Decades ago, the decision to go to college was considered an exception to the rule. College wasn't a requirement to land a steady job; instead, the ability to demonstrate real-world job skills was. However, the American job market has changed drastically, and now attending college is almost a must if you want any chance at career advancement.
The value of a college education
According to figures from the Pew Research Center, a millennial aged 25 to 32 who didn't attend college earned a median income of $28,000 in 2012. Comparatively, a millennial in the same age range who graduated with at least a bachelor's degree earned a median of $45,500 in 2012. This $17,500-per-year gap is huge, and it's only been growing over time.
In 1979, when early baby boomers were aged 25 to 32 (to keep this comparison apples-to-apples), those who went to college made just $9,690 more than those who didn't. In just 35 years, this earnings gap has nearly doubled! Furthermore, millennials who graduated college are three times less likely to be unemployed and almost four times less likely to be living in poverty.
Put plainly, a college degree is a must. But obtaining that all-important degree can come with a steep price.
Getting your degree is no walk in the park
Based on data from the Labor Department released late last year, college tuition costs between 2003 and 2013 rose by a staggering 79.5%. To put that into perspective, the Consumer Price Index, which is the true gauge of inflation in the U.S. economy, increased by just 26.7% over this 10-year period. Even medical care costs rose by only 43%, meaning college education costs are increasing at a pace far faster than practically everything else.
This means high school graduates sometimes need to go deeply into debt in order to finance their education. As of 2012, per the Project on Student Debt, 71% of all college seniors carried some form of student loan debt, with the average graduate lugging around a burdensome $29,400 in student loans. Between 2008 and 2012, average student loan debt grew by roughly 6% per year.
What the typical high school student is left with is the conundrum of needing to go to college in order to have more career advancement opportunities, but also wondering how to fund their education without literally breaking the bank.
Fighting an uphill battle
Most college students are familiar with this struggle. However, this is a particularly difficult battle for women.
Pew Research noted in March that postsecondary enrollment for women has been on the rise for much of the past two decades. In 1994, 63% of recent female high school graduates went to college, while just 61% of men went to college. Fast-forward to 2012, and male college enrollment remained steady at 61%, while female enrollment jumped to 71%. You might say women are leaving men in the dust when it comes to seizing their career advancement opportunities by attending college.
Unfortunately, when it comes to equal pay, women aren't seeing their fair share for a commensurate degree compared to their male counterparts. Though the magnitude of the gender pay gap depends on the source -- The White House noted this year that women earn just 77% of what their male counterparts earn in a year, while a Pew Research study indicated a smaller gender pay gap of 84% -- the fact remains that women have to work harder to get ahead.
But what women may not realize is that their superior college-participation rate relative to men may be setting them up to outperform over the long term if they diligently save and use both time and compounding gains to their advantage.
The power of time
Let's return to the example above that highlights the pay gap between college-educated millennials and those who merely have a high school diploma, and we'll demonstrate just how powerful of a tool time can be.
According to Pew, there's a $17,500-per-year gap in annual income between graduates and non-graduates. Assuming a graduate began saving this difference at age 25 and put this money under their mattress until they reached age 65, they would have accumulated a cool $700,000 in savings. In today's dollars that might seem impressive, but considering that inflation tends to double the price of goods and services every 20 years or so, this $700,000 wouldn't get you very far into your golden years.
Now, let's assume that instead of putting that money under the mattress, our fictitious graduate instead invested it into the stock market. I know what you're probably thinking here: "Didn't the stock market lose more than half of its value just a few years ago?" The answer is yes, it did. Stock market corrections and recessions are an inevitable part of the economic cycle.
However, if you take a step back and look at how the stock market has performed over the long term, beyond just a few years, you'll observe a unique trend of asset outperformance. Throughout history, the stock market has averaged a return of approximately 8% per year -- well ahead of the average annual return of bonds, CDs, and physical metals like gold. If our investor began with no money but diligently saved this $17,500 pay gap each year and invested it into the stock market, which earns an average of 8% annually, they would have nearly $4.9 million by age 65! That's seven times as much as our graduate would have pocketed by simply saving the money.
How you invest matters, too
Yet saving for the future and investing in the stock market -- a proven wealth-creator -- is only one aspect of how women can narrow the gender pay gap over the long run. The other involves picking out the right investments.
What are those "right investments," you wonder? They're great companies led by excellent management teams that genuinely care about their customers and their investors. They also tend to be on the cutting edge of their industries. These are companies that you're proud to tell people you're invested in because they're making positive changes on the world. These are also the type of investments that Motley Fool co-founders and brothers David and Tom Gardner recommend to investors in Motley Fool Stock Advisor.
Stock Advisor isn't your run-of-the-mill investment newsletter service. It won't promise you unrealistic overnight gains, nor can I guarantee that it's right for every investor. What I can tell you is that David and Tom Gardner are investors working for other investors, and if you're not happy with the service, they'll refund your money in full for up to one full month.
Chances are, though, that you probably won't want to leave, as Stock Advisor has handily outperformed the S&P 500 since its inception in March 2002. In fact, Stock Advisor's annualized return of 17.7% trounces the average historical return of the stock market. These picks include Disney (NYSE:DIS), which was selected in June 2002 and is up more than 4,000%; Amazon (NASDAQ:AMZN), which was recommended shortly after the dot-com bubble and has returned 2,000% for investors; streaming content provider Netflix (NASDAQ:NFLX), which recently crossed the 2,700% return mark; and online travel site Priceline (NASDAQ:BKNG), which is up 45-fold since being recommend in May 2004. This is the power of time and having investors working for investors in your corner.
Your path to $79 million
Let's return once more to our fictitious graduate who is out-earning her non-college peers by an average of $17,500 per year. If she were a Stock Advisor subscriber earning the service's annualized return of 17.7% per year while saving and contributing $17,500 to her investments annually, by the time she retired at age 65, she'd be sitting on a cool $79 million!
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