College graduates are overestimating initial earnings by $50K per year

Parents Forum
1

Today’s article from CNBC:
https://www.msn.com/en-us/money/careersandeducation/college-graduates-are-overestimating-the-salaries-theyll-start-out-at-by-2450000-report-finds/ar-AAWJoMI?ocid=uxbndlbing

The study showed that the typical college student overestimated starting pay by 88%. This was an eye-opener for me, as starting pay and mid-career pay is something that I have taught my children to consider as they considered various majors and career paths. It is one thing to be off by 20% because employer demand changes, and another to be off by closer to 100% as that suggests a huge disconnect from reality.

7 Likes
2

Seems similar to a recent thread where posters were arguing about pay levels in computing using examples from “elite” niches that paid double or more than typical for technical employment in computing that CS graduates seek.

But then perhaps the overestimation of pay levels at graduation could have a problematic effect of causing students and parents to take more student loans that would be advisable in the context of probable post-graduation pay levels.

5 Likes
3

They do not provide any data on the population of students who were surveyed. They surveyed 1,000 students online, across 10 “fields” which are, in fact, made up of disparate subfields. Were the students at publics universities, expensive private universities, where in the country were the universities attended by these students? The students themselves, were they from wealthy families, poor families, East Coast, the SE, etc.

Also, how were the questions written? The wat=y questions are written can determine what the answers ill be.

So I call BS, because so many things can affect these results, and there are so many confusing factors that they are meaningless. Unless I see the questionnaire and know who the students were, not to mention how were these 1,000 selected. After all, there s no way to get exactly 1,000 respondents.

Every bit of this “research” is opaque.

Seems to have been commissioned by a bunch of Boomers to “prove” that “young people today” (they probably called theme “Millennials”) don’t want to work, are lazy, etc.

Here is a simple an great rule for studies. If it clearly and strongly conforms to the bias held by any specific group, especially one which as a lot of wealth or power, it is probably unreliable, to say the ;east. If they refuse to show their methodology, I conclude that it’s trash.

This meets the criteria for being trash.

8 Likes
4

The study may be trash but the truth may be universal.

I regularly interview candidates who tell me “Everyone knows” you have to negotiate your starting salary. “Everyone knows” that when you leave a company, you’ll get a MINIMUM bump of 15% at the next job. “Everyone knows” that you can say “I’d like a sign-on bonus” (when you’ve already gotten a competitive and aggressive offer) and the response will be “sure, here’s an extra 25K because we want you to be happy”.

People (young grads, mid-career, soon to be retirees) don’t have a great command of money, personal finance, who earns what, etc. Ask any salesperson at Best Buy how many people take out insurance on a piece of electronics which is ALREADY covered by their homeowners insurance “just in case”. Ask anyone in Benefits why dental insurance is such a popular benefit (it doesn’t cost much to the employer because it doesn’t cover anything… but people like it “just in case”). Why don’t people participate in their employers matching retirement program- it is LITERALLY free money?

This particular study could be garbage but the level of financial illiteracy in our society is shocking. There’s a young family on my block who just bought a house and they were shocked when they got their first water bill-- they thought it was included in the mortgage payment. When you think about the 10 lbs. of paper a buyer has to sign at closing-- every disclosure, every regulation, every last detail about what the mortgage is for, who owns the loan, etc.- how could you possibly sit through a closing and think your utilities were part of the whole deal?

This summer they’ll get an electric bill and learn that running an air conditioner non-stop June-September costs real money…

25 Likes
5

Considering that a quarter of Wharton students think that the average American worker earns six figures, it’s not surprising that students also overestimate their own initial earnings.

7 Likes
6

I’m not a bit suprised. College students have always overestimated their earning powers. Many of them are willing to borrow because of their overly (sometimes wildly) optimistic earning projections. Even if some of them do some basic research on their earning powers (by googling?) they tend to discount any of the lower projections. After all, they haven’t had a job yet.

3 Likes
7

My kids can’t be the only ones who had a lesson given by their high school where they got to choose a career and then had to research starting salaries across the country, figure out a budget and all the choices that had to be made to deal with that?

That lesson is where my older son decided he wouldn’t live in the area he grew up in out of college because he wouldn’t be able to afford to live alone even in the best case salary situation. And where my youngest figured out the difference between buying groceries and eating out.

