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April 26, 2007

« Fast Food Geography | Main | By the Numbers: Income Gap - Men vs. Women »

Education (human capital) solves all our problems, right?  Right??  It increases income, leads to growth, generates innovation, and is the reason cites from New York to Topeka to Seattle chase recent college graduates.  Right??

So, Charlotta Mellander and I decided to take a look.  Using the new Forbes Billionaires list [hat tip Chi Chi Hoffner for digging through and beyond the list to pull together the data], Charlotta and I took at a look at the education levels of the world's billionaires.  Forbes reports that the average net worth of individuals on the Forbes 400 with a college degree is $2.13 billion.  But, the average net worth of individuals on the Forbes 400 without a college degree is $2.27 billion.  Apparently, the cost of a degree isn't just the $100,000+ you will have to dish out for the degree -- it also costs you another $140 million dollars.

For the U.S., roughly 27% of the population has at least a four-year college degree.  For the Forbes 400, 66% of those on the list have at least a four-year degree and 33% do not.  If we look at just the top 50 billionaires (average net worth $19.4 billion), we find that 37% of them do not have a college degree (average net worth $21.3 billion) while 63% of them do (average net worth $18.7 billion).  So, for the top 50, the college degree costs a mere $2.6 billion  Of course we all know about Bill Gates and Michael Dell, but let's not forget about Warren Buffet (MBA, Columbia) and Steve Ballmer (BS, Harvard; MBA, Stanford - dropout).  However, many of the billionaires on Forbes' list are second generation or more.  So, if we consider inherited wealth, what happens to the numbers?

Of the 24 of the top 50 who inherited their billions, over 71% have a college degree.  Of the 26 who worked for their billions, just under 58% have a college degree, substantially fewer than for all billionaires or those that inherited.  If you didn't inherit your money, the degree cost you $4.7 billion.  (Maybe that's why Steve Ballmer dropped out of Stanford?)  Those who inherited their money, not only were more likely to get a degree, but it actually benefited them.  Among the 24 in the top 50 inheriting their money, the average net worth is $1.4 billion more if a degree was earned.  Finally, we found a place where the degree pays off -- of course it helps a lot if Sam Walton was your father.

Posted by: Kevin Stolarick

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Comments

Ian

I think some of your conclusions may be slightly misleading. For those of us not on the list of billionaires, the question is whether a college degree will help our odds of becoming one of the Forbes 400.

As you cite above, about 27% of the US population over 25 have a college degree (or more), which is around 50 million. I haven't checked your numbers, but if 66% of the Forbes 400 have a college degree, then there are 264 billionaires in 50 million college graduates. That works out to about one in 190,000.

Conversely, about 72% of the US population over 25 does not have a college degree. That means there are 132 billionaires out of 334 million non-graduates. Or a one in 2.5 million.

In other words, if you don't have a college degree, getting one increases your odds of joining the Forbes 400 list by over 13 times! That's a pretty good boost.

CollegeGuy

College degrees can sometimes be overrated especially is you're a small business owner. However the most prominent billionaire - Bill Gates went to college but didn't obtain his degree.

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