Education

An apprenticeship or studying for a degree – which is the better choice for young people?

Monday December 04, 2017 Mark Cox

About the research

 

Of course, the answer depends in part on the talents and interests of the individual youngster, but BERL has just completed some research for the Industry Training Federation to examine how capable school leavers, who make different post-school choices, fare in terms of lifetime earnings and wealth accumulation.

 

The research was designed to test the widely held view that that studying for a degree, rather than undertaking trades training, is the best option for young people who have the school qualifications to do so.  And informal research has suggested that graduates earn considerably more over a lifetime than the average person.

 

The Industry Training Federation commissioned BERL to undertake rigorous research to verify whether this is actually correct.  A feature of the research was that it compared people who left school with similar qualifications, some of whom studied for a degree, some of whom undertook trades training, and some of whom elected not to pursue any qualifications after leaving school.

 

The research findings show the accumulated wealth and lifetime earnings of people in the different groups. And they challenge commonly held perceptions.

We modelled three broad career paths:

  1. Undertaking an Apprenticeship and using this as a platform to launch one’s career; or
  2. Obtaining a University level qualification and seeking employment in the desired field after completion; or
  3. Leaving high school after obtaining a level 2 or equivalent high school qualification.

 

Our aim is to assess the financial position of these career paths throughout someone’s lifetime.

Our model captures what we believe to be a sufficient scope of people’s financial position through time, depending on their chosen career. It compares assets to liabilities through time for these people. Financial position is used because a career path is not all about income.

 

The methodology

 

We used average income data for each age (in years) of each career path. We use these three averages and follow them “through time” by looking at each age individually.  We assumed that people buy a house as soon as they meet the minimum deposit requirement, the model solves for this.  The model also allowed for our “average” people to pay off their student loans, take out personal loans for living expenses if their income does not cover these and accumulate savings and Kiwisaver.

 

The results

 

The headline result is that, under some further reasonable assumptions, the financial position (shown below) of our “level 4, 5 and 6” (the Apprenticeship route) versus “bachelor and above” (the University route) is almost completely equal at the end of their career. Furthermore, the “level 4, 5 and 6”person purchases a house earlier, and has a higher net financial position throughout their career than the “bachelor and above”.

This result is driven by the “level 4, 5 and 6” person earning significantly more in the early stages of their career. This, combined with sensible investment, compounds into significant wealth. In the later years of their careers the “bachelor and above” people earn close to $100,000 while the “level 4, 5 and 6” earn a maximum of around $80,000. So the financial positions start to equalize.

 

 

financial pos map

 

Another key result of our modelling is that the path of the “level 4, 5 and 6” person exhibits substantially lower risk; this person purchases a house much sooner and pays off a much larger chunk of the mortgage by mid-career (age 40). This implies that, should the individual suffer an unfortunate event mid-career (for example, a long-term disability) the “level 4, 5 and 6” person is in a better financial position to weather the consequences.

 

For further information, follow these links:

http://itf.org.nz/

http://www.radionz.co.nz/national/programmes/morningreport/audio/2018624031/tradies-better-off-than-university-graduates-report