It was a three week thing. Not complicated but impactful.

16 Likes
8

Actually, that’s an excellent lesson. My kids never had anything like that. It should be in every high school.

I think college graduates overestimate their pay because they read stories in Forbes and listen to certain television stations that talk about instant millionaires and billionaires rather than focusing on the middle. What they should do is talk to their parents.

It’s a very good idea for students to look up incomes on actual job sites and to adjust their careers based on income. In addition, kids need to know that taxes and SS are very high taking a very large % of income ( esp in some states with income tax).
Before buying a house, they need to figure out all of the payments they are likely to make. A parent, or other trusted adult can help with this. When we bought our first house in our 30’s, there were a few surprises. Fortunately, we were well below what we could afford.

2 Likes
9

Our public school did something similar to that in middle school but not for that long. Students were randomly assigned a career and a take home pay, and then they had to go “sign a lease”, pay utilities, get insurance, etc…I remember D coming home and saying she choose to forgo cable because otherwise she’d have no money to put into her 401K. She was also shocked about how much of her paycheck was taken out in taxes. Definitely a very good life lesson!

In her Econ class senior year, they also did a whole section on personal finance with an emphasis on budgeting and saving.

5 Likes
10

Another good reason for kids to have a Summer job.

3 Likes
11

100% on the summer job but D got all that money back after filing her return ; )

The co-op and internships have been the real eye opener for her. Now that she’s making decent money, the tax amount is much bigger, plus the housing allowance for her internship had 1/3 of the taxes taken out up front. While that did come back to her when she filed her return, it was a good life lesson in cash flow.

I worry about the kids who don’t have any exposure to personal finance. Totally agree that should be a required HS course nationally because not everyone has parents who are savvy. Too many live way beyond their means, don’t save, don’t invest, etc…

12

I support basic finance K-12. Too many people haven’t a clue. And it magnifies struggles, makes financial stability less likely, etc. Make it part of every day math. It totally is and should be. And it would go beyond college costs/debt, salaries to retirement and debt in general. Beneficial on a number of levels. Could help limit some of the effectiveness of bad advertising and social media and be a big impact on what politicians can say to win races.

And from the past, I know many people on this site are not in favor because there kids already know all they need to know. Take a look around (not just this place but IRL) and you will see far to many need help.

4 Likes
13

S was floored at all the money taxed from his pay. He was further floored when he found out that he owed additional state tax and only received a minimal federal tax refund at the end of the year. His budgeting and investment discipline is good but he shakes his head over all the taxes. (As do I)

5 Likes
14

Learning about money is so important. And now that cash is rarely used, it’s harder for parents to introduce. Our oldest had two jobs last Summer, one took taxes out per week. The second paid in two lumps and took no taxes out. Kid ended up owing about $250. It was a good lesson ( taking $ out makes it easier though at end of year, seeing taxes go up and down based on income is also useful).
Best lessons of the Summer job: Kids could see how hard it is to make money and they leave good tips for people in service industries.

1 Like
15

If he’s floored about taxes, wait until he has a family and learns that he also essentially earns $21,342 less in compensation, on average, due to health insurance premiums (including the employer’s share).

1 Like
16

We’re asking too much if we want our kids to understand taxes…

1 Like
17

Can be even worse than that if you are self-employed and a high income earner. A lot worse. We’ve paid in excess of 40-50K, about 3-4K/month for premiums, plus deductible of 10-14K plus Obamacare tax ( think it was 3% on total income). One reason many don’t go into business for themselves which in turn, stops job creation.

3 Likes
18

DD’s school had a mandatory econ/personal finance class. They had to do a very similar in-depth project; her’s was 107 pages with supporting documents. It included everything from retirement to layoffs, health scares to natural disaster scenarios. Think personal finance meets the game of “Life.” I wish all schools did the same; it was a definite eye opener for them.

6 Likes
19

For most people, taxes are not very complicated. If someone can graduate college, they should be able to understand the basics of taxes.

6 Likes
20

Seems that some of the opposition is against a dedicated semester or year long course packed into an already crowded high school schedule. But it may be reduced if a test-out option is offered for those who learn the material elsewhere.

Of course, using personal finance examples as application examples and problems or word problems in math certainly makes sense and does not consume any more space in the curriculum (since math courses typically have some types of application examples and problems and word problems).