a Bachelor’s degree available in Texas for a cost capped at $10,000.

    This is huge, and could easily pop the bubble, because :
    1) Texas is where 70% of all new job creation is in the US.
    2) A deluge of young people will move to Texas for the lower cost of a degree
    3) This influx boosts the Texas economy further, creating a virtuous cycle.

  5. Jamie Witter says:

    Mike,

    People in the upper quintile are probably also more likely to go to Graduate school.

    That is no doubt affecting your data, although cannot say to what extent.

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