Essay No. 2: The Role of Education

The Demographics of Wealth
How Age, Education and Race Separate Thrivers from Strugglers in Today's Economy
Essay No. 2: The Role of Education

Executive Summary

New research by the Center for Household Financial Stability shows that there's a strong correlation between education and money. More of the former often leads to more of the latter. However, correlation is not causation—there is no guarantee that more education will lead to more wealth. Many other factors might be in play, such as natural ability, family environment, inheritances and even health. 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. In fact, your ability, family background, inheritances or health might be responsible for some—perhaps a large part—of your success even if you hadn't received the education that you did.

These and other connections that may exist between education and wealth are examined in this second essay in our “Demographics of Wealth” series. (Read the first essay, which looked at the link between race and wealth.) All of the essays are the result of an analysis of data collected between 1989 and 2013 through the Federal Reserve’s Survey of Consumer Finances.  More than 40,000 families were interviewed over those years.

For this essay, only those heads of families  at least 40 years of age were studied – because by age 40, the vast majority of adults have completed their formal education. These family heads were broken down into four groups: those without a high school diploma; those with only such a diploma, a GED or a vocational/technical certificate; those with exactly a two- or four-year college degree; and those with a bachelor's degree plus a graduate or professional degree.

Our key findings:

  • The median income for those without a high school diploma in 2013 was $22,320, down 1 percent from 1989; for those with such a diploma, etc., $41,190, down 16 percent; for those with a two- or four-year degree, $76,293, down 5 percent; and for those with an advanced degree, $116,265, up 4 percent. (All dollar amounts are adjusted for inflation.)
  • When looking at wealth (net worth, or assets minus liabilities), the median in 2013 for those without a high school diploma was $37,766, down 44 percent; for those with such a diploma, etc., $95,072, down 36 percent; for those with a two- or four-year degree, $273,488, up 3 percent; and for those with an advanced degree, $689,100, up 45 percent. (The median wealth levels of the top three groups generally increased until the mid-2000s, after which they declined due to the bursting of the housing bubble and to the Great Recession.)
  • Those with more education had stronger balance sheets—more liquidity, a better mix of investments and lower leverage.
  • In most categories, women are outpacing men in educational attainment.
  • When it comes to race or ethnicity, Asian-Americans have the highest graduation rates at every level of schooling, followed by whites, blacks and Hispanics.
  • As for the contributions of successive generations to rising educational attainment, members of Generation X and Generation Y have lifted college-degree levels less than did the Baby Boomers before them.

Read all the essays and watch all the videos in this series »

Contact Us:
Media Contact:
Laura Taylor
314-444-8783
laura.taylor@stls.frb.org

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