Forget the headlines you see about millennials being too burdened by debt to go to school. The statistics are very clear: a four year college degree is, on average, going to make you much better off than those without it. I used to spend a lot of time arguing this point, which I will also show you through research in this post which relies heavily on a study done by the Federal Reserve. I realized after a while though, that most of the people I was arguing with about these statistics were people that didn’t get a four year degree and my pointing out these statistics triggered them in some way. This could be due to our cultural narrative that stresses college so much, we implicitly treat people who didn’t go or didn’t finish as some sort of failure, which they’re not.

None of what I am going to present here is intended to paint everyone in the same light. Some people have never received a 4 year degree and have gone on to become wildly successful. A four year degree doesn’t produce success, it just increases the chances for economic success for most people on average and that’s what statistics show. The stats never show anyone’s individual story, which is always going to be unique.

With that in mind, I am going to discuss the falling proportion of first generation college graduates and why that matters for inequality.

Start With the Parents

Households where one parent has a 4 year degree or higher are considered a college household for our purposes here. Households like these control 74% of all the wealth in the United States as of 2016.

Source: Federal Reserve

College grads with four year degrees also have a persistent net worth gap over those with an associates degree or those with little or no college.

Source: Federal Reserve

In 2016, the median net worth of a household headed by someone with a college degree was $291,000, a figure that has likely increased with the stock market and home prices into 2019. This is over three times the median net worth for those with a high school degree and those with a two year degree. I discussed how the wealth gap was even bigger than the income gap in my post Income vs. Wealth Inequality and it shows up here again when we compare households with a four year degree and those without.

Just this net worth alone gives parents who are already educated a leg up on those whose parents aren’t when it comes to getting their own kids into college. It means money to pay for test prep, to donate to schools for preferred admissions and maybe even less or no debt when their kids get out of school.

It also means that having more first generation children attend college would make an impact in terms of inequality. It would help more of those on the bottom attain greater income and wealth so that more could participate in prosperity rather than be left behind.

Unfortunately for 2 year associates degree holders, there seems to be a premium for a 4 year degree. The difference in net worth for an associates degree was better than not graduating high school but not statistically different from someone who just completed a high school degree.

Where Things are Now

37.4% of adults aged 25 to 64 are college grads so we can say it’s a little over a third of the working population. As recently as 2015, about half of those college grads were first generation college graduates. This is great because it means that more people were attaining a degree that would help them propel themselves into the comfortable middle class.

In just 3 years however, from 2015 to 2018, the proportion of first generation graduates has started to drop off pretty rapidly, by 7% to 41.6%. This means that now only 4 in ten college graduates are first generation.

Source: Federal Reserve

On the flip side, this also means that 60% of the graduates coming out of school also come from a household which had a college graduate and is likely already pretty well off. This shows the “stickiness” of education and wealth on an inter generational basis and also points to why inequality can be so tough to break.

This is an alarming recent trend but also is part of a larger story over the decades. Since the 1940’s, more and more children of college grads end up college grads themselves and perpetuate the wealth of their forebearers.

Source: Federal Reserve

Another way to look at it is based on the parents education, what is the likelihood that their children will attain a four year degree?

Source: Federal Reserve

8 out of 10 of those households where both parents have a degree will end up producing a college grad. One parent holding a 4 year degree makes the probability that the offspring will be a 4 year degree holder about 60%. These figures then drop off dramatically as we look at 2 year degree holders, those who attended college and those with no college experience. The likelihood that kids will graduate with a four year degree from these households are 35%, 31% and 18% respectively.

What this means is that increasingly we are moving towards a culture of an entrenched middle and upper class, with those who are educated and rich likely producing children who then educated and rich. In fact, it has also been noted that college grads are increasingly marrying each other.

Source: The Atlantic

59% of women with a four year degree marry a man with a four year degree or higher. As the education level moves up, those figures increase. For those with a professional degree (Lawyers, Doctors, Dentists etc.) that figure was 85%. This group is already the highest earning degree group, coupling a professional degree with at least another four year degree holder in a large city and you can easily attain 1% status as a couple in terms of income. In fact, one study estimated that college grads marrying each other increased inequality by 25%.

It’s More Than a Degree

What was interesting was that the study looked at particular break outs in the data. One was on race, or as I prefer to say, ethnicity and the other was on the first generation grad versus continuing generation grads.

In terms of ethnicity, the study showed that for Black college grad households, only 34% of their offspring went on to also attain a degree as one or both of the parents had. It also showed that 88% of those Hispanics without a degree also produced children without a degree. This showed a strange phenomenon of Black households reverting back to lower levels of education and Hispanic households having strongly entrenched proclivities to remain less educated if they already are so.

College definitely gave a leg up to those first generation grads. They earned more and had a higher net worth compared to those with less education. At the same time however, those who had parents who were also college graduates had still higher income and a higher net worth over time, consistently ahead of those who were first gen grads. The study broke out White families where the difference was most pronounced.

Source: Federal Reserve

Here is another way to look at net worth over time of first gen versus continuing gen below.

Source: Federal Reserve

This showed the persistent gap in wealth for continuing gen grads compared to all others. The authors speculated on some potential reasons for this and I have my own theories as well.

Why do Continuing Gen Grads Make and Keep More?

There are a number of reasons that could exist which explain this phenomenon, most of which are difficult to prove but there are researchers exploring these reasons. Some of the reasons based on my own observations are:

• Your Network is Your Net Worth – When you are around other high achieving people, expectations are raised. In communities that struggle more, college grads are looked at as a huge success, increasing pressure on them to look successful and play the part. This pressure doesn’t exist as much for grads coming from a community where there are already wealthy families and a high proportion of college grads. For them college is something that’s expected, they may even be driven more by fear of not finishing college and the social consequences of being an underachiever compared to being seen as an overachiever in more struggling communities. Just doing as well as everyone around you takes the pressure off of having to show trappings of success that don’t do much for your net worth like clothes or cars or helping those around you who don’t have the same financial means like parents or family members.
• Freedom From Support – This last point is important when it comes to parents. Most people in the US are not saving enough to retire at 65, if ever. Given this, a college grad who earns significantly more than their parents may come under increasing pressure to assist parents with their own retirement or if they come disabled working into old age. Since continuing gen grads have parents with a much higher net worth, this burden is lessened or nonexistent for them, freeing them up to pay down college debt, start a business or just save their money in general.
• A Culture of Planning and Education – Having parents who are college grads starts a snowball of habits that instill continuous learning and planning. A college grad household likely puts importance on continuing that level of education for the next generation and is more willing to spend money on living in a good school district, saving for their children’s college and teaching by example through the parents continuing some form of education themselves. This again shows kids that college is the norm, expected and essential to maintaining a certain lifestyle.
• A Note On Ethnicity – I believe there are significant socio economic conflicts and barriers that contribute to why Hispanics and Blacks end up as outliers in the data. For Blacks, a Harvard study showed there may be a significant social cost in terms of friends and popularity, especially in integrated schools, on those minority students who are high achievers. Although this stigma disappears for high achieving students in majority Black schools, the workforce and the economy is integrated, meaning social pressures as adults may persist and pull adults or even their children towards an identity associated with being working class or less educated. In the same light, historically Latin America has had much more rigid social classes so the idea of social mobility and improving generational well being is less strong of a cultural narrative for immigrants coming from the region.

There are no easy answers to solve this phenomenon and it looks set to continue without big changes to social norms or policy. It could be one reason we are seeing more extreme proposals emanate from political parties in terms of taxes and paying for college. What do you think?

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