<p>The story explains that college tuition has risen at the same pace as the stock market, but considerably faster than average wages.</p>
<p>The accompanying graphics also show that public college tuition & fees now cost as many “weeks of work by the average wage earner” as private colleges did back in the 1970s.</p>
<p>In the late 70s, the average wage-earner had to work about 22 weeks to pay for a year’s tuition & fees at a private college. </p>
<p>Nowadays, those same 22 work-weeks buy a year’s tuition & fees at a public college. It takes over a year of work for the average wage-earner to pay for a year of private college now.</p>
<p>My memory tells me 1982 was a BAD time in the US economy with many people out of work let alone buying stocks. I know I moved to texas because the midwest was dying at that time.</p>
<p>Indeed, those were bad economic times for many. Unemployment was around 10%, while it’s under 5% now. And inflation was running well into the double-digits. Mortgage rates were running around 18%. </p>
<p>For those who were employed and did have money to invest (e.g., in 401-k or 403-b plans), the stock market looked like a very bad bet back then. The Dow-Jones Index had been stagnant for decades. It seemed like there was some insurmountable psychological barrier at 1,000. It had first hit 1,000 back in the mid 60s, fell back, hit it again and again only to fall back time and again. It wasn’t till mid 80s that it really definitively broke through that psychological barrier.</p>
<p>I remember talking to people making decisions about where to put 401k or 403b funds. The stock market didn’t look like a good place in the very early 80s, given the history of the two previous decades and double-digit inflation. Money market funds paying close to 20% at times looked like the safest way to at least stay close to even with inflation.</p>
<p>Who knew then that stocks would take off…and now the Dow has broken through the latest “psychological barrier” of 12,000.</p>
<p>For technical reasons, the S&P 500 is a more representative index (and it’s easy to buy a “basket of the S&P 500 index” since there are so many index funds based on it), but the Dow certainly gives a handy and readily available, crude but highly visible metric for what has happened to the stock market.</p>
<p>Indeed, on reading the article more carefully and looking at the figures, I should correct what I wrote above. </p>
<p>The stock market has done far more than “keep pace with college tuitions”–it has risen at roughly three times the rate of tuition increases!</p>
<p>This is exactly what we did, although it was in 1985 the year our son was born. As a result we had a nice sized college fund of about $78,000 when he graduated from hs. While I realize that many families were unable to do what we did, many others could have set aside $12,500 in home equity and found themselves in a similar situation. </p>
<p>The “magic” of compounding is the easiest way to save for future obligations and the further out that families plan, the more dramatic the advantages. It is a lesson that we have emphisized with our son.</p>
<p>It is fortunate that it worked out for you, but there certainly were no guarantees that “the magic of compounding” will work out for everyone.</p>
<p>Parents who put invested money in a stock-market-based college fund starting with the birth of a child in 1964 (the first time the Dow hit 1,000) would have found 17 years later that their investment had not even kept up with the general rate of overall inflation, let alone the rate of college tuition inflation during that period!</p>
<p>The mid to late 60s and the 70s were a time when there weren’t many available investments that would yield a positive return after adjusting for taxes and overall inflation. (Owner-occupied housing in some areas was, in retrospect, one of the few investments that might have had a positive compounded rate of return after taxes and inflation injustment.)</p>
<p>Of course, in more recent years, investing in owner-occupied housing has not been a good deal–and the stock market has soared (and the tax treatment of income from stocks has gotten much more generous lately as well.)</p>
<p>Things could very well change in the coming decades. We could find that the next few decades are times when the stock market stagnates and maybe after the housing bubble fully deflates, real estate may become a good investment again in the future. Who knows. A lot depends on the whims of politicians and world events that affect everything from tax policy to market psychology.</p>
<p>Actually, over the past 25 years, private prestige college tuitions have risen slightly more slowly than the assets of the full-freight payers who are, after all, the prime customers. But the result is less economic diversity than 25 years ago.</p>
<p>I remember those times well. Inflation was rampant and interest rates hovered double digits. Our D was born in 1981 and S born in 1982. My father, who was a shrewd investor, alerted me to buying some zero-coupon bonds which were yielding 11+%. We bought some bonds with maturity dates coinciding with the years our kids were entering college and continued for the next 4 years they were in college. Those bonds when they matured were enough to pay for both of our kids’ private college education without financial aid. Those were the best investments we ever made.</p>
<p>In addition, Peter Lynch was managing the Fidelity Magellan Fund in the 1980’s which we also socked away some money in.</p>
<p>Aggravatingly it never occured to me to put my money in the stock market - it was making 9% in the savings account. Ironically I actually had a bit of extra $$ then - even though I was only making about $18,000 a year as a brand new architect - I was sharing a room with in a graduate student house - my share was half of $65.</p>
<p>Itstoomuch of a very big bet for most people to fund college 18-22 years in advance.
Itstoomuch for prospective parents to calculate ovulation with the biological clock ticking away. </p>
<p>Personally we did a lot of planning and evaluation. We were off by 24% when calculated on expected vs final published cost. There are a lot of variables with luck, faith and ignorance playing significant roles. A lot of sleepless nights after 911.</p>
<p>But, as the article points out, that’s only because they didn’t all have the crystal balls that would have told them to invest all their money in the stock market 25 years ago (or zero-coupon bonds in the early 80s.) They invested some of their assets in real estate and money market funds, which haven’t done nearly as well over the past 25 years.</p>
<p>“For the wealthy with lots of financial assets, college costs less than it used to. For those who depend on their jobs for income, the opposite is true.” </p>
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