(Bloomberg Business) — With graduation season around the corner, more than a few U.S. families are probably wondering just how much that college degree will be worth.
There’s little doubt education is associated with higher income, better financial decision-making and more wealth. However, issues that are harder for an individual to control – what type of family you come from, whether you get an inheritance, or how healthy you are — also play a growing role in determining your net worth, according to a new report by researchers William Emmons and Bryan Noeth at the Federal Reserve Bank of St. Louis.
Education “is important, but it’s not the whole story,” Emmons, a senior economic adviser at the St. Louis Fed, said in an interview. ”You can’t simply send everyone to college and expect to solve all the social problems that we have, including problems in the job market.”
Family background, such as your parents’ social class, occupation, education and income, also has a hand in wealth- building, Emmons and Noeth found. Wellness can play a role because people who are fit can work longer and incur fewer health-care expenses in retirement. There is also what sociologists call “assortative mating,” or the tendency of highly educated people to marry each other.
The bottom line is that these other influences help translate income into wealth. The result is a growing gap between the net worth of more- and less-educated families even as the disparity in income stays fairly constant. The following chart depicts the wealth-to-income ratios of households led by someone 40 years old or older with various amounts of education. The rate shows how easily a family can turn earnings into net worth.
“Increasing the educational attainment alone of an individual or group is unlikely to result in all of the positive effects that are hallmarks of families with advanced education,” the researchers wrote in the paper. “Some important contributors to the economic and financial success of many highly educated people cannot be granted along with a degree.”
While the U.S. has taken strides to make going to college more accessible, the financial outcomes of those who don’t get additional schooling have deteriorated. That means if four years at a university isn’t a good fit for you, your economic picture has gotten bleaker.