Investment refers to postponing of consumption for future benefits and returns. Large categories of persons such as individuals, corporations, and government agencies save part of their income to accumulate funds enough to carry out large projects. Capital investment involves asset purchase in prospect of its future increase in value. However, investments, either asset based or human capital based, encompass long-term procedures that entail high risks as well as costs (Becker, 2009). Asset based investment consist of property, equity funds and securities while human capital investment includes educational programs such as a business degree course. This paper discusses my decision to invest in education and approximate returns on the investment.
Education investment is less risky but highly expensive due to high program fees and other costs related to the course. My education investment, however, may be looked at as a consumption good aimed at boosting my future incomes and benefits. My decision to pursue a business degree course was prompted by good analysis of what the course offers in terms of skills and employment returns. A study carried out by Graduate Management Admission Council concluded that business trainees were highly employable, and well equipped with academic credits to develop their professional knowledge and satisfaction (Bundy & Norris, 2011). My analysis gave me supportive reasons to value the business course highly. One of the reasons is the career progression aspect to advance skills, abilities, and personal cognition. A business degree is treasured due to its value in one’s educational as well as managerial growth. This is enhanced by the role played in developing skills, working on difficult tasks, along with the ability to start one’s own business. In addition, my decision was influenced by the high prospects of employment opportunities. A business degree graduate may earn approximately US$100,000.
Although this form of investment is rewarding and principal in one’s life, a number of costs and expenses are involved. This also calls for one’s time and other sacrifices in the persuasion of the program to earn better returns to offset the expenses. The costs include tuition fee, expenditure on textbooks, along with other living expenses. In addition, the search for school, application procedure, interviews, travel expenses, and other support activities are costly to an individual. For instance, a finance degree program in London Business School is at a fee of $134,152, training fee being $77,854. University of Michigan offers the same course at an annual fee of $24,034, which includes tuition fee and other learning expenses. In addition to the analysis, considerations for a program at the University of California showed an estimated cost of $107,456 with a budget of $77,270 to support other program requirements. This investment is costly in terms of financing with an approximate of 6.8% interest rate on loans. More so, education loan may be difficult to access due to the security aspect and increased cost of servicing (Becker, 2009).
The prospective future income after a business degree is highly promising, ranging from a salary of US $85,000 to $100,000. Nonetheless, future incomes should be discounted to take care of the time difference and inflation aspect. Future returns motivate an individual to pursue the course with the hope of meeting all costs and expenses incurred in the program at an earlier stage of employment. Other cost factors include time and money spent while comparing different colleges, whether public or private, whether to pursue an online program or on-campus course, along with boarding and room service expenses.
The estimated length of time needed to recover my investment depends on salary offered and time spent in search of employment. The sooner a job opportunity arises and the higher the salary, the sooner I recoup my investment. A business degree course is rated among the best courses that repay education investment at an earlier stage due to its marketed importance and expansive skills (Hwang, Liao, & Huang, 2013). To calculate how long it takes to pay back educational investment, less pre-adjustment salary from projected post-graduation earnings and thereafter division of the aggregate costs incurred in the business education program by the wage difference is required. Adding to my ambitions was the analysis of the net benefits after meeting all the costs and expenses, and the control I had over my goals and objectives. To my advantage, finance is the stamina of every business organization. This increases the employment opportunities of a business degree graduate almost in every industry. Business courses equip an individual with mathematical, statistical, technological, ethical knowledge, and expertise needed in organizational administration. This includes accounting skills for critical thinking, project development, and problem analysis.
Business degree exposes a graduate to large fields of employment such as financial analysis, advisory works, planning, and underwriting duties. These opportunities can be sought in government as well as private sectors such as banks, insurance, and brokerage firms, along with corporations. Skills gained include business planning and strategy formulation, taxation, managerial accounting, and auditing plus communication principles. Other opportunities that develop personal and corporate skills include non-profit organizations (Bundy & Norris, 2011). Business knowledge enables individuals to prepare for their entrepreneurial applications. As a personal goal, this development is essential to realize individual goals and improve the living standards due to enlarged returns. In the furtherance of a business degree, students incur lots of debts to service the program and thus a deep analysis of Return on Investment (ROI) is important. It is vital to answer questions such as when debts are expected to be repaid, and when the investment would start producing returns before deciding the school to attend.
If a business degree course costs $115,000 on average, and there is an opportunity cost of investing in the program of $50,000, time taken to recoup investment is calculated by adding the opportunity cost to tuition fee and dividing the sum by salary difference after the course. For instance, if, after the degree, the salary increases from $40,000 to $90,000, then the investment would pay back after 3.3 years. That is, 115 000 + 50 000=165 000, 90 000 – 40 000=50 000, 165 000/50 000= 3.3. This means that the income earned later than pay back period is the ROI. Trouble in calculating ROI arises due to the difficulty in quantifying skills and intellectual abilities into numerical measures. However, ROI on business degree investment also demonstrates instability over time. Studies link education returns and risks not only to the time taken to pursue the course but also to the degree pursued (Hwang, Liao, & Huang, 2013).
In conclusion, human capital investment portfolio forms the main factor in an individual’s wealth, owing to its influence on decisions concerning the stock market. Risk return tradeoff involves the analytical thinking of program risks such as labor market failure and prospective incomes. Specialization provides a chance to carry on some further research on business trends in the market, industry, or government agencies. To advance professional know-how, it is important to imagine beyond primary expertise and focus on vital business skills that place one on a better position in employment.
References
Becker, G. S. (2009). Human capital: A theoretical and empirical analysis, with special reference to education. Chicago: University of Chicago Press.
Bundy, P., & Norris, D. (2011). What accounting students consider important in the job selection process. Journal of Applied Business Research (JABR), 8(2), 1-6.
Hwang, W. Y., Liao, S. Y., & Huang, M. L. (2013). Real option, human capital investment returns, and higher educational policy. Economic Modelling, 31, 447-452